Software audits often precipitate significant consequences for each side, as the auditee can be presented with as much as a seven figure “true-up” charge or have its day-to-day operations significantly disrupted upon little notice. See Entergy Services v. Attachmate, No. 13-5297 (E.D. La. Aug. 20, 2014) (software audit permitted by the governing licensing agreement reveals that licensee owes over $1.7 million plus double-digit prejudgment interest; penalties owed because licensee had over-deployed software in violation of the license agreement). Likewise, if the auditor cannot receive its bargained for right to audit the software (such a right is now considered boilerplate in these types of licenses), its product, reputation and bottom line can thus be significantly devalued, particularly when the auditor derives its primary source of income from licensing. Auditing can also be a useful tool by the licensor to mitigate piracy and counterfeiting.
According to statistics from a number of sources, software audits are conclusively on the rise and so is the concomitant fear of an audit by executives on both sides. Although the largest companies are unsurprisingly the subject of the highest number of audit requests, one industry report noted that among the nearly 200 companies of numerous sizes sampled in the report, over 53 percent of the respondents claimed to have been audited in the prior two years. The greatest challenges reported by the companies to maintain compliance in the case of an audit were the difficulties in understanding and interpreting the governing agreements. This is unsurprising in light of the reality that even small- and mid-cap companies are often at the same time a party to hundreds and even thousands of software license agreements.
