Guest Column | June 18, 2021

Convert Software Infringers To Paying Customers: 5 Steps For A Data-Driven License Compliance Program

By Meishan Piao, Revenera

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The people and organizations using your software chose it for a good reason: it’s the right software for their needs. Unfortunately, a significant portion of those users may not be paying you for it.

Perhaps they’ve pirated it, knowingly (or unintentionally) using it without a license. Maybe it’s a case of a customer overusing the software beyond the terms of their license. Or they might not realize that they need to pay to upgrade to a current version. In any of these cases, the real costs of switching away from their preferred software to an alternative are greater than that of rectifying their status as your paying customer.

Unlicensed usage poses a significant financial risk to software suppliers and publishers. The 2018 BSA Global Software Survey, Software Management: Security Imperative, Business Opportunity, found that 37% of global software installations are unlicensed, making it a $46 billion problem; in the U.S. alone, those numbers are 15% and $9 billion. Many software suppliers, though, aren’t aware of the scope of their issues, with 48% of suppliers unaware of how much revenue is lost to piracy and 42% unaware of how much is lost to overuse, as found in the Revenera Monetization Monitor: Software Usage Analytics 2020 report.

An effective license compliance program doesn’t need to be harsh or punitive. Educating customers about their misuse can improve the relationship between supplier and customer while rightsizing the license position and ending revenue loss. The following five steps can support a data-driven approach to revenue recovery while maintaining good relationships with the organizations that value your software.

  1. Collect your own data on infringing use.

Begin by identifying where piracy and revenue loss are problems for your company. Determine the ratio between paying customers and those who haven’t purchased software licenses.

Global hotspots for software license misuse and piracy certainly exist, as shown below. Locations with high rates of overuse, such as China and Russia, present opportunities to measure and address unlicensed use, while opportunities in high-conversion regions like the United States and the EU can yield significant revenue. While the geographic distribution of aggregate data shown below can be used as a starting place for understanding possible sources of revenue loss, the distribution for your products may differ.

Also, consider how the deployment models for your software may impact the prevalence of misuse. For example, on-premises applications that aren’t ready for full SaaS or hybrid deployment (such as computer-aided design) or legacy applications with a long tail of older versions are often targets of overuse and piracy.

  1. Use infringement data to strengthen your compliance program.

Compliance analytics can help confirm suspicions that your organization may have heard from the field—via sales or tech support, for example—about the prevalence of overuse. Accurate data about infringement provides information about where unlicensed copies of your software are being used and how long (and frequently) that infringement has been taking place. Audits also can be a useful tool; compliance data allows you to target and prioritize who you want to audit more efficiently.

Knowing details about the number of applications or machines can drive productive conversations with users about rectifying their usage. This can help ensure compliance and create an appropriate resolution, including the purchase of the right number of licenses.

  1. Get organization-wide buy-in.

Highlighting the revenue recovery opportunity is a helpful way to get buy-in from your executive team; their support will be critical to the success of your program. Once you start this initiative, all parties (including the sales, engineering, and product teams) must be on the same page.

A united approach can help prevent potentially damaging situations, such as asking a salesperson—who has a preexisting relationship with an account—to call out customers for bad behavior. If a customer who is caught using unlicensed software is in touch with your company, your organization can respond with a clear response that’s in line with your piracy initiative.

Also, work with the legal team to ensure appropriate copyright registration on all available releases. Your end user license agreement (EULA) must properly reference any data collection clauses and be GDPR compliant. While GDPR recital 47 permits data collection in cases of fraud, this allowance still needs to be disclosed in your EULA.

  1. Establish clear goals and processes.

It’s up to each software supplier or publisher to decide how aggressive (or not) to be in its efforts to end revenue loss. Issuing cease and desist letters can be effective; a more cautious approach to issuing audit letters may also be sufficient. Goals and practices may also vary based on the country in which the license infringement is taking place, as country-specific intellectual property (IP) laws may necessitate different engagement models. Also, identify the appropriate person (likely a C-level executive or the director of engineering) who can help rectify internal policy.

When contacting any infringing users, be well-prepared with forensic data that details unlicensed or illegal usage. This may include the number of licenses being used, either with expired licenses or that were never licensed; how many months those licenses have been in use; the amount due in damages; how many licenses the user will need to purchase to prevent future compliance issues; etc. When you have a user who is ready to work on a resolution, be prepared for a swift settlement. Don’t delay the process or confuse the customer.

  1. Identify who will engage with infringing companies.

Two primary paths are available for engaging with infringers. The first is to build a revenue recovery team in-house, which may require the reallocation of resources. The participation of country managers is also valuable, as they can help handle issues locally.

The other, frequently preferred option is to partner with IP experts, such as a legal firm that specializes in compliance work. These firms have local knowledge of country-specific IP laws, languages, and customs, meaning that they’re frequently able to bring cases to successful closure much more efficiently than would be the case with an in-house team. A common concern is that a legal firm can be too heavy-handed. Instead, make sure they contact infringing users and present forensic evidence, based on your compliance analytics, to come up with a solution that will address the issues of overuse—and ideally convert the user to a long-term customer. Law firms also can do due diligence to ensure that the user is in good financial standing; otherwise, the case may not be worth pursuing.

A combined approach is also useful. If you’re already running an in-house program that’s working well, partnering with a local law firm can still be beneficial. In the instances when a letter from the software publisher doesn’t lead to a response, escalation by a law firm may be more effective — sounding less like a pitch from sales and providing the motivation needed to convert a pirate to a paying customer.

About The Author

Meishan Piao, Director of Services at Revenera, is an industry thought leader, assisting software publishers around the world to drive license compliance revenue.