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Delayed legal action to curb unfair software licensing practices incurs increased IT costs for German public companies

A recent study by “Center for Sustainable Transformation” (zNT) at Quadriga University Berlin shows that unfair software licensing practices, including lock-in effects, non-transparent cost structures and limited freedom of choice not only create financial burdens for companies, they negatively impact efficiency, innovation and growth potential.

The study, which was based on a survey of 190 public companies in Germany, examined the cloud adoption as well as the licensing practices of dominant software providers. 

The study found that with the increased adoption of cloud solutions, unfair software licensing practices by legacy software providers represent a considerable burden for public companies, including: 

  • Economic Barriers of Software Costs: 71% of enterprises could not transfer their existing software solutions to a cloud provider of their choice without incurring additional software licensing costs. 60% of surveyed enterprises reported that these additional software costs made accessing their preferred cloud solution economically unfeasible.
  • Restricting Choice of Cloud Providers: 56% of enterprises see the additional software costs associated with using preferred cloud services as not only uneconomical but also as restricting their choice. 70% of respondents had to repurchase new software licenses to use with preferred cloud providers. These additional software license costs can range between an estimated 27 million and 120 million euros per year for public companies. This figure relates to the estimated 309,000 employees in the member companies of the Verband kommunaler Unternehmen (VKU), an association of municipal companies in Germany, and thus results in additional costs of around 87 to 388 euros per employee per year.
  • Market Distortion Through Lock-in Effects and Tied Bundling Deals: Technical dependencies, a lack of interoperability and legal barriers prevent companies from accessing preferred IT providers or using more cost-effective alternatives. Discounts and rebates from software providers conditioned on agreements to adopt software-cloud combinations further reinforce vendor lock-in effects. Software providers use these tactics to exclude and effectively price-out competitors who only offer software or cloud solutions.
  • Lack of Transparency: 25% of enterprises complain about unclear contractual conditions, exacerbated by confidentiality agreements imposed by providers.
  • Fear of Retaliation: Enterprises fear that criticizing software licensing practices may lead to disadvantages in other areas of cooperation with providers.

These unfair and predatory software practices result in increasing software costs, technical and financial dependencies, and unpredictable licensing terms for companies. As a result, we see less efficiency, less innovation and less potential for growth.

One recommendation to curb these practices is for companies to take action themselves to create greater transparency regarding contractual terms and license models. The study points to recommendations from the U.S. Government Accountability Office (GAO) report from November 2024, which recommends federal agencies establish clear responsibilities for dealing with restrictive license terms and implement policies to analyze and reduce such practices.

The study also found there is an increased desire for politicians and regulatory authorities to act in order to curb the abusive behavior of dominant software companies. Many countries, including Denmark, the UK, France and Spain, have already taken targeted regulatory steps to conduct greater oversight of these activities. For example, the UK Competition and Market Authority (CMA) found, as part of its investigation into the cloud computing market, that Microsoft’s software licensing practices create an unfair advantage for its own cloud computing services and thus potentially harms competitors. In the U.S., it has been reported that the Federal Trade Commission (FTC) has launched a comprehensive antitrust investigation into the competitive impact of Microsoft’s licensing practices, including software licensing.

In Germany, enterprises are calling for stronger and faster intervention from the Federal Cartel Office, which has already classified Microsoft as a company that could potentially engage in abusive behavior due to its dominant software position. But more action needs to be swiftly taken by the Federal Cartel Office to protect customers. The new government also has an opportunity to address unfair licensing practices and existing market distortions by promoting clarity in software licensing terms and choice of vendors. 

The heavy dependence of public companies on dominant legacy software providers, coupled with a lack of transparency in licensing terms and rising costs, makes regulatory intervention urgently necessary. This oversight is the only way to reduce the considerable burden on public companies, increase competition and support digital transformation in the long-term.

Read the full report here.

 

As a healthcare software provider, our ability to utilize the cloud provider of our choice impacts more than just our business – it affects the health and well-being of patients everywhere. Restrictive software licensing imposes real-world threats like pricing increases that directly influence how we are able to assist healthcare providers and the patients they serve. We support the Principles of Fair Software Licensing to protect both cloud customers and the communities they serve.

Healthcare Technology Company

Cloud computing has brought low-cost, on-demand IT services to every corner of the economy, raising productivity and innovation levels at enterprises of all sizes. And intense competition and innovation among cloud providers continues to drive costs down while adding new customer capabilities.

But some incumbent IT vendors are imposing restrictive software licenses to limit how customers can take advantage of competing cloud offerings.

NetChoice supports the Principles of Fair Software Licensing as a roadmap to drive innovation, serve customers, and promote competition in IT services.

NetChoice

Frustration, use limitations, threatened audits, and significant additional expenses. That has been our experience with unfair software licensing. Organizations need transparency from their software providers.

We support the work of the Coalition for Fair Software Licensing to protect customers and ensure IT spend is effective and free from surprises.

Global Building Materials Supplier

Unfair software licensing practices in the cloud are a global issue, and CISPE is pleased that the Coalition for Fair Software Licensing is taking the Principles to North America.

Originally launched and jointly conceived by customers and cloud providers in Europe, we encourage customers around the world confronted with unfair software licensing practices to consider the Principles as a powerful framework for positive change.

CISPE

As start-ups, it is essential that we retain flexibility to use the cloud infrastructures that fit best our aspirations and those of our customers. The Principles of Fair Software Licensing help the next generation of software and service providers to avoid lock in and ensure a fair playing field for all. Seeing their adoption in North America adds weight to this important movement for innovators in Spain and worldwide.

Carlos Mateo Enseñat

President, Asociación Española de Startups (AES), and Promoter of the NUBES Initiative in Spain

Developed in Europe by CIOs and cloud providers, the Principles of Fair Software Licensing are supported by digital organizations in Italy such as Assintel. Assintel welcomes the Coalition for Fair Software Licensing’s embrace of the Principles in North America. Fair licensing of software in the cloud is a global issue for businesses of all sizes. In Italy, our government recognises this challenge and just updated its antitrust bill to put an end to unfair software licensing practices.

Businesses in North America can benefit just as well as those in Italy from a best practice framework for software licensing.

Paola Generali

President, Assintel

As a longtime advocate for open systems and open networks, CCIA supports the competitive ideals reflected in the Principles of Fair Software Licensing for Cloud Customers as the Coalition embarks upon its efforts in North America.

Matt Schruers

President, CCIA

Some legacy software providers are attempting to extend their current on-premise market dominance into the cloud market through aggressive and restrictive contracts, licensing terms, and software audits.

While many promote ‘cloud freedom,’ in actuality they are employing tactics designed to lock out competition and innovation while increasing profits for themselves at the expense of their customers. No longer can legacy software providers be allowed to disguise their predatory practices.

I am proud to align myself with the Coalition for Fair Software Licensing in shining a light on these issues and putting forth actionable solutions.

Craig Guarente

Founder and CEO, Palisade Compliance

Despite the current spotlight on antitrust issues in Washington, behemoth software providers continue to misuse their legacy status and market power to target business customers with predatory audits and trap those customers in restrictive licensing agreements.

Through our practice — dedicated to representing software licensees against these very tactics — we have seen first-hand the real world effects of such licensing practices. Both growing and established companies are routinely kneecapped by unexpected costs, forced to waste immeasurable resources in spurious audit defense, and stymied in their efforts to make the technology changes they believe are necessary for their business.

We support the Principles of Fair Software Licensing and believe they represent an excellent and necessary step towards much needed business consumer relief and will help open the market to smaller providers in the cloud ecosystem.

Arthur S. Beeman & Joel T. Muchmore

Founding Partners, Beeman & Muchmore, LLP

Consumers benefit from a competitive, dynamic information technology marketplace. Competition drives innovation and ensures that customers get the benefit of fair pricing.

Overly restrictive, abusive licensing agreements from IT companies with market power, on the other hand, impose costs on government and corporate customers of reduced innovation and long-term price increases. We support the Principles of Fair Software Licensing and policies that encourage innovation, competition, and licensing practices that give customers the freedom to mix and match solutions from a wide variety of vendors.

This is particularly critical in the market for cyber security solutions since hackers are innovating every day, leveraging new strategies, new tactics, and new technologies to support their illegal campaigns. The only way to defeat nation states and trans-national criminal organizations is for the government to ensure that the IT market for cyber security is as competitive as possible and customers have the freedom to choose.

Cybersecurity Provider

The Alliance for Digital Innovation supports the Coalition for Fair Software Licensing’s efforts to protect customer choice and advocate for access to modern, secure commercial solutions.

As advocates for public sector customers, we think that government mission owners and enterprise information technology and cybersecurity leaders should have access to as many modern commercial solutions as possible.

These solutions are critical components to driving digital innovation and security in the public sector, and ADI supports removing barriers that slow adoption of those solutions, including restrictive licensing practices.

Alliance for Digital Innovation

As an attorney, I have represented enterprise software customers for years and have routinely seen enterprise software companies deploy predatory business practices, including falsely inflating alleged non-compliance gaps, to increase profits and limit customers’ ability to go elsewhere.

These practices produce causal effects throughout the economy including increased prices, as businesses across various sectors are forced to spend resources dealing with these unforeseen issues. I support the work of the Coalition for Fair Software Licensing to help my clients and enhance an economy that provides opportunities to all.

Pam Fulmer

Founder and Partner, Tactical Law Group LLP

We believe licensees should be able to deploy licensed software in a way that best suits their business, including their choice of cloud provider at no additional cost. Having experienced licensing practices inconsistent with the Principles of Fair Software Licensing, we support the Principles and urge others to support both them and the Coalition for Fair Software Licensing.

Insurance Industry Business

Startups, often operating with limited resources, need the freedom to assemble the technology infrastructure that best suits their needs.

Cloud computing infrastructure is central to startup growth, and the Principles of Fair Software Licensing will help maintain accountability, mitigate unnecessary costs, and promote innovation in this environment.

Industry-wide adherence to these principles will level the playing field for startups.

Engine

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