Why Microsoft’s Product Terms are Important

By Dan Brewster

Director of Client Services – Microsoft, NPI

August 29, 2018

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As a former auditor for Microsoft, I’ve seen a lot of creative posturing around Microsoft’s product terms. A common statement often heard from Microsoft customers is: “Microsoft doesn’t say I can’t do it that way.” Unfortunately, that’s not how it works. Microsoft (and other software vendors) don’t have to think of all of the potential ways that a customer could use the product and explicitly disclaim that particular use. Instead, the company relies upon standard contracts where specific use rights are granted and all other rights are reserved by the company. As discussed in my November 2016 Blog, Microsoft articulates use rights via its Product Terms document.

Microsoft’s Product Terms document identifies specific license terms for each software product, and you should remember that the use rights do change from version to version of a product. SQL Server, for example, had a pretty significant change with the release of SQL Server 2012 in that Microsoft no longer offered SQL Enterprise on a Server/CAL basis. This change required a customer to purchase via the per core licensing model for all new copies deployed after the release date of SQL Server 2012. I recently worked with a client on an internal self-audit and discovered a multi-million-dollar shortfall on SQL Enterprise. As we explored the “how” behind this unfortunate news, the client explained their understanding of SQL Server licensing – you guessed it, their explanation was 100% in alignment with the SQL Server use rights from the 2008 version, but they were using the 2012 version....

Microsoft’s Product Terms document contains four important sections – the Universal License Terms, the License Model Terms, and specific conditions and additional use rights for each individual product, and product conditions for Microsoft’s online services. The Universal License Terms apply to all products licensed under Microsoft’s volume licensing programs, and there are currently 19 paragraphs to this section. I would recommend that every Microsoft customer read the Universal License Terms. Here are some important provisions you should keep in mind:

You receive downgrade rights for most perpetual license products (but not online services). This is actually a very important benefit for customers as Microsoft only sells the most recent version of their products.  This benefit permits you to downgrade the current version to the version that you have deployed:

3. Rights to Use Other Versions and Lower Editions
For any permitted copy or Instance, Customer may create, store, install, run or access in place of the version licensed, a copy or Instance of a prior version, different permitted language version, different available platform version (for example, 32 bit or 64 bit) or a permitted lower edition. The use rights for the licensed version still apply. Licenses for prior versions and lower editions do not satisfy the licensing requirements for a Product.

Even though the company is not required to call out what you cannot do, Microsoft goes ahead and does that anyway in several sections of the Universal Licensing Terms. Of particular note is the part about commercial hosting services to a third-party. What’s commercial hosting, you ask? You’ll note that Microsoft doesn’t define “commercial hosting” in their agreements. If you were to Google “commercial hosting definition,” you would find a number of articles addressing this very question. Suffice to say, none of them provide a simple definition of commercial hosting services. Microsoft most often takes the position that a third-party (one who does not meet the definition of an Affiliate) cannot use software licensed to your firm for the benefit of their firm.

6. Restrictions
Customer may not (and is not licensed to) use the Products to offer commercial hosting services to third parties, work around any technical limitations in the Products or restrictions in Product documentation, or separate the software for use in more than one OSE under a single License (even if the OSEs are on the same physical hardware system), unless expressly permitted by Microsoft. Rights to access the software on any device do not give Customer any right to implement Microsoft patents or other Microsoft intellectual property in the device itself or in any other software or devices.

Did you know that Microsoft requires you to first assign a license to a particular user or device? And then you cannot reassign that license greater than once every 90 days? This is often one of the findings in an audit – where licenses are sometimes shared between users.

9. License Assignment and Reassignment
Before Customer uses software under a License, it must assign that License to a device or user, as appropriate. Customer may reassign a License to another device or user, but not less than 90 days since the last reassignment of that same License, unless the reassignment is due to (i) permanent hardware failure or loss, (ii) termination of the user’s employment or contract or (iii) temporary reallocation of CALs, Client Management Licenses and user or device SLs to cover a user’s absence or the unavailability of a device that is out of service. Customer must remove the software or block access from the former device or to the former user. SA coverage and any Licenses that are granted or acquired in connection with SA coverage may be reassigned only with the underlying qualifying License. Different terms apply to the reassignment of Windows desktop operating system per device licenses and SA coverage, as detailed in the Windows Product Entry.

Finally, let’s talk about multiplexing. Some of you may remember “MUX” or “Box in the Middle” as terms for multiplexing. In short, it is any device or process that consolidated discrete inputs into a single channel for interaction with a Microsoft product. The entire notion of multiplexing is specifically prohibited in the Microsoft world:

15. Multiplexing
Multiplexing or pooling to reduce direct connections with the software does not reduce the number of required Licenses.

The License Model Terms include the nuances for Desktop Applications, Desktop Operating Systems, Per Core/CAL, Server/CAL, Per Core, Management Servers, Specialty Servers, and Developer Tools. All of these terms are different, and important to your understanding of how Microsoft licenses its products. The specific conditions and additional use rights for each individual product include information about product availability, product conditions, use rights, and whether the product includes the option to purchase Software Assurance.

Remember – when it comes to Microsoft’s product terms, what you don’t know can cost you. It’s imperative you and your IT sourcing team have a strong working knowledge of what these terms cover and mean, and how they are changing as Microsoft’s offerings and market strategy evolves. As you plan your Microsoft licensing strategy in the context of your evolving technical architecture, it’s wise to get a Microsoft licensing expert to help you optimize cost, flexibility and compliance. An internal compliance review (at NPI we call it a License Position Assessment) is a risk management best practice that a growing number of enterprises are implementing for their largest software estates (Microsoft, Oracle, SAP, IBM…). If you find problems, there are typically many ways to remediate them, and a licensing expert can coach your stakeholders through the decision process.