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Court upholds Autodesk’s right to audit its licensee to prevent Piracy

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The license compliance endeavor by Autodesk post audit at BMM Ispat Limited (BMM), a Bangalore based company resulted in strong reaction in the form of lawsuit against Autodesk India Private Limited (Autodesk) before the Additional City Civil Judge, Bangalore. BMM sought to restrain Autodesk from interfering with the business activities of BMM. The court dismissed the interim injunction application filed by BMM and concluded that Autodesk possesses enforceable audit rights in their software license agreement and, being a reputed company, the question of interference by them does not arise. The court  permitted Autodesk officials to inspect  the premises of BMM to verify/ audit the use of its software.
Facts of the case
  1. In December 2007 and March 2013, BMM purchased a total of 5 Auto CAD software’s/applications whereupon a Software License Agreement (SLA) was signed between Autodesk Inc. (parent company of Autodesk) and BMM.
  2. As per SLA generated at the time of installation of the Autodesk’s software at BMM’s premises in 2007, the License Parameters, Term of License, Permitted and Prohibited Actions, Liability Clause, Intellectual Property Rights, Warranties and Disclaimers and Scope of Audit etc were clearly defined and agreed by BMM. The terms of the SLA were duly accepted by BMM. Additionally, BMM accepted the contents of License and Services Agreement (LSA) at the time of installation of the Autodesk’s AutoCAD 2013.
  3. As per terms of the SLA and LSA agreed between Autodesk and BMM, Autodesk contacted BMM for conducting an audit in October, 2014 for review of the deployment of Autodesk’s software installed at the BMM’s premises. Autodesk informed BMM that the audit will be conducted by an independent third party, Ernst and Young (E&Y). BMM asked E&Y to conduct the audit from 20th October, 2014.
  4. The audit report revealed 50 instances of unauthorized use of Autodesk’s AutoCAD software installed at the BMM’s premises. E&Y shared the draft of the audit report with BMM. The contents of the audit report were approved by BMM and thereafter the audit report dated November 11, 2014 was forwarded to Autodesk.
  5. Autodesk with a view to amicably resolve the issue approached BMM and suggested BMM to procure full version of Fresh AutoCAD 2015 software or equivalent 50 software licences based on findings of the audit report. Autodesk made several attempts to contact BMM to amicably resolve the conflict. BMM did not evince any interest in the settlement negotiations and instead filed a suit against Autodesk.
Contentions of BMM
  1. BMM received an email from E&Y stating that they intend to send someone to their premises to create awareness about Software Asset Management Program. The representative came to the BMM’s premises and discussed about upgrading the existing software licenses.
  2. BMM was shocked to receive the audit report alleging discrepancies in the use of software. The audit report is false and fabricated as it has not been signed by BMM and there is no company seal also.
  3. The  demand  of  Autodesk  to  buy  50  software  licenses  from  Autodesk  is  illegal. Subsequently, Autodesk started forcing BMM to conduct the meetings to discuss their proposal of illegal demands.
  4. Autodesk on the basis of fabricated report is trying to obstruct business operations of BMM by blackmailing and threatening BMM. The wrongful activities of Autodesk would cause severe and irreparable loess to BMM which cannot be compensated by money. There is a prima facie case in favour of BMM. Therefore, injunction should be granted in favour of BMM.
Contentions of Autodesk
  1. The audit was conducted by E&Y at the BMM’s premises after notifying BMM in advance.
  2. BMM was fully aware of the contents of the audit report prepared by E&Y as the report was signed by authorized representative of BMM and also company seal was affixed.
  3. Autodesk  made  numerous  efforts  to  resolve  the  conflict.    BMM  did  not  respond  to numerous emails sent by Autodesk.
  4. BMM has filed the suit based on false assertions, suppression of material facts and has not approached the Court with clean hands.
  5. BMM is not entitled to the relief of injunction. The suit should be dismissed with cost.
Court ruling:
  1. The Additional City Civil Judge vide order dated 17th January 2015 refused to grant interim injunction to BMM and instead issued notice to Autodesk.
  2. BMM filed an appeal / Writ Petition against the order dated 17th January 2015 before the High Court of Karnataka bearing WP No. 3221 / 2015. The High Court of Karnataka disposed of the petition on 26th February 2015 with a direction to the Additional City Civil Judge, Bangalore to hear and ‘dispose of’ the injunction application within 15 days.
  3. The Additional City Civil Judge after a detailed hearing held that Autodesk is a reputed company and the question of interference into the business activities of BMM does not arise. BMM cannot say that Autodesk and its officials are not permitted to inspect the premises of BMM to verify/ audit the use of software. If it is found that the Autodesk’s software is being used in unauthorized manner, Autodesk is entitled to initiate legal action against BMM.
  4. The balance of convenience is not in favour of BMM. BMM has not established prima facie case for grant of temporary injunction. If temporary injunction is granted in favour of BMM, the officials of BMM will not permit officials of Autodesk to inspect the premises of BMM. As per the terms of SLA and LSA entered between BMM and Autodesk, Autodesk and its officials are entitled to inspect the premises of BMM in respect of use of Autodesk’s software by BMM.  Therefore, it is not entitled to the relief of temporary injunction.
Our comments:
The ruling sends a strong message to companies that use pirated software in the garb of few licensed versions. The ruling further shows that the courts are not willing to interfere with the audit obligations agreed between the parties and other terms mutually agreed by the parties as part of the Software License Agreement. The decision also reflects pragmatic  approach of judiciary in recognizing that court processes cannot be used by a party to advance its interest and seek orders that may help to legitimize unauthorized use.

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