United States: Eight Lessons Learned Representing Clients In IBM Audits

IBM regularly informs customers selected for an IBM license review or software audit that it reviews the license position of all of its customers worldwide. That means if your company has not participated in a software license review with IBM, the odds are very high that such a review will be forthcoming at some time in the future. When a company receives a notice from IBM that it intends to initiate an audit, many companies are unprepared.

Here are eight tips I have learned over the last decade that can help a company prepare both before and after receiving an audit notice.

1. Know your license terms with IBM, including restrictions.

Many long-term IBM customers have difficulty locating their agreements with IBM and have to ask IBM for the relevant agreements at the onset of the audit. IBM often refers customers to the standard International Passport License Agreement ("IPLA"). Although many customers are subject to the IPLA, there are a few customers that negotiated custom language that cannot be superseded by an upgrade or a unilateral announcement that license terms would change. Keeping close tabs on your active agreements can reduce the risk that a company will unnecessarily agree to participate in an audit because it cannot find the custom amendment that exempted that customer from the audit.

It is also critical for customers to have access to their license agreements because the customers should regularly be comparing the license grant and terms against all use cases to ensure that the current agreement allows for all the current and contemplated use cases. All too often, IBM customers are shocked in an audit that no one thought to review the license terms before virtualizing the server environment or allowing third-parties to access the software.

2. If IBM acquires a software provider, expect changes to license metrics.

IBM often changes the license metrics after acquiring a software company and releasing a new version of the software. Companies with the ability to use licenses on an unlimited basis often lose those rights when IBM "blue washes" the product and releases the first upgrade after acquisition. Even if IBM has been accepting maintenance payments under the old licensing model, an upgrade to the latest version of a product could be accompanied by change to licenses based on the number of processors, rather than an unlimited license. Whenever IBM acquires a product, licensees should ensure that they understand any license changes before continuing to pay maintenance or upgrading the product. What may look like a free upgrade could become a significant compliance issue.

3. It is critical to ensure that your IBM account contact is updated regularly.

If IBM sends a notification to the licensee that license metrics for a particular product would change, the licensee needs to ensure that an active employee receives the notice. In many instances, IBM notifies a licensee via e-mail to the registered account representative that a product's terms or licensing metrics will change. Failure to keep the representative current could increase the risk that the company will be out of compliance during a software audit. Regularly reviewing and updating corporate contacts that IBM has on file could reduce the risk that a critical license change will go unnoticed.

4. Understanding and implementing IBM's License Metric Tool ("ILMT") can be essential.

If a licensee uses virtualization in its environment, it needs to understand whether it is required to deploy and regularly generate reports from ILMT. The default rule for IBM is that a customer must license the full physical capacity of the host machine, unless it qualifies for an exception to the rule. One of the primary ways to qualify for sub-capacity licensing for IBM products is to deploy ILMT in the environment and run quarterly or monthly licensing reports (depending on the operative IBM agreement). The ILMT reports demonstrate that the licensee is fully licensed for the maximum capacity the IBM software requires.

Difficulties can arise because in many instances, customers are unaware of the ILMT obligation, ILMT will not work in their environments, or the generated reports are inaccurate. Customers often continue to purchase licenses for only a portion of the processing capacity notwithstanding the lack of ILMT or ILMT reporting. IBM will not allow customers to take advantage of sub-capacity licenses without ILMT or another exception. If a customer cannot properly implement ILMT, it is required to license the full capacity of the hardware or move the IBM installations to dedicated physical environments that are sized properly for the licenses owned.

5. Identify the scope of the audit.

When an enterprise IBM customer receives an audit notice, it should carefully consider the scope of the audit. In some cases, the customer has no ability to control foreign assets, which could be subject to different licensing terms and international laws. For many enterprise customers, limiting an audit to a specific geographic region may make sense. This could ensure that all of the licenses under review are subject to the same license terms, there are no language gaps, the relevant teams are local, and the hardware is located in the jurisdiction being audited.

6. How to discover IBM deployments.

During an audit, IBM may use the services of a third-party auditor like Deloitte or KPMG. Licensees are often unsure how to collect data that would be acceptable to IBM or its auditors. During the kick-off call, the auditors will likely ask whether there are any software tracking tools in the environment, if there are no such tools, the auditor may offer the use of a combination of scripts and software developed by IBM or the auditor. Before using the proffered tools to collect data about IBM deployments in the environment, licensees should consult with their systems and security teams to determine whether there are any concerns about the use of third-party tools on the network. Also ensure that all parties understand what, if any, responsibility the auditors will take if something goes wrong when the internal team uses the tools.

7. How to find entitlements for IBM products.

Teams should know how to identify entitlements for products still installed in the environment. It can sometimes be difficult to locate entitlements for older products, especially if those products are no longer in use. If a product is installed but is no longer in use, the best practice is to decommission the product in advance of receiving an audit notification. For products in the environment, the licensee should regularly conduct reviews, including a reconciliation of the deployments versus the entitlements. That way, the licensee's can find the missing entitlement document without the pressure of IBM's audit team. These reviews should include team members that understand how an IBM auditor will view the data.

8. Audit Resolution

At the conclusion of the audit, the licensee should have comfort that all disputes have been resolved and it is now in compliance with its license requirements. Audit resolutions should also include a full release of any claims that IBM had as of the date of the resolution.

As the saying goes, when it comes to IBM audits, the best defense is a good offense. Having regular internal license reviews with experienced resources, identifying any gaps in documentation or reporting capabilities, using ILMT for sub-capacity licenses, and ensuring the license grants cover all of the licensee's use cases can greatly reduce the potential exposure that may result from a IBM license review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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