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A new market has opened for second-hand Microsoft software licences by exploiting British insolvency laws and a clause within many Microsoft licences that permits disused or unwanted volume licences to be transferred. Microsoft says the business model is legal.

Discount-licensing.com, the trading name of Staffordshire-based Disclic Ltd, says it is the first and so far the only reseller of its kind.

The company, which launched its service this week, finds insolvent or downsizing firms and makes their multiple-user licences available to buyers – growing organisations or those with too few licences for an existing user base. CDs do not necessarily change hands, although they are available if required; what matters more is the transfer of a right to use the software for a set number of users.

The concept is of obvious benefit to the buyer. Discounts of 20 per cent – 50 per cent below the prices of any authorised Microsoft reseller are promised. But it also helps insolvency practitioners, letting them realise a new asset for their creditors. Discount-licensing.com acts as the middleman, taking a commission on each sale.

The transfer of second-hand corporate software is a complicated process. The licences usually state how and when they can be transferred. If transferred in breach of these conditions, the new user will be using the software illegally. Until now, however, the issue has only arisen in transfers between active companies in, for example, acquisitions, mergers or divestments.

Discount-licensing.com says its business model is compliant with Microsoft’s own transfer terms and conditions. It excludes operating system licences, such as those of Windows XP, because of transfer restrictions in these licences; but popular applications like Office XP and server-based software like Windows Server 2000 are available.

The company first approached Microsoft with its plan over 14 months ago and a Microsoft spokeswoman confirmed to OUT-LAW today that "the offerings from this company do meet Microsoft’s terms and conditions."

The frustration surrounding the principle that businesses are obligated to upgrade or purchase the most up to date versions of software at a premium price is coming to an end, according to discount-licensing.com, in much the same way, it suggests, that the first second-hand car market began.

The supply is not unlimited. Discount-licensing.com estimates that around 14,000 or 15,000 companies will be insolvent this year. Of them, only around 10 per cent may have licence agreements that are suitable for transfer. So Microsoft is not about to suffer a revenue crash.

Co-founder Jonathan Horley told OUT-LAW that he sees his first challenge as one of education. "Everybody said that licences don't have a value," he said. "Education is going to take some time."

It began last year when Horley contributed an article to the Recovery Journal, a publication of the Association of Business Recovery Professionals. He explained to insolvency practitioners that perpetual software licences are an intangible asset that can be realised, provided the licence terms do not prohibit a transfer. His point was in telling the insolvency practitioners what to look for at the start of an insolvency process, i.e. how to identify a multiple user licence, even if the PCs themselves are being sold. The details must then be cross-referenced with the software manufacturer. If the licences pass the test, they represent an asset that has a value that can be realised.

Horley pointed out that his service can help with compliance. Around one-third of business software is believed to be unlicensed in the UK, putting companies at risk of action from the Business Software Alliance. This is often because companies have purchased some licences but not enough for their number of users. Now companies that become aware of a licence shortfall can become compliant more cheaply through discount-licensing.com.

The website gives examples of job lots that can be bought – one offer is for 150 copies of Office Professional XP, 10 copies of Project 2000 Standard, one copy of FrontPage 2002 and seven copies of Visio Professional 2002. From a reseller, that collection might cost around £53,000. From discount-licensing.com, the cost is under £37,000.

Horley explained that customers have to buy licences in batches according to what is made available by each transferor. Licences cannot be divided. At the moment, for instance, Horley can offer a batch of 220 user licences for Office 2003. But if you need licences for just 150 users, unless another batch more closely suits your needs, you might want to compare Horley's price with the price from a regular reseller. But he points out that companies will take a view on their anticipated growth when deciding what presents the best deal - and that his prices are much lower than those from the established competition.

Copyright © 2005, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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