A software audit is a right of review often sought by licensors. A software audit typically entails the licensor hiring a third-party auditor whose job is to undertake an independent examination of the licensee's compliance with the terms of the license. Software audits have become prevalent, so much so that companies offering “audit management software” have proliferated in recent years. This is likely a response to market indicators showing that the software audit industry will grow demonstrably by 2025.

Unsurprisingly, software audits are more frequently becoming a point of contention in litigation throughout the emerging technology space. For instance, in one of the largest patent disputes this decade, a California court was asked to order a software audit to determine how the licensee/patentee was using the software's source code. The subject of this column is another recent case involving a dispute over a licensee's refusal to allow a software audit which was designed to determine the licensee's compliance with its use of the license keys. See Master Tax LLC v. Ultimate Software Group Inc., No. 2:18-cv-01463-DLR (D. Ariz. Aug. 31, 2018).

The licensor requested provisional relief requiring the licensee to both preserve all materials that could be subject to a software audit, and directing the licensee to submit to an audit within a matter of weeks. The licensor prevailed on all aspects of its provisional relief application, which is a testament to the importance of the software audit right, particularly as the downside risk often contemplates the licensee violating the terms of the license right before it concludes, and precluding the licensor from confirming such violations occurred.

Background

Plaintiff Master Tax LLC develops and licenses software that assists employers in paying and filing multi-jurisdictional taxes (the software). In 2007, Master Tax and Defendant Ultimate Software Group (Ultimate) executed a license (the license) wherein Master Tax granted Ultimate a non-exclusive license to two copies of the software. The license also included manuals and user assistance materials for use in administering payroll tax figures for Ultimate's customers.