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This article has been written by Shreya Patil, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.com.

Introduction

The fact as to International Business Machines (IBM) being one of the biggest software publishers is not obscure. Acquisitions of multiple software publishers to create a diversified product portfolio is one of the biggest successes of IBM Company. But why is IBM licensing software and related services so hard to understand? Since each software has its specific licensing metrics and methodologies, to measure its consumption, the IBM licensing, despite creating a complex structure of licenses, proves to be much more accessible and affordable. 

For a newbie, software licensing might be an overwhelming concept to understand, and hence starting your relationship as a software vendor to purchase an IBM license might uncomplicate the understanding process. The availability of licensing models and which type of agreement you would want to enter into and what you should do to obtain such a type of license are some of the crucial questions we might have to deal with to comprehend. These might come as basic questions if you are already an IBM customer. Regardless, keeping track of all the changes that are happening all the time can get hectic. If you seek to understand how the software licensing of diversified software publishers works and how the IBM passport advantage of software licenses shall benefit your company, this article is for you! 

Importance of software licenses for your company

Since the major task of integrating software licenses for the end-users (people who use the software) is executed by IBM, it is important to understand why your business needs a software license. The licenses for software not only protect the software companies but even the end-users. It is possible for not only small businesses but large businesses to use unlicensed software unknowingly which is not only illegal but can cost you time and money affecting efficiency and productivity. 

The terms and conditions usually described as “Software License Agreement” include rules and restrictions on using software developed by software companies to which the end-users must adhere to. Hence the usage of the software is often licensed and not sold. These terms are often based on the term of the license, the number of computers you may install it on, and will the use be permitted for educational or commercial purposes. Besides, restriction-based terms such as selling, transferring and reverse engineering of the software are included in these agreements. 

The fact that using unlicensed software is illegal is often neglected by individuals and companies and is termed software piracy. If your company uses such unlicensed software, it shall come as no surprise when the rightful copyright owners take legal action against you and make you liable to pay the damages. 

Researchers suggest that there are nearly one in three chances of encountering cybersecurity threats whenever we install unlicensed software. Not just individuals but organisations, as well as businesses, encounter cyber hacks that use unlicensed software. Technology has not only become a boon but also a bane since criminal-minded cyber hackers pre-install embed malware in the software to gain unauthorised access to your information. Are we going to compromise our privacy and data for easing jobs by operating unauthorised software? The right licensed software shall prove to save money and increase efficiency. 

Management of software licenses, regardless of how big your organization is, can be a messy task. The costs exhausted for software maintenance, security audit costs, and potential fines are enough to make anyone wary of the software. Hence, having strong software license management capability is a must for any sized organisation. But wouldn’t it be great if someone is easing out this management capability process and saving us a great deal of money? This is the reason IBM found its passport advantage. 

Purpose and benefits of acquiring passport advantage for your business

Passport advantage is a comprehensive program that uses a common set of agreements, processes, and tools where customers of IBM can acquire the following: 

  1. Software licenses 
  2. Software subscription and support 
  3. IBM cloud services offerings 
  4. Selected support for some open source and other non-IBM warranted code.

These licenses and services can be obtained by using a common set of processes and tools. With passport advantage, one can not only secure themselves from any cyber threats but also download new versions of the software which are offered through either IBM business partners or IBM itself. 

Passport advantage offers to acquire IBM software licenses including token and monthly licenses, renew software subscriptions and support and fixed-term licenses, buy and renew technical support for some selected open-source and other non-warranted applications, subscribe to IBM cloud service offerings, acquire IBM appliances and appliance services. These licenses offered by passport advantage are governed by international passport advantage agreement and the licenses offered by passport advantage express are governed by passport advantage express agreements.

 Types of IBM’s passport advantage agreement 

There are two types of passport advantage and their respective agreements which govern these types: 

International passport advantage agreement 

With access to IBM passport advantage, one can get access to more opportunities and options since they are built for larger enterprises and entities that have multiple sites. The larger entities can benefit themselves from better prices since the purchases of software are generally volume. These bulk volume prices are referred to as “Relationship Suggested Volume” (RSVP) which drastically improves the prices for individual transactions which also include purchases of products from other selected software vendors. This passport advantage is governed by an international passport advantage agreement.

Passport advantage express agreement

With access to IBM passport advantage, one benefits if you have a smaller entity and a single site business owner. Regardless of your category, there shall be the same eligible products that can be accessed by both IBM’s customers. However, such acquisitions of the software are generally transactions based as such the purchases are not volume. This passport advantage is governed by the passport advantage express agreement.

Acquiring an IBM international passport advantage agreement : (IPAA)

To obtain an international passport advantage agreement, the requirement of submitting an international passport advantage agreement “enrolment form” which can either be done online or through an authorised IBM Business Partner is a mandatory requirement. How be it, it is pertinent to understand that this initial step of online enrolment is not similar for all the countries which cost performance of few additional steps to qualify the requirements.  

Getting an “IPAA” is no cakewalk and largely depends on the IBM’s listings of region or country as mentioned above but it also requires signatures, either one, two, or absolutely none. After successfully enrolling into the IPAA, we can order IBM licenses through their business partners, sales office, or via passport advantage. It is important to know that the passport advantage can only be availed by the existing customers as it is a better option for larger IBM purchases. The benefit of this passport advantage is that instead of multiple bills and invoices for every additional software purchase you make; it gives you an “Anniversary Date”. This offer saves a lot of your money and also provides discounts for clients that spend more on IBM. These offers are called “Relationship Suggested Volume price” in the passport advantage agreement and “Suggested Volume Pricing (SVP) discounts in passport advantage express agreements with applicable points. the more the purchases from passport advantage, the more the discounts. 

 

Acquiring passport advantage express agreement

Unlike the international passport advantage agreement, there is no need to enroll, to obtain a passport advantage express agreement. This type of passport advantage generally benefits the smaller enterprises and companies as the services are transactional-based offerings. The eligible products under this agreement shall be the same as the former one. 

Since, we now have a clear picture of the application of both, the passport advantage agreement and the passport advantage express agreement, let’s discuss the comprehensive clauses included in these agreements and their minor changes. 

 

Analysis of international passport advantage agreement

The international passport advantage agreement is structured with 5 detailed and comprehensive clauses which govern the relationship between client company, IBM and the software company referred to as “IBM Originating company” where the details regarding the eligible products, service descriptions, quotes, and proof of entitlement are attached as annexures and transaction documents at the end of the agreement. IBM coordinates as a conciliator between the client company and IBM originating company which helps both the parties to coordinate the administration of this agreement. The client company must own 50% or more than 50% of its legal entities in order to enter into this agreement. The client must comply with all the terms of the agreement. The clauses comprehended in this document are as follows: 

 

General clause

Acceptance of terms 

This agreement specifically comes into effect when there has been an initial order from the client originating company under this agreement which remains in effect until and unless the client company or the IBM originating company terminates it. An eligible product is often subject to this agreement when IBM accepts the client’s order. The acceptance is shown in four ways. 

  1. IBM originating company sends an invoice or a proof of entitlement with an authorized level of use. Proof of entitlement is a document sent by IBM to all the customers who purchase their software in order to confirm that they are eligible for products. 
  2. Making the program or cloud service available 
  3. Shipping any appliance 
  4. Providing the support, service, or solution. 

 

Changes in terms

Since the software licenses orders come with the option of renewability, IBM reserves the right to modify them by providing three months’ written notice to the client. However, they are not activated only as of the effective date. It is a mandate to provide all changes in writing which are signed by both parties. 

Payment and taxes

It is generally possible for a client to move across borders and use the eligible products authorised to them, however, despite that, the client must adhere to the changed border taxes, customs, or fees. All the applicable charges in the event of excess of authorizations and any late payment fees should be paid within 30 days of the invoice date which are specified by IBM. In this clause, there are few important terms which the client must agree to and those are: 

  1. Payment of taxes to the appropriate government is required by law. 
  2. Furnishing of a tax certificate evidencing the payment to IBM
  3. Payment to IBM only the net proceeds after tax
  4. Fully cooperate with IBM in seeking waiver or reduction of such taxes which promptly complete and file all the relevant documents.

IBM business partners and resellers

The business partners and resellers under this agreement mean the Individuals or companies from whom the software has been acquired from IBM. They claim to be independent of the partners and the resellers. The prices of the software which are displayed as eligible products under passport advantage are decided unilaterally with the terms. IBM claims to have no responsibility for the actions of business partners and resellers.

Liability and indemnity 

IBM claims to have no liability for the claims and damages which exceed the amounts paid by the client regardless of the basis of the claim. Does this clause compromise the infringement of the client? No! the IBM claims to defend the client when there has been a third-party claim against the client on infringement on patent or copyright and settle all the client’s claims and amounts provided that the client notifies such claims, supplies the information ordered by the IBM, and allows it to control and co-operate the defence and settlement, including mitigation efforts. 

Governing law and geographic scope

Under this, it is particularly mentioned that the United Nations Convention on Contracts for the International Sale of Goods does not apply to transactions under this Agreement and that the client is responsible for the use of its EPs. It is also stated that both parties must comply with the laws of the country where the transaction is taking place. The rights and obligations of each party under this agreement shall be valid only in the county where the transaction shall be executed. If the client uses the eligible product or any of the parts of EP, outside the given address of the client, IBM shall not serve as the exporter or an importer. 

Termination of agreement

It is important to know the termination rights of the client’s company, otherwise, what is an agreement without mutual rights, isn’t it? The client under this agreement may terminate the Agreement with one month’s notice period. In the event of any renewal of IBM software subscription and support, cloud services, prior to the notice of termination, IBM may either continue to provide such services, or allow the use of a program for the current term or even provide the client a refund.  

The termination of this agreement may also take place If the client company or its enterprises did not place any order for consecutively 24 months or do not have any software subscription, support, or any selected support in effect. The IBM originating company may have the right to terminate this Agreement on three months’ notice to the client company.  

 

Eligible products

Eligible products are the software programs or other services authorized by IBM under their ambit for licensing. There are few discretionary rights provided for IBM under this clause. Such as it can add or withdraw EPs at any time regardless of them being Fixed-term license, Monthly License (ML), IBM software subscription and support, or selected support, or a cloud service or an appliance service in its entirety, on 12 months’ written notice to all then-current clients by the published announcement, letter, or e-mail. This clause also states that the client may not be able to increase the level of its use beyond the provided authorisations already acquired without IBM’s written consent. But IBM may continue to provide that offering until the end or provide a refund if there has been a renewal prior to the notice of such withdrawal.  

Renewal

The terms of the Licensing under this agreement are divided into four difference duration parts as following: 

  1. Fixed-term license 
  2. Token license 
  3. IBM software subscription and support 
  4. Selected support or appliance services 

These all terms are renewed automatically at the provided current charges unless a written notice of termination prior to the expiration is provided by the client. 

Relationship Suggested Volume Price (RSVP) Level and Suggested Volume Pricing (SVP)

When the aggregating points of all the eligible products are ordered during the term of the Client licenses or any subscriptions, an RSVP level is determined. There are specific points for the initial order of eligible products. However, if the client desires to attain a high RSVP level, the client may place additional eligible products. In the same way, an SVP is also calculated for each order. If the SVP for particular orders is determined to be higher than the RSVP points, then the SVP level shall be deemed to be applied for that order. Since the initial term continues for 12 months, the client’s RSVP is also reset after 12 months based on the eligible products acquired by all the enterprises or sites during the prior term.  

Compliance verification

In order to ensure that the client doesn’t exceed its authorized use and remain in compliance with the terms of the agreement, the client must retain and provide written records, system tool outputs, and other sufficient information to audit by IBM in order to verify if the usage of all the eligible products is according to the agreement including the licensing and qualification terms. 

However, such verifications shall be executed without causing any disruptions to the client’s business in the premises during business hours. If needed, IBM appoints independent auditors to execute the verification with proper confidentiality agreements in places to which the client must agree. Such an agreement is titled to be “IBM Agreement for the Exchange of Confidential Information” but if the client and auditors agree to some different form of confidentiality agreement then it should be in writing and prior 60 days of the request for the verification information. If there proves to be excessive use of the eligible products by the clients from what is authorised or any additional charges or liabilities are determined then the client must pay promptly in form of invoices to IBM. 

Programs in a virtualization environment (sub-capacity licensing terms)

When an eligible product software can be licensed for less than the full capacity of your server or group of servers, it is known as sub-capacity licensing. For a client to be eligible for obtaining this sub-capacity licensing, they must have acquired sufficient licenses including IBM software subscription and support, if applicable, to cover that increase. In case the client fails to operate this program as per the requirements provided, IBM may declare the client’s enterprise or any portion of it ineligible for sub-capacity licensing. In order to prevent this, the client must acquire sufficient additional licenses and IBM software subscription and support entitlements. 

Client’s reporting responsibilities

In order to access the sub-capacity licensing of eligible products, the client agrees to install and configure the most current versions of IBM’s license metric tools within 90 days of the client’s eligible product installation of sub-capacity category and also it is updated. However, there are few exceptions to this and they are: 

  1. when ILMT does not yet provide support for the eligible virtualization environment or eligible sub-capacity product, 
  2. if client’s enterprise has fewer than 1,000 employees and contractors, client is not a service provider (an entity that provides information technology services for end-user customers, either directly or through a reseller), and client has not contracted with a service provider to manage client’s environment in which EPs are deployed, and the total physical capacity of client’s enterprise servers measured on a full capacity basis, but licensed under sub-capacity licensing terms, is less than 1,000 PVUs, or 
  3. when client’s servers are licensed to full capacity. 

Warranties

It is specified under this clause that the warranties under this agreement only apply in the country of acquisition meaning where the program is licensed. However, the warranty for such an IBM program is stated under the license agreement. IBM provides warranties for IBM software subscription and support, selected support, cloud services, and appliance service, provided that they are used with care and skills and the warranties end when the support or service ends. If the warrantied software does not function as required during the period the client company may opt to make the IBM make the software component work or replace it with another which is functionally equivalent and return the previous to the party from it acquired for the refund. 

It is important to understand under this clause that IBM says it does not warrant any uninterrupted or error-free operation of the product but provides correct measures and prevents defects from any third-party authorization to access the eligible product. But if there has been any misuse, modification, or damage, which isn’t caused by IBM and which the client has failed to comply with the instructions provided by IBM then the applicable warranties may not be provided. 

IBM not only provides eligible products but also provides non-IBM eligible products but they are generally without warranties and all sorts of applicable licenses are provided directly by the Third parties under their own agreement to which IBM does not warrant. 

Programs and IBM software subscription and support

All the software programs which are acquired by the clients’ company are subject to IBM’s International Program License Agreement (IPLA) which also includes license information documents. 

A program under the IBM license may include the following: 

  1. machine-readable instructions and data,
  2. components, 
  3. audio-visual content, 
  4. related license materials, 
  5. license use documents and keys. 

Apart from few programs, client companies are allowed to use and install programs in available national languages up to the level of authorization. In the event the client companies desire to acquire additional authorizations to use programs, they must acquire the program code. Since the programs and IBM software subscription and support are subject to IBM’s program license agreement, this clause is further having additional sub-clauses namely: 

  1. Money-back guarantee:

The money-back guarantee under IPLA only applies to first timer’s client licenses which are for initial fixed terms. These terms are however subject to renewals but the client may obtain a refund only if the client returns the programs within 30 days of such initial term. These refunds are however not applicable to appliances and cloud services. 

2. The conflict between this agreement and the international passport license agreement (IPLA): 

In the event of a conflict between the terms of this agreement and IPLA, the terms of passport advantage are agreed to have prevailed. https://www.ibm.com/software/sla- This is the official link where IPLA and its LI’s are available. 

3. IBM trade-ups and competitive trade-ups

If a client company desires to replace any IBM programs or qualifying non-IBM programs, it could also be done for a reduced charge. However, the client should terminate the use of the Client’s programs with replaced programs. 

4. Monthly licenses

Monthly licenses are referred to as ML programs and are provided to client companies on a monthly license charge. The term of this license begins on the date the order is accepted by IBM until the client company pays a “commitment term charge”. The client may even terminate this license before the end date by giving a 30days written notice to IBM to receive a refund for the remaining prepaid term. 

5. Fixed-term licenses

The term which commences on the date of the client’s order acceptance by IBM till its one anniversary provided that there is no termination prior to such anniversary is known as a fixed-term license. In such a license, the client company may terminate the fixed term license before its end date by providing 30 days written notice to IBM to receive a refund for the remaining term. 

6. Token licenses

Eligible products which are assigned a token value are token license eligible products. These are the most flexible way of licensing since the same token may be used for other programs or defined products. Regardless of the assigned token value, there is no predefined quantity. The tokens are consumed when the eligible product checks the licenses from the license server using the same policy as the floating license. Token licenses allow the client companies to reuse the same licenses for different products. The products of token licenses contain a disabling device that prevents the products from being used after the fixed term thereby mandating which the client agrees not to tamper with disabling devices and take precautions for any loss of the data. 

7. CEO (Complete Enterprise Option) Product Categories

The eligible products under these licenses are offered on an initial user basis, meaning, the user is subject to initial user quantity. In case the client company desires to acquire the licenses even for its enterprises, they have to opt for the complete product category. In order to opt for this category, the client must meet the minimum initial quantity order but no necessity of acquiring all the licenses for all the users is provided. The opting of components and the installs of CEO product category however can only be made by the users for whom the licenses have been obtained. 

8. IBM software subscription and support

With each IBM program license, a software subscription and support are provided. This support commences on the date of the IBM program acquisition and remains till the end of the last day of the corresponding month of the year. While this subscription and support are in effect, IBM provides assistance for defects, corrections, restrictions, bypasses, and any new versions, releases, or updates. However, if the client refuses to avail of these benefits or they are allowed to lapse, the client may not be able to access such support. Such support can also be not made available to the client if they have not fully paid for the IBM software subscription. A report that verifies the current IBM program must be provided to IBM if the client desires to renew the software at a lesser quantity with other compliance verification information. 

 9. Selected support:

The selected support is available for non-IBM programs as well as for Programs licensed under the IBM license agreement for non-warranted programs. Together these are called selected programs. The IBM software subscription and support section as discussed above applies to selected support provided that:

  1. Assistance to a client for developing applications based on their subscription level. 
  2. IBM software support lifecycle is not applicable, 
  3. No new versions, releases, and updates are provided by the IBM
  4. IBM does not provide licenses for the selected programs. 
10. Appliances

An appliance is also an eligible product holding program components, machine components referred to as (MCs) and any applicable machine code components which are offered as a combination that is also designed for a particular function. Machine code components are governed by a separate IBM machine code license; however, the acceptance of this agreement will also include the acceptance of the IBM code license agreement. 

Machine code components are computer instructions, fixes, replacements, and related materials, such as data and passwords relied on, provided by, used with, or generated by a machine component, that permit the operation of the machine component’s processors, storage, or other functionality as stated in its specifications. The terms which apply to the programs also apply to the program components of the appliances. However, the client company is not permitted to use such appliance components independently of the appliance of which the component is a part. 

The IBM warranty terms regardless of the component appliance being used, new, previously installed, or not, do apply. Since there are always the possibilities of damage of the appliance while shipment, the whole risk is borne by the IBM including insurance provided the client reports such damage to IBM within 10 business days of the delivery with procedure claimed by the IBM. Except for the United States, the titles of machine components are directly transferred to the client upon the payment of all amounts. However, the title for transfer is reserved with the IBM until it receives all the due amounts and receives all the removed parts which then becomes the property of the IBM.

If there is an appliance to which the machine component needs the installation and IBM seeks to be responsible then the client must allow the IBM with a 30 days calendar installation from the date of shipment with additional charges. When the client is responsible for any such installation then they must adhere to the instructions provided with it. 

11. IBM appliance services

Appliance services for appliances are provided by IBM which consists of machine maintenance and IBM software subscription and support as a single offering. These services can be availed for a year starting from the warrantied start date as specified in the transaction documents. Any parts which need to be removed, exchanged, or need upgrades must be within 30 calendar days whereas any replacement is within the purview of warranty or maintenance status of the replaced part and they solely belong to IBM. While the client desires to replace or return any appliance, few measures such as securely erasing the data, ensuring that it is free of any legal restrictions preventing the return must be taken by the client. 

Despite the appliance services, return and warrantied policy of the components of appliances, the installed appliances should be properly maintained by the client and without any unaltered identification labels. These appliance services however do not cover alterations, accessories, supply items, consumables (such as batteries), structural parts (such as frames and covers), or failures caused by a product for which IBM is not responsible.

12. Cloud services

Cloud services as opposed to previous clauses are not programs but require the client to download the software to use a cloud service as mentioned in the transaction documents. They are also categorised as eligible products country-wise and are made available via a network. 

The access, usage, and account credentials of the cloud services are the responsibility of the client and can only be accessed to the extent of the authorisations. There is a mandatory provision of misusing these services for any unlawful, obscene, offensive, or fraudulent content or activity which advocates and violates third-party rights. In case of violation of this provision, the usage of these services shall be deemed to be suspended until resolved or terminated permanently. 

Each cloud service is described as a transaction document and is subject to maintenance and technical support if applicable under the transaction document. Not limited to this but the schedule of such maintenance will also be notified. A cloud service subscription commences on the date of notification of the IBM to the client in reference to its access and ends on the date specified on the transaction document. Such subscription is subject to increase or decrease at the end of the subscription period when renewing.  

Characteristics of passport advantage express agreement in comparison to international passport advantage agreement: 

It is pertinent to understand that since international passport advantage agreements are usually opted by larger entities, having many enterprises, in different countries. With the expansion of businesses, they also welcome legal hurdles making the entities agree with additional legalities for the purpose of smooth functioning of the software usages. Since, passport advantage express agreements are generally built for smaller, single-site enterprises where the relationship between Business partners and the clients is transaction-based unlike the formerly discussed where the relationship between both the parties is Relationship-based and thereby the clauses are tailored in the same way under this agreement. Despite all clauses remaining almost the same, there are few terms that are more varied when considering a single enterprise than the international passport advantage agreement. They are the following: 

Suggested Retail Pricing (SRP) – Price at which the manufacturer recommends selling its products by retailers. They are often referred to as “Manufacturer’s Suggested retail price.

S&S renewal dates are aligned to the initial purchase date, not a single annual anniversary date – Renewal dates are based upon the transaction dates where the IBM software subscription and support begin on the date of the acquisition of the software and end the commencing on the corresponding month of the following year.

Single Site management only – One agreement for single-site management and not one agreement for multiple-site management.

No point aggregation – since there is a single-level enterprise, there are no points and no aggregation to establish a relationship-based transaction. Hence the clauses and terms based on the above points are similar to the international passport advantage agreement but have certain other criteria for the passport advantage express agreement. 

Conclusion

Often the biggest challenge an enterprise can witness is which IBM passport advantage is the right for them considering the management of the IBM licensing. Regardless of which passport advantage organisations and their enterprises choose, the main labour is to maintain it and recollect passwords of each site provided your organisation has multiple site owners since resetting the site passwords is not an easy task. 

Passport advantage can be considered as your one-stop shop when there is a need of purchasing new licenses for your business. Not only software licensing but other services as software maintenance, cloud offerings, offered by IBM, could prove as a boon to the business if rightly used. If your business owns a passport advantage express and in the scope of expansion having multiple sites, the option to avail for International Passport advantage always remains with added opportunities and benefits. The question is not which type of passport is advantageous, but how it benefits your enterprise and how much security it can provide in the age of cyber hacks. 

References


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