Oracle Full Use VS Proprietary Application Hosting licenses
We heard quite often from many end users that they have been approached by Oracle sales representatives to do a new deal to reduce their annual support fees. A rather attractive option. Especially since many organizations see their support fees increasing year over year, without them actually using more of Oracle’s software programs. This is caused by Oracle’s annual support indexation of 3-4% year over year. Therefore, many end users have been approached to enter into a Proprietary Application Hosting (PAH) Unlimited License Agreement. Many times, verbally referred to as the “Full Use – Plus” agreement. But is such an agreement actually the right agreement for you? Is there a catch? And if so, what is the catch?
Full Use licensing
Oracle’s standard licenses are sold on a Full Use basis. You purchase the number of licenses you need through an order form which refers to the Oracle Master Agreement (OMA). As per the Rights Granted section of this Oracle Master Agreement, the following is applicable:
Upon Oracle’s acceptance of your order, you have the limited right to use the programs and receive any services you ordered solely for your internal business operations and subject to the terms of this agreement, including the definitions and rules set forth in the order and the program documentation. You may allow your agents and contractors to use the programs for this purpose and you are responsible for their compliance with this agreement in such use. If accepted, Oracle will notify you and this notice will include a copy of your agreement.
In other words, if you use the software to support your own business operations you are allowed to use these licenses. If you use the software to support the business operations of a third party (e.g. as a commercial hosting firm) then such use of the software is not allowed under the normal “Full Use” licenses.
PAH licenses explained
Many IT companies or solution providers develop their own applications. These applications may be built on the underlying Oracle Middleware and/or Database software programs. These solution providers would not only want to sell their specific application but a total solution towards their end users (including the underlying Oracle Database and/or Middleware software programs). However, if the end user that wants to make use of the application would need to buy its own Full Use licenses for the underlying Oracle Database and/or Middleware software programs, the total solution may become too expensive. A situation that does not support Oracle’s business either, since solution providers would, in such a situation, be less inclined to develop their applications on the Oracle software but would rather choose alternative solutions (e.g. developing applications in .Net on Microsoft software programs).
For this kind of situations, Oracle invented a while back the so called “Proprietary Application Hosting License” to be sold to solution providers that develop their applications on Oracle Database and/or Middleware software and that want to offer their solution as a “hosted” solution towards end users. This type of agreement is therefore typically designed for IT companies/solution providers that develop their own applications on Oracle Database and/or Middleware software.
Companies that enter into a Proprietary Application Hosting agreement would receive a normal ordering document with the standard language, but with one specific clause stating that:
- You shall have the right to use the limited use proprietary Programs for the purpose of providing internet hosting services to end users.
- You may allow such end users to access the limited use proprietary Programs hosted at a site which is separate and apart from Your end user, for the end user’s business operations and/or to provide services to third parties using the limited use proprietary Programs.
- Your proprietary Programs may not be installed at the end user’s site.
- You shall not resell or assign Your Program license to the end user
- You acknowledge that Your right to provide hosting services to “end users” is limited to the provision of hosting and other services at Your data center in a multi-tenant environment and does not include the right to deploy dedicated environments for public sector entities.
The costs of a Proprietary Application Hosting license are typically much lower than the prices applicable for Full Use licenses. How come? Because Oracle restricts the use rights within a Proprietary Application Hosting license to a specific proprietary owned application. The application as developed and owned by the IT company/solution provider; the proprietary application. The Proprietary Application Hosting License agreement therefore includes at all times a so-called Proprietary Application Registration Form (PARF). This form is required to be completed by the IT company/solution provider, including the specific functions of the proprietary application running on the Oracle Database and/or Middleware software.
But when is an IT company or solution provider then considered to be a “Proprietary Application Hosting Company”? Oracle defines a proprietary application hosting company as a company that provides commercially available applications or services that include access to Oracle programs to end users or that processes customer data using Oracle. In other words, companies that enter a Proprietary Application Hosting agreement are usually solution providers that develop an application which they would like to offer as a hosted service towards multiple end users.
But how can Oracle sell these PAH licenses to end users?
It’s actually rather simple. In Oracle, there is a separate sales team responsible for solution providers. These sales representatives are responsible for selling new licenses and/or cloud. So, what is the objective of such sales rep? To sell you more. And what is your objective? To reduce your everlasting increasing support costs. So, what is the proposal? Consider you as an end user or you as the outsourcer of the end user to be a Proprietary Application Hosting Provider. The Oracle sales rep can sell you cheaper PAH licenses so that you can cancel and replace your more expensive Full Use license. And as a result of this, your total costs (and annual support cost) will – typically over the period of 5 years as presented in the business case – go down. Everybody is happy, right?
But hold on, how can the sales rep sell me a license agreement for a Proprietary Application Hosting, while I do not provide hosting services towards end users? And how can the sales rep sell me a license agreement for a Proprietary Application, while I do not develop my own applications and only make use of other applications that make use of the Oracle Database and/or Middleware software under it? The sales rep does present this to you as very simple. They define the “Proprietary Application” very broad. Examples that we have seen for Health Insurance companies are the “Health Insurance Information System”; or for Healthcare companies the “HealthCare Information Systems” and all the functions that you could possibly think of (e.g. CRM, ERP, Supply Chain, Call Center, etc.). However, these applications exist only on paper.
What is the catch?
In case a Proprietary Application Hosting deal is presented to you, first thing to think about is if you are an end user or an IT company or solution provider developing its own applications. If you are an end user that is making use of applications of other third-party suppliers (e.g. SAP, IBM, Oracle, Microsoft) that are running on the Oracle Database or Middleware, then you cannot license such use with a Proprietary Application Hosting agreement.
This conclusion can be simply drawn, since you are not the proprietary owner of these applications. If you are an IT company or solution provider and you do develop your own applications on the Oracle Database and/or Middleware software programs, you should determine if you want to deliver the solution as a hosted service or if you want to deliver the solution as a total solution at the customer’s own infrastructure/datacenter. If you want to deliver the solution as a hosted service, then a Proprietary Application Hosting agreement may be an option. However, the correct licensing of such hosted solution remains your responsibility.
If you want to deliver the solution at the customer’s own infrastructure/datacenter, you may consider to enter into an Application Specific Full Use or Embedded Software License Agreement with Oracle, in which you have the right to distribute the solution towards your end users with these restricted use rights included. The correct licensing and distribution of such solution remains, in this scenario, with you as the solution provider. Do you only want to develop your application on Oracle’s Database and/or Middleware software (which you are entitled to do as an Oracle partner), your end users to deploy and use the software out of their own datacenters and you to not take any responsibility from a license compliance perspective? The only advise you can give your end users is to obtain the appropriate amount of Full Use license from Oracle or from one of its authorized re-sellers.
Do you have a licensing dispute or need support to determine the right type of agreement for your organization? Don’t hesitate to reach out to us, we are happy to help.
Since 2015, Roxana is a Software Entitlement Specialist focused on educating clients on licensing issues with Oracle, SAP and Microsoft. In her role, she works with customers to assist them in understanding and improving their software environment by reviewing their software license agreements and provide them advice regarding legal and financial risks. With a legal background, she also helps customers identify legal weaknesses in their contracts and optimize them.