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For Hosting Providers Running Microsoft Products, “Dedicated” Means “Dedicated”

As discussed previously, providers of software hosting services may deploy on their servers Microsoft products licensed by their customers under two different scenarios, one of those being where the hosting provider has dedicated a physical server for use by the customer providing the licenses. However, providers thinking of taking advantage of this option need to tread carefully.

The license terms allowing for this type of deployment scenario are found in the Product Use Rights incorporated in the customer’s volume license agreement with Microsoft. On this point, the PUR states:

You may install and use permitted copies of the software on Servers and other devices that are under the day-to-day management and control of third parties, provided all such Servers and other devices are and remain fully dedicated to your use.

(emphasis added) In addition, the PUR defines “Server” as “a physical hardware system capable of running server software.”

In some cases, a provider may be able to deploy a virtual server on a physical host that is effectively impossible for other customers to access. However, that is not a sufficient level of “dedication” under the PUR, since “Server” is defined to be a physical device. The PUR contains a potential ambiguity, in that the “other devices” on which the software is to be deployed arguably could be interpreted to include virtual devices. However, where the PUR uses the word “device,” it often is in the context of discussing physical hardware, and it is likely that Microsoft would vigorously oppose an argument that the scope of that word includes virtual servers.

In addition, it is important to keep in mind that the Servers in question must be “fully dedicated to [the hosting services customer’s] use.” This means that even if the software is deployed on one or more virtual servers hosted on a physical box that hosts no other customers’ VMs, if that physical server is included in a cluster or other arrangement where its resources may be used to support other customers’ VMs in failover or high-availability situations, it is likely that Microsoft (or its hired auditors) would determine that the physical host is not “fully dedicated” the use of the customer in question.

These are critical issues for hosting providers to keep in mind when designing their hosting environments. Vendors may price their services based on a mistaken expectation that certain deployments are licensed under customers’ volume license agreements, when an audit might reveal that the deployments in question were not eligible to be licensed in that way. That could result in potentially crippling exposure arising from the licenses that should have been reported to the vendor’s SPLA reseller since the beginning of the customer relationship.

Again, service providers deploying Microsoft products in a hosting environment should endeavor to become experts on Microsoft’s often complex licensing rules in order to mitigate the risk of harsh financial penalties that can result as the result of innocent, seemingly insignificant licensing errors.