Internet Law Update: The vBulletin 4 Forum Controversy – Internet Community Backlash

January 7th, 2010

The vBulletin Community is up in arms over changes in licensing by new owner.  Internet lawyers are already looking at the new licensing agreement to determine if  the new owner has the contractual right to make changes to the licensing consistent with prior software license.  Changes in software licensing models can be tricky.  As noted by Mr. Michael Weschler of TheLaw.com – legal and licensing issues aside – these changes have infuriated many in the vBulletin Community…

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Welcome to Traverse Legal Radio. Now here’s your host, Damien Allen.

Damien Allen: Good morning. Welcome to Traverse Legal Radio. My name is Damien Allen, and today we have with us on the phone Mr. Michael Weschler of TheLaw.com. Mr. Weschler is an experienced technology attorney, Internet entrepreneur, noted speaker and quoted author. He founded Apple online community EastNet in 1992, which was featured by David Pogue in Macworld Magazine and later founding TheLaw.com. For several years he served as the legal counsel to iVillage and was a legal consultant for Kroll Ontrack, was recently Senior Vice President of Business Strategy at Zedge, and is currently at the helm of The Law Network. Good morning and welcome to the program, Michael.

Michael Weschler: Hi. Good morning. Thank you for having me.

Damien Allen: Today we’re talking about vBulletin 4Forum. What’s going on at vBulletin 4Forum regarding their forum software and why is this so important?

Michael Weschler: Well, there’s a large issue right now going on at vBulletin Solutions. There are a couple of important points I think that people should become aware of. Most people don’t know vBulletin is a very popular forum software that’s on quite a number of websites and might even be the largest commercial software for startups and mid-size, as well as very large forums. If you take a look at a site called Big Board, you can see a list of some of the largest forums on the Internet, and quite a number of them use vBulletin’s 4Forum Software Solution. Recently there was a change in licensing that made a significant effect on these small startups, as well as mid-range boards that had a number of licenses and how they purchased new licenses and also what they’d be required to pay. One other aspect which is interesting to note is that just a couple of years ago vBulletin, which was originally created by a couple of sounders in England, was purchased by a large company called Internet Brands. Internet Brands actually has a dual role at this time. They not only produced this forum software which is supposed to promote free and open discussions, but they also scavenged the Internet to locate sites that would make excellent acquisitions. Forum owners might take a thought to think about whether or not their site may be trespassed by the company that’s looking to acquire and also how it may affect the company code or the operation of the site in general.

Damien Allen: Can you tell us a little bit more about the history of who owns this software and why the change appears to have been made corporate?

Michael Weschler: The history of vBulletin starts back in I guess around 2000 or 2001, and I remember back then that we were looking for good forum solution at TheLaw.com. There were a couple of different types of software that were available. There’s Open Source, and there were also some other commercial solutions that were available.   We were looking for a more commercial solution that had more support, a little bit more stable.   There really weren’t as many as there are now. James Limm and John Percival were two individuals who were running popular software by a company called Infopop, and they decided that it wasn’t sufficient for them, so they decided to create their own. A friend of mine had discovered them back in about 2000 or 2001, and they created vBulletin, which was their superior version of the forum software they were running. A year later, it became incredibly popular, growing at an exponential rate. Then sometime in 2007, Internet Brands, today’s large public company, had purchased the vBulletin 3 stage software development, which is probably the most popular product the company has created. Just recently, this past year in October, it was announced that vBulletin would be changing its software licensing model for the upcoming version, vBulletin 4. They had been working on it for a year, and information was imminent to be released. Without really any prior notice, there was an email that was sent out to owners stating that there was a pre-sale that would be going on. In the past, the way one purchased vBulletin 4Forum software was by buying an annual license for a year which would give you the right to operate the product indefinitely and also obtain one year’s worth of product updates. For example, if you bought vBulletin 3.1 in 2005 in January, and the following January 2006, you’d be able to run the vBulletin version that’s produced as of that time, but if you wanted to get further updates you’d have to purchase an annual maintenance subscription, which was I think at that time about $30 a year, which would entitle you to obtain all the updates to the Version 3 of the software for the next year. Then in, I think, about 2008, after an acquisition by Internet Brands, the price was raised to $40, but still the same system was in effect, buy and get a year’s worth of updates and then you’d have to purchase an additional year’s maintenance subscription program. In October 2009, there was a change made. There was a pre-sale announcement that was sent out to all users. It didn’t state all of the policies, one of which was that this annual subscription for maintenance was being discontinued and that the only solution that vBulletin owners had was, in effect, to purchase an upgrade to vBulletin 4. If you’re running, let’s say, vBulletin 3.6 in October and your annual maintenance fee had run out, you would no longer be able to purchase a maintenance subscription for $40. Your choice at that time was to pay $190 to get a vBulletin 4 license. Now with regard to why changes were made and with respect to many others who had difficulty with the licensing issue, I think I have to preface this by saying I don’t know anything about the internal workings of Internet Brand. The best that I can do is surmise the reasons for changes. I think one of the changes might be due to revenue strength. With regard to licensing, a $40 annual maintenance isn’t a tremendous amount, and it also allowed users to decide whether or not they wanted to purchase the annual maintenance and whether or not the updates were worth the cost. If you’re buying new versions every single years, the customer would probably be paying more for major version upgrades. It would make sense, and probably the consumer would want to know, how long a period of time purchasing one version would be. What kind of coverage that purchase would provide. If you’re buying, let’s say, vBulletin 4 in January 2010, you’d like to know that this will entitle you to at least a year and a half’s worth of updates and upgrades, which will be before vBulletin 5 is released. The challenge, with regard to maintenance fees, once a licensee pays $40, they know the updates they are entitled to and fees will last for a period of a year. The new licensing structure for vBulletin 4 is now on a per version basis. This means you don’t pay for an annual fee for subscription. You pay for every new version that comes out. So if you purchased vBulletin 4 at a certain price, you’ll get all the updates and maintenance releases through vBulletin 4 to the end of that product. When vBulletin 5 comes out, you’ll pay for vBulletin 5 and again the same structure where you receive all the updates and maintenance to vBulletin 5. Ostensibly this seems like a pretty good deal because if the product lasts for three years or so, just like vBulletin 3, then the customer wouldn’t have to pay an annual maintenance every year of $40. You just pay once, and you’re covered throughout the entire life of the program. However, in this instance the challenge is that Internet Brands has provided no guarantee as to what period of time a purchase will cover. With regard to maintenance, you buy your maintenance program, and it’s annual. Your $40 entitled you to a year of updates. If you purchase vBulletin 4, there’s no set guaranteed amount of time for how long the vBulletin 4 version will last. While I don’t think it will happen, vBulletin 5 could potentially be released in six months, nine months, 12 months. No one knows. If you’re purchasing vBulletin 4 for, let’s say, $190 today, you might have to go and pay again for vBulletin 5 when it comes out in six months or a year. There’s no time guarantee. So you can see there are a couple of different challenges that licensees have in that, first of all they’re paying more for a new version. Secondly, there’s no guaranteed period of time which their maintenance is covered or their updates are covered. Third, there are a couple of issues that I didn’t want to elaborate upon too much, but when one changes the structure of licensing from an annual fee basis to a version, people who bought the software right before the change in the model will have problems. Let me take a moment to explain to you what I think is really the major bone of contention here between vBulletin Solutions and the licensees. I think a large part of the problem is that vBulletin didn’t provide adequate prior notice to the licensees of the actually changes it intended to make. As a result, all these forum owners were surprised by the new policy and had to pay more money than they expected. I’ll explain to you some examples which, these are examples that I’ve seen and I’ve read. You can verify them online, but I’m only telling you what I’ve read in the forums and personal experience. With regard to the annual maintenance subscription that I’ve been speaking about, I had a couple of forums whose subscription had expired during the year 2009. If I had known about the changes that were to be implemented, that vBulletin Solutions wouldn’t allow me to pay $40 and obtain the rest of the updates to Version 3, I would have paid the $40 earlier and then been entitled to upgrade my software to the latest version, which is now 3.8.4 I believe. However, in October we received a notice that said, Here’s a pre-sale. We’ve made changes to the licensing system, and you’ve got a choice. Either you can pay the price to upgrade, which for those versions with annual maintenance that had expired, it is $190, or you’re pretty much stuck with your own version, or you can take a risk and pay later whatever the price is that we’re going to charge you. You can understand that if a user had known that they could have paid $40 in advance and then see what vBulletin 4 looked like, they probably would have taken that option, but unfortunately they weren’t given any prior notice, or at least I wasn’t that I could tell. Other purchasers who were quite upset were people who purchased a license just before this change was implemented. So take, for example, a person who purchased a version of vBulletin in August of 2009, paid $180 for the software, only to find out that a month and a half later vBulletin was coming out with the next version of the software, and, in effect, they would have to purchase another upgrade, which I believe costs about $130, in order to guarantee that they would receive all of the updates to Version 4. But the common practice I’ve seen with most software licensing is that there’s a grace period that’s extended to users who purchases software within a certain number of days of a change in the licensing model. I think that it makes a lot of sense, not legally but just common sense, if a customer purchases something from you that as an imminent update and they’re unaware, they would say, Hey, you should be giving me prior notice about the fact that you’re changing the product so quickly, especially if you know about it. That’s what I think the root of the problem is here is that this change happened practically overnight to many license holders, and they weren’t given the opportunity to make informed decisions to save themselves money or to choose to spend it.

Damien Allen: Does this appear to have violated previous licensing agreements in your opinion?

Michael Weschler: That’s a very good question. I took a look at some of the licensing agreements, especially my own, and it seemed that in the past the licensing agreement was quite open. There are two points that I think are very interesting here. Let’s start with the first one with regard to this maintenance subscription and what it covers. Within the license, I didn’t really see any mention of the annual maintenance subscription fee. The only time I’ve seen that, and I’ve taken a look way back to an email that I received with regard to purchase I made in 2003, was if there are no more vBulletins, you are entitled to run software servers for as long as you like. You have access to the members area, where you can download software for a year, after which it costs $30 per year for continued access to product updates. This is really a custom usage, I think, that has been in effect for a number of years. I don’t know that it’s been written down, but if you continued to have custom and usage for three, four years, it would seem inappropriate to make a change so to that operating agreement. I think at the very least it’s arguable that if you made an agreement with the understanding, explicitly, that the software licensee would be able to purchase annual maintenance updates, that before that policy changed, that the licensee would have the right to prior notice. In fact, it’s arguable that that is the deal, and that with regard to that particular product, vBulletin 3, that a licensee should have the right to purchase those maintenance updates throughout the life of the program. So if you’re a vBulletin 3 owner, you should be able to have the right to purchase an annual maintenance fee all the way through the life of the Version 3 program. I was sent an email on October 13, 2009, with regard to a pre-sale event, which was the first time I heard about the change in the licensing model. It explained it as follows: You have the option to keep your current active license until it expires according to the 12 months term and conditions.  For the remainder of your active license, you will continue to receive support and have access to forum software updates, including vBulletin 4Forum. Once your license expires, you will only be able to access the 4 Series software updates by switching to the new, one time owned licenses. For more information, visit the vBulletin site. Now, what I thought was very interesting about this particular message was that, at least in my opinion, the description is incorrect. It says you have the option to keep your current active license until it expires. If you take a look at the licensing at vBulletin, previously there were two different versions offered. One of them was an old license, and another is a lease license. Let’s go with the lease license first because it’s the most popular. The lease license is the license fee for a period of time, in this case a year, in order to use the software and operate a forum. After one year, the lease has to be renewed in order to continue operation of the forum. With regard to the old license, the purchaser owned the license and continued to operate vBulletin forum software indefinitely. According to the terms of the license, the ability to use the software is perpetual unless it’s terminated for reasons such as violating the agreement. In essence, an old license is only active. It doesn’t expire. What expires is the right to be able to download maintenance updates. Now why is this important? Because when this email was sent out, as well as the press releases, myself and numerous other people thought that the offer which was extended to people with active licenses included people with old licenses because by definition, if you had an old license, your vBulletin forum and software was active. What happened when you arrived at the vBulletin forum and you wanted to purchase an upgrade, if you wished to do so for $130, we were told that this offer was not extended to us and that what was intended was that vBulletin forum software owners who had active maintenance subscriptions, they would be able to purchase this for $130. For those that didn’t, the cost went up $60, not $40, and it would be $190 in order to purchase the license. To me, I think that is a significant mistake, and it’s compounded by the fact that after it had been pointed out to them, another press release, as I recall, had been issued as well, and it was not corrected or clarified to ensure that the licensees who responded to the offer were under the correct impression. It’s arguable at the very least that if there’s a mistake that’s made in an offer, that’s accepted, and the other parties that have accepted, does not see that there’s any mistake on the site, that that should constitute a binding offer. Unfortunately in this case, vBulletin Solution sees it differently. They believe that their message was clear and that vBulletin license owners should have understood what they meant to say.

Damien Allen: Now you’ve made some recommendations concerning how companies should go about changing their licensing and their agreements. Tell us about those.

Michael Weschler: I think with regard to any major change with licensing agreements or even major change in your dealings with your customers, my recommendations have usually been about using common sense more than even if that’s legal. At the end of the day, you’re really dealing with the relationship between people. If the terms are relatively fair and people feel as though their being treated with respect and given adequate notice and can make informed decisions, they’re more likely to be receptive to the changes that you’re making. I think probably the best recommendation is that if you’re going to make a major change with regard to your legal policy, or any policy in general, you should reasonably inform your customer base beforehand. Sure there can be worries. There can be public outcry, people will be upset about the changes. As long as they’re discussed, I think that there’s more likely to be reception. You’re going to make the change anyways. People don’t like to feel disrespected. Most importantly, if there’s a financial impact, like there is here, I think it’s double important to provide reasonable notice. In the case of vBulletin, I think what was most important was that customers were making decisions to purchase licenses not knowing that such a short time afterwards, they’d be required to make an additional financial investment. I think that any time a change in a policy can have a financial impact upon a customer, a customer needs to have prior notice in order to be able to make an informed decision about how to proceed.

Damien Allen: Is there somewhere people can go to find out more information on this subject or any updates with what’s going on with it?

Michael Weschler: As of right now, it seems that Internet Brands has made its decision and isstanding by it. I keep a blog at TheLawProfessor.com where I try to blog it out on any major changes. The best place to find out about these changes would probably be at vBulletin’s own forums themselves.

Damien Allen: We’d like to thank you for joining us today and trying to explain a little about the controversy and what’s going on with vBulletin 4Forum. For more information, as Michael said, you can check out his blog, and thank you very much for joining us today, Michael.

Michael Weschler: Thank you for having me.

Damien Allen: You’ve been listening to Traverse Legal Radio. My name is Damien Allen. Everybody have a great afternoon.