Microsoft’s Office for the iPad is an unqualified hit, based on Apple's sales charts . The three new iPad apps—Word, Excel, and PowerPoint—have been firmly entrenched in the top three slots among best-selling free apps since its release. (OneNote for iPad was released in 2011, with a major update in September of 2013.)

More surprisingly, Word has been near the top of the Top Grossing list, with Excel and PowerPoint also high on the list.

The new Office for iPad apps earned their place on the Top Grossing charts thanks to in-app purchases by customers who downloaded the new apps and unlocked the full editing capabilities using the in-app purchase mechanism in the app. Each such purchase costs $99.99, with Apple getting 30 percent of the proceeds and Microsoft getting the remainder.

But if you or your employees paid that hundred bucks with the expectation of unlocking the app's capabilities for business use, you're treading on thin ice. The only subscription currently available for purchase through the app is for Office 365 Home Premium, which specifically prohibits commercial use. (Business subscriptions for Office 365 are set up through an organizational portal. There's no practical way to sell those subscriptions via in-app purchase.)

The Office for iPad license agreement is available from each app's listing in the App Store. For existing subscribers, the rights are simply an extension of the Office 365 license agreement:

If you are an EXISTING Microsoft Office 365 subscriber with mobile device rights, you may view, create, edit or save documents subject to the following terms: Refer to your existing license terms for Microsoft Office 365 with mobile device rights (the service) to identify the entity licensing the application to you and for support information. The terms and conditions for the service apply to your use of the application. [...] You may use and install copies of the application on iPad devices you own or control subject to the service terms and conditions so long as you have a valid subscription license to the service that includes mobile device rights. If there is a conflict between the service terms and conditions and the above, these application terms apply. By using the application, you accept these terms. If you do not accept them, do not use the application.

For new subscribers, a different set of terms applies:

If you are NOT CURRENTLY a Microsoft Office 365 subscriber AND you want to create, edit or save documents (in addition to viewing): You may not use the application unless you first obtain a Microsoft Office 365 subscription license with mobile device rights (in which case Section A above applies), or you purchase a consumer subscription to Office 365 (the service), as available within the application, in which case the following terms and conditions apply: You may use and install copies of the application on an unlimited number of iPad devices you own or control subject to the service terms and conditions at http://office.microsoft.com/office-365/FX103453735.aspx so long as you have a valid subscription license to the service. [emphasis added]

Note the section I highlighted above. That in-app purchase is a consumer subscription. It's identical to the Office 365 Home Premium subscription you can purchase online or as a retail key card for the same annual price. (College students and faculty or staff members can buy an Office 365 University subscription at a substantial discount: $79.99 USD for a four-year subscription. It includes the right to install on a single PC or Mac and a single tablet.)

The Home Premium release gives subscribers the right to install the full desktop version of Office on up to five PCs or Macs and to unlock editing capabilities for the iOS apps on an unlimited number of iPads. Although you need an Internet connection to install the Office programs, you don't have to be online to use them.

Office on the iPad is limited to three apps today, but the desktop package includes Word, Excel, Outlook, OneNote, PowerPoint, Publisher, and Access, along with 20GB of extra SkyDrive storage for the primary account holder and 60 minutes of Skype minutes per month. The subscription is good for one year. (Note that the Home Premium edition is soon to be renamed Office 365 Home, with a less-expensive Office 365 Personal addition available when that happens.)

The addition of Office for the iPad makes it even more likely that Office 365 consumer editions are going to show up in your business on consumer devices: Your employees are likely to be using it on their own laptops and tablets, and they’ll probably be connecting to your company network from their home PCs and from iPads they purchased with personal funds.

The trouble is, the license for Office 365 consumer subscriptions specifically exclude those uses. Here’s the relevant portion of the license agreement:

Only one person at a time may use the software on each licensed computer or licensed device. The service/software may not be used for commercial, non-profit, or revenue-generating activities.

If that prohibition sounds familiar, it’s because the same issue arose when Microsoft released its Surface device, which includes a similar prohibition in the Office 2013 RT license agreement. That issue was eventually resolved with a change to the terms of Microsoft’s Volume Licensing program. All Office licenses acquired through Volume Licensing (Office Professional Plus 2013 and Office Standard 2013) now include Commercial Use Rights for Office Home & Student 2013 RT for the primary user of the licensed device. You can also acquire a “commercial use license” by subscribing to one of the business editions of Office 365.

But there’s no such exemption for Office 365 Home Premium. The latest Microsoft Online Services Use Rights document says that "users who access the online service or related software" must have commercial use rights, which are included with Office 365 Small Business Premium and any Midsize or Enterprise plan that includes the Office 365 ProPlus desktop software. (Office 365 plans that include only Exchange and SharePoint online services don't qualify.)

And that should be a red flag for any business that is concerned about avoiding potentially costly licensing audits. Wes Miller, a Microsoft licensing expert at Directions on Microsoft, says CIOs need to be acutely aware of how each device that accesses their organization is licensed.

If your organization is part of Microsoft’s Software Assurance program (an option in Office volume licensing), your agreement includes commercial use rights for the Office desktop apps. Those rights probably extend to Office for the iPad as well, but there's a Catch-22: without an Office 365 subscription license and corresponding credentials, there's no legal way for users to activate the iPad apps.

The Home Use Program is also fraught with potential licensing problems. That option allows employees and students to download Office Professional Plus 2013 (or Office Home and Business 2011 for the Mac) for 10 bucks, but it doesn't include commercial use rights, nor does it include an Office 365 subscription license that will work with the Office apps on an iPad.

If you anticipate that a significant portion of your workforce will want to use Office on an iPad, your only safe alternative is to purchase a qualifying Office 365 plan for your organization. The least expensive option is the Office 365 ProPlus license, which is available at a cost of $12 per user license per month. That's not cheap, of course, but then neither is the prospect of coming out on the losing end of a software licensing audit.

As cloud services become more powerful and more widely available, these sorts of headaches will become more common. The sooner Microsoft addresses this issue, the better off businesses will be.

Note: This article was originally published in January 2013. It was updated significantly and republished in March 2014, following the launch of Office for the iPad.

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