Software companies frequently choose to sell their products to the government through resellers as a cost-effective way to reach the federal marketplace with minimal compliance obligations. But even when the government purchases software from a reseller, the government often must agree to the software company’s end-user license agreement (EULA). For years, there have been questions about how software companies could enforce those EULAs. There is still no definitive answer, but the Civilian Board of Contract Appeals (CBCA) recently confirmed that bringing claims under the Contract Disputes Act (CDA) is not a proper enforcement strategy for software companies. In this blog, we examine a recent CBCA decision and discuss why government contractors selling software to the government through resellers should understand how to enforce their end-user agreements against the government.
In a recent decision, the CBCA found that software companies selling their products to the government through resellers cannot enforce their EULAs by filing a claim at the CBCA. In that case, Avue sold its automated job classification software through Carahsoft’s GSA schedule contract, which incorporated Avue’s EULA. Avue filed a CDA claim for $41.4 million, arguing that the Food and Drug Administration violated the EULA by misappropriating Avue’s proprietary data. The CBCA dismissed the case, reasoning that it lacks jurisdiction because license agreements contracted through resellers are not procurement contracts under the CDA.
Significantly, the CBCA did not rule that EULAs were unenforceable. In fact, it offered three suggestions that might allow the software company to enforce the EULA:
- The CBCA suggested that the reseller might be able to bring a CDA claim on behalf of the software company as either a pass-through or sponsored claim. Subcontractors have long used this well-tested path to pursue claims against the government despite lacking privity.
- The CBCA also confirmed that Avue’s EULA contains elements of a contract. Even though the existence of a contract does not in itself confer jurisdiction under the CDA (which applies only to procurement contracts), the CBCA suggested that the EULA’s contract status meant that the software company could bring a breach claim for copyright infringement under the Tucker Act (28 U.S.C. 1491) in the Court of Federal Claims (or in federal district court if the claim is less than $10,000).
- The CBCA also affirmed that Avue likely could have filed the claim if it had been the prime contractor and not sold its product through a reseller.
While this decision does not foreclose a company’s ability to enforce its EULA, it calls into question the most straightforward method for doing so. To ensure that a EULA can be enforced based on this decision, software companies should require any resellers to incorporate the software company’s EULA into the government contract and agree to sponsor or pass through any claims for violations of the EULA. Companies selling software to the government should understand how to enforce their end-user agreements against the government. PilieroMazza’s attorneys are here to help you navigate the complicated procedural questions associated with filing such claims. If you have questions, please contact Kevin Barnett, the author of this blog, or another member of the Firm’s Government Contracts Group.
Special thanks to law clerk Lucinda Hendrix for her assistance with this post.