Software Vendors Beware: Board Says Contractor Cannot Enforce EULA Directly Against Feds | Sheppard Mullin Richter & Hampton LLP

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Software companies selling indirectly to the federal government have finally received an answer to a question that has dragged on for years – can a software company that goes to market through a reseller sue directly under Contract Dispute Act (“CDA”) against the federal government for violating a term of the software publisher’s end user license agreement? Unfortunately, the answer is no.”

Avue Technologies Corporation (“Avue”) has licensed its software platform to the federal government under the GSA Federal Supply Schedule contract from its authorized reseller, Carahsoft Technology Corp. (“Carahsoft”). As is common practice for the Schedules program, when adding Avue’s software to Carahsoft’s Schedule agreement, the GSA reviewed and approved Avue’s End User License Agreement (“EULA”) and incorporated the EULA into Carahsoft’s Schedule Agreement (thereby making the EULA applicable to every order issued thereunder for Avue software).

In September 2015, the Food and Drug Administration (“FDA”) placed an order (one baseline year plus four option years) under Carahsoft’s hourly contract for a subscription to the software platform of View. By accessing the software, Avue alleged that the FDA downloaded proprietary ADS data in violation of Avue’s EULA. Now in possession of the Avue proprietary data it wanted, Avue alleged that the federal government refused to exercise the option years in the original order and instead transferred Avue’s proprietary data to the platform. from a competitor for continued use. In March 2018, Avue submitted a certified claim directly to the FDA (rather than through its reseller, Carahsoft) for over $41 million seeking compensation for the FDA’s alleged violation of Avue’s EULA and for the misappropriation of Avue proprietary information. The FDA denied Avue’s claim, and Avue appealed to the Civil Contract Appeals Board (“CCAC”).

Avue’s call posed two interesting questions to the CBCA:

  1. Is an EULA between a software company and the federal government a binding agreement?
  2. Does an EULA create CDA jurisdiction that allows a software company contractor to bring a direct action against the federal government?

On the first question, the LCSA declined to say whether the EULA was an enforceable agreement against the government. Interestingly, in sidestepping the question, the CBCA noted that the EULA “appears to contain commercially significant promises that could be considered contractual”, leaving open the possibility of receiving a claim for violation of an EULA in different circumstances. factual.

On the second issue, the LCSA argued that the EULA did not create a right of action for Avue to file a CDA claim directly against the federal government. The federal government generally does not deal directly with contractors, and the LOC only grants the LCSA jurisdiction over “supply contracts” (that is to say, agreements between a prime contractor and the federal government). The CBCA held that the EULA between Avue and the federal government was not a “supply contract” because the EULA did not obligate Avue to provide services, nor did it obligate the FDA to pay Avue for the services. provided. While the order between the FDA and Carahsoft certainly met the definition of a “supply contract”, the CBCA found that the EULA between Avue and the FDA did not. In denying Avue’s $41 million claim, the CBCA said:

No court or board of which we are aware has ruled that a party other than the prime contractor can establish CDA jurisdiction based on a separate agreement related to a CDA supply contract. We won’t be the first.

The LCSA’s decision provides a handful of key lessons for software companies that sell to the federal government through resellers:

  • Any claim for violation of your EULA (g.over-deployment, or misuse) must be filed by your primary reseller as a “sponsored” or “direct” claim under the CDA;
  • Make sure your EULA (Terms of Use, Master Services Agreement or similar document) is incorporated into your reseller’s main contract;
  • Refrain from negotiating EULAs as side agreements not incorporated into the main contract; and
  • Although you may have a direct claim against the federal government for violating a specific aspect of your EULA (g., copyright infringement), such claims must be brought under the Tucker Act (28 USC 1491) and must be filed in the Federal Court of Claims; any claims brought before contract appeal boards are likely to be dead on arrival.

Over the past decade, software vendors have increasingly turned to the federal market through resellers to reduce their compliance obligations. This decision reminds us, however, that indirectly accessing the market may limit your downstream ability to bring a dispute directly against the federal government.

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