Software vendors frequently choose to sell their products to the government through resellers as a cost-effective way to reach the federal market with minimal compliance obligations. But even when the government buys software from a reseller, it often has to agree to the software publisher’s End User License Agreement (EULA). For years, people wondered how software publishers could enforce these EULAs. There is still no definitive answer, but the Civil Contracts Appeal Board (CBCA) recently confirmed that filing a complaint under the Contract Dispute Act (CDA) is not an enforcement strategy. appropriate for software publishers. In this blog, we examine a recent LCSA decision and explain why government contractors who sell software to the government through resellers need to understand how to enforce their end user agreements against the government.
In a recent decision, the CBCA found that software companies that sell their products to the government through resellers cannot enforce their EULAs by filing a complaint with the CBCA. In this case, Avue sold its automated job classification software through Carahsoft’s GSA Scheduling Agreement, 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, finding it lacked jurisdiction because license agreements entered into through resellers are not supply contracts under the LOC.
Significantly, the LCSA did not rule that the EULAs were unenforceable. In fact, he offered three suggestions that might allow the software publisher 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 a direct or sponsored claim. Contractors have long used this tried-and-true avenue to sue the government despite the lack of confidentiality.
- The CBCA also confirmed that Avue’s EULA contains elements of a contract. Although the existence of a contract does not in itself confer jurisdiction under the LOC (which only applies to supply contracts), the CBCA suggested that the contract status of the EULA meant that the software publisher could sue for copyright infringement under the Tucker Act. (28 USC 1491) in Federal Claims Court (or in federal district court if the claim is less than $10,000).
- The CBCA also claimed that Avue likely could have filed the claim had it been the prime contractor and not sold its product through a reseller.
While this ruling does not prevent a company from enforcing its EULA, it does call into question the easiest method to do so. To ensure that a EULA can be enforced based on this decision, software publishers should require all resellers to incorporate the software publisher’s EULA into the government contract and agree to sponsor or forward any claim for violation of the EULA. Companies that sell software to the government need to understand how to enforce their end user agreements against the government.
Special thanks to legal expert Lucinda Hendrix for her assistance with this post.