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Asserting Commercial Software Manufacturer Claims Based on End User Licensing Agreements in Federal Supply Schedule Contracts

This article is part of our government contract law firm’s Federal Contract Claims Insight series. Learn more, and if you’re in need of a federal contract attorney, contact us today.

The U.S. Federal Government often utilizes federal supply schedule (FSS) contracts to purchase commercially available off-the-shelf software (COTS) software from reputable pre-vetted software vendors. These FSS contracts are administered by the General Services Administration (GSA), and they eliminate the need for lengthy open-market solicitations for common COTS software products. FSS contracts permit agencies to purchase COTS software products quickly and efficiently from pre-vetted software vendors using pricing that reflects volume discounts due to GSA’s government-wide purchasing leverage. Generally, the COTS software product manufacturer’s end-user licensing agreement (EULA) is incorporated into the procurement contract and dictates the Government’s use of the COTS software.

Federal Government contractors may bring a contract appeal under the Contract Disputes Act (CDA) to the Boards of Contract Appeals provided the contracting officer’s (CO) final decision arises from or relates to their Government contract. The term “contractor” has been expressly defined in 41 U.S.C. § 7107(7) as a “party to a Federal Government contract other than the Federal Government.” Therefore, in COTS software product purchases, since the pre-vetted software vendor has the FSS contract with the Government, the COTS software product manufacturer is not generally considered a contractor in the traditional sense because it is not a party to the Government contract. Accordingly, since the CDA does not permit appeals by anyone who is not a party to a Government contract, COTS software product manufacturers are generally unable to bring contract claims against the Government under the CDA. However, subcontractors and certain third parties may achieve privity of contract with the Government under particular circumstances, which allows them to bring claims against the Federal Government under the CDA.

A recent Court of Appeals for the Federal Circuit decision issued in March 2024 provides a deeper discussion of the interplay between these federal contract law concepts, potentially allowing an avenue for COTS software manufacturers to bring claims against the Federal Government. Avue Technologies Corporation v. Secretary of Health and Human Services, Administrator of the General Services Administration (22-1784), involves the purchase of COTS software by a federal agency through a GSA FSS contract with a pre-vetted software vendor that was not the manufacturer of the COTS software. In 2012, the GSA and the pre-vetted software vendor expressly included, by reference, the software manufacturer’s EULA as part of the FSS contract. In 2015, the Food and Drug Administration (FDA) placed a task order under the FSS contract for a subscription to the COTS software product. A year later, the FDA chose not to exercise its contract option for the subscription of the COTS product. A few days before the expiration of the base subscription period, the COTS software product manufacturer accused the FDA of taking acts in violation of the EULA, its intellectual property rights, and the Trade Secrets Act. In the following months, the COTS software product manufacturer sent the FDA a “cease and desist letter” along with a claim letter. In denying the COTS software product manufacturer’s allegations and claim, the FDA CO stated that if the COTS software product manufacturer wished to pursue a claim against the FDA, the COTS software product manufacturer must request the pre-vetted software vendor to assert a pass-through claim against the Government on the COTS software product manufacturer’s behalf. As a reasoning, the CO pointed out that the FDA’s contract was with the pre-vetted software vendor and not the COTS software product manufacturer.

In early 2019, the COTS software product manufacturer filed an appeal at the Civilian Board of Contract Appeals (CBCA) alleging a deemed denial of its claim. The Department of Health and Human Services (HHS), the parent agency of the FDA, moved to dismiss the COTS software product manufacturer’s appeal on the basis that the CBCA lacked subject matter jurisdiction. In its motion to dismiss, the HHS argued that the COTS software product manufacturer was not a “contractor” within the meaning of the CDA, presumably because the FDA’s FSS contract was with the pre-vetted software vendor and not the COTS software product manufacturer. However, the Board denied the motion to dismiss while consolidating a separate protective claim filed by the COTS software product manufacturer against the GSA with the HHS appeal.

The COTS software product manufacturer and the GSA cross-moved for summary judgment. Following the submission of Board-ordered briefs by both parties on whether the EULA is a procurement contract subject to the CDA, the Board dismissed the COTS software product manufacturer’s claim for a lack of jurisdiction. Notably, however, the Board refused to decide whether the EULA established a privity of contract between the COTS software product manufacturer and the Government – which would presumably allow the COTS software product manufacturer to bring a claim under the CDA. Instead, the Board agreed with the Government’s position that even if an independent contract existed between the Government and the COTS software product manufacturer, the Board lacked jurisdiction because the EULA could not be considered a procurement contract under the CDA. That is, the Board lacked jurisdiction under the CDA because the EULA was not a procurement contract. The COTS software product manufacturer appealed the Board’s dismissal decision to the Court of Appeals for the Federal Circuit.

The Court of Appeals for the Federal Circuit vacated and remanded the CBCA decision that dismissed the COTS software product manufacturer’s appeal. As reasoning for its decision, the Court reiterated that the determination of the existence of a contract is not a jurisdictional query but rather one that tends to resolve the substantive merits of the case. Therefore, to properly establish the Board’s jurisdiction over a CDA claim, the COTS software product manufacturer only had to allege non-frivolously that it had a contract with the Government. It was inconsequential whether that contract was express or implied. Since the COTS software product manufacturer did not have to prove the existence of the contract until the case proceeded to a discussion of substantive merits – a mere non-frivolous allegation that such a contract existed was sufficient to provide the Board jurisdiction over the appeal and avoid dismissal. The Court opined that this requirement was adequately met by the COTS software product manufacturer’s assertions that the FSS contract and the task order incorporating the EULA be considered procurement contracts.

The Court explained that whether the EULA by itself would be considered a procurement contract was not important. Instead, the pertinent question was whether the pre-vetted software vendor’s FSS contract that incorporated the COTS software product manufacturer’s EULA constituted a procurement contract giving rise to rights enforceable by the COTS software product manufacturer against the Government. The task order issued under the FSS similarly incorporated the COTS software product manufacturer’s EULA.

Notably, since the Government already conceded that the FSS contract, together with the EULA, constituted a procurement contract, the pertinent question before the Board on remand would be whether this contract gives the COTS software product manufacturer enforceable rights against the Government. COTS software product manufacturers that sell their software to the U.S. federal government through pre-vetted third-party software vendors should follow this case closely to fully understand their rights. Since such COTS software product manufacturers are generally reliant on pass-through claims by the pre-vetted software vendors, they will be particularly interested in whether the Board determines that such procurement contracts achieve privity with the Government. Such a determination by the Board in its analysis may bestow additional rights to COTS software product manufacturers, along with an additional avenue for pursuing claims against the Government under the CDA. Either way, this Federal Circuit decision may resolve a jurisdictional obstacle for COTS software product manufacturers, providing an opportunity for Board review on a case-by-case basis of the merits of their claims relating to procurement contracts that incorporate their EULA.

This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLCClient Portal or contact our government contract attorney to determine how the law would apply in a specific situation.