Reed Smith LLP

Reed Smith Client Alerts

EULA alone isn’t enough to protect IT companies selling to the government through resellers

Subscribe
Home Perspectives EULA alone isn’t enough to protect IT companies selling to the government through resellers
The U.S. Civilian Board of Contract Appeals (CBCA) recently dismissed an appeal filed by a software company accusing the federal government of violating the terms of its end user license agreement (EULA). The CBCA held that it lacked jurisdiction because the EULA, by itself, was not a contract between the software company and the federal government under the Contract Disputes Act (CDA).

In a case of first impression, the U.S. Civilian Board of Contract Appeals (CBCA) dismissed, for lack of jurisdiction, an appeal by Avue Technologies Corporation (Avue) claiming that the Department of Health and Human Services, through the Food and Drug Administration (FDA), violated the terms of its end user license agreement (EULA) for its software, Avue Digital Services (ADS). See Avue Technologies Corporation v. HHS & GSA, CBCA 6360, 6627 (January 14, 2022).

Background

Like many other software companies, Avue used an authorized reseller, Carahsoft Technology Corporation (Carahsoft), to sell ADS subscriptions to the U.S. federal government. In May 2012, Carahsoft and the General Services Administration (GSA) added ADS to Carahsoft’s existing Federal Supply Schedule (FSS) contract with the GSA. The GSA and Carahsoft incorporated Avue’s EULA into the FSS contract through a master services agreement between Avue and Carahsoft.

In September 2015, the FDA placed an order under Carahsoft’s FSS contract for a subscription to ADS. Avue later filed a claim accusing the FDA of misappropriating proprietary ADS data in violation of its EULA and submitted certified claims for approximately $41.4 million to the FDA and GSA contracting officers. Specifically, Avue alleged that the FDA “downloaded more than 5,000 position descriptions from Avue's database, purchased a less expensive database from a different source, then populated the new database with the downloaded position descriptions.” Avue’s claims were denied, and Avue appealed to the CBCA.

In dismissing Avue’s appeal, the CBCA held that it lacked jurisdiction over the appeal because Avue’s EULA did not qualify as a contract for “the procurement of services” under the Contract Disputes Act (CDA), and therefore there was no privity of contract between Avue – the subcontractor – and the federal government.

The CBCA’s rationale

In finding that it did not have jurisdiction over Avue’s appeal, the CBCA ultimately agreed with the government’s argument that the EULA was not a contract within the meaning of the CDA, holding that “not all contracts fall with the ambit of the CDA.” In pertinent part relative to this case, the CDA applies to any express or implied contract made by an agency for the procurement of services. 41 U.S.C. 7102(a).

According to the CBCA, a contract subject to the CDA must be for “the acquisition by purchase, lease or barter, of property or services for the direct benefit or use of the Federal Government.” Avue Technologies Corp., CBCA 6360, 6627 at 5 (January 14, 2022). Avue’s EULA, as stated by the CBCA, “lack[ed] core aspects of a CDA procurement contract.” Id. Specifically, the government arranged to purchase and acquire ADS subscriptions from Carahsoft under FSS orders and not directly from Avue under its EULA. The CBCA further reasoned that Avue’s EULA did not alone obligate Avue to furnish any services unless it was incorporated into a separate federal contract between Avue and the government; and because it was not, it did not obligate the government to pay Avue directly for an ADS subscription.

Relying on the foregoing reasoning, the CBCA concluded that a claim by Avue for breach of its EULA standing alone could not be considered a claim under a CDA contract. As such, in the absence of a claim arising under a CDA contract, the CBCA lacked jurisdiction to decide the case on the merits.