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Commercial License Terms May Govern Even Without Contracting Officer Knowledge

By John E. McCarthy Jr., Jonathan M. Baker, Skye Mathieson, M.Yuan Zhou, Christopher D. Garcia & Nicole Owren-Wiest on July 27, 2018
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On June 27, 2018, in Appeal of CiyaSoft Corporation, the Armed Services Board of Contract Appeals held that the Government can be bound by terms of a commercial software license agreement that the contracting officer (CO) has neither negotiated nor seen.  CiyaSoft Corporation (CiyaSoft) submitted a claim asserting that the Army had breached its contract to purchase computer software by using more copies of the software than were permitted by the contract.  The Army denied the claim, in part, because the contract contained no terms specifying how the government would secure and protect the software.  Instead, CiyaSoft had included license terms limiting the software’s use (i) inside the box containing the CDs with the software, (ii) on a piece of paper inside the software’s shrinkwrap, and (iii) in clickwrap that was displayed during the software’s installation process.  On appeal, the Board found that although the contract included no license terms and the CO never saw or discussed with CiyaSoft the license terms that accompanied the software delivery, the CO had a duty to inquire about what use rights applied to the software and the failure to do so imputed knowledge of the licensing terms on the Army.  Pointing to the longstanding policy embodied in the FAR that that the government should accept commercial computer license terms that are customarily provided to other purchasers, the Board held that “the government can be bound by the terms of a commercial software license it has neither negotiated nor seen prior to the receipt of the software, so long as the terms are consistent with those customarily provided by the vendor to other purchasers and do not otherwise violate federal law.”

After finding that the Army could be subject to CiyaSoft’s license terms, the Board then assessed whether the software met the definition of “commercial computer software” under FAR 2.101 given that the software had not been sold to the individual members of the general public customarily and that it had been modified prior to its delivery to the Army.  The Board found that the software was “commercial” largely because it was developed without Government funds, had been sold to at least one non-governmental entity, it had been considered a “commercial item” by the CO, and modifications to the software prior to delivery to the Army did not affect the software’s core purpose.

Photo of John E. McCarthy Jr. John E. McCarthy Jr.
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Photo of Jonathan M. Baker Jonathan M. Baker
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Photo of Skye Mathieson Skye Mathieson
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Photo of M.Yuan Zhou M.Yuan Zhou
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Photo of Christopher D. Garcia Christopher D. Garcia

Christopher Garcia is a counsel in the Washington, D.C. office of Crowell & Moring, where he is a member of the firm’s Government Contracts Group.

As part of his government contracts practice, Chris conducts internal investigations regarding False Claims Act issues and defends…

Christopher Garcia is a counsel in the Washington, D.C. office of Crowell & Moring, where he is a member of the firm’s Government Contracts Group.

As part of his government contracts practice, Chris conducts internal investigations regarding False Claims Act issues and defends against related government inquiries and investigative demands. Chris also assists clients with technology-related issues, including counseling clients in the areas of patents and data rights, and defending against government challenges to technical data and computer software rights assertions. In addition, Chris performs government contracts due diligence for buyers in transactional matters, representing government contractors in a range of industries. As part of the firm’s State and Local Practice, Chris also counsels clients on state and local procurement issues, including reviewing state and local opportunities, and leading negotiations with government customers regarding contractual terms and conditions. Chris also advises contractors on the federal Freedom of Information Act as well as state-level public records laws. He has counseled contractors in numerous reverse-FOIA actions at the federal and state levels.

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Photo of Nicole Owren-Wiest Nicole Owren-Wiest
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  • Posted in:
    Administrative, Corporate Compliance
  • Blog:
    Government Contracts Legal Forum
  • Organization:
    Crowell & Moring LLP
  • Article: View Original Source

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