EULA Dispute and CBCA Dismissal

At issue was the Federal Government’s alleged breach of the EULA terms that accompanied software developed by Avue Technologies Corporation (Avue). Rather than license its software to federal customers directly, Avue sold annual subscription licenses through an authorized third-party reseller’s Federal Supply Schedule (FSS) contract. The subscription licenses were subject to Avue’s standard commercial EULA, which the FSS contract incorporated by reference.

In 2015, the Food and Drug Administration (FDA) subscribed to Avue’s software via a task order issued under the reseller’s FSS contract. Following its investigation into the FDA’s decision not to renew its license subscription past the task order’s base year, Avue submitted a certified claim to the contracting officer seeking over $41 million in compensation for the FDA’s misappropriation of Avue’s proprietary information in violation of Avue’s EULA. The contracting officer denied the claim and Avue appealed to the CBCA.

The CBCA dismissed Avue’s appeal for lack of jurisdiction on the basis that Avue’s EULA did not possess the key characteristics of a “procurement contract” within the ambit of the CDA. The FDA purchased the license subscription through a third-party reseller, not Avue; the reseller had not sponsored Avue’s claims; and the EULA, by itself, did not require Avue to provide any services directly to the FDA. The resulting lack of privity between Avue and the FDA operated as a jurisdictional bar to Avue’s appeal.

Federal Circuit Reaches a Different Conclusion

That outcome warrants reversal, according to the Federal Circuit in a decision released nearly two years following the CBCA’s dismissal. As a general rule, the Boards of Contract Appeals have jurisdiction over claim appeals brought by parties to a government contract. In certain circumstances, however, third parties to a government contract may be deemed “contractors” in privity with the Federal Government and therefore can pursue claims brought under the CDA. 

Thus, relying on precedent in Engage Learning, Inc. v. Salazar, 660 F.3d 1346, 1353 (Fed. Cir. 2011), the Federal Circuit explained that to establish CBCA jurisdiction over a CDA claim, “a party need only allege, non-frivolously, that it has a contract (express or implied) with the federal government.” Contrary to the Government’s assertion, a claimant need not demonstrate that it is a party to a government contract to avoid dismissal. Rather, “[t]he obligation to actually prove the existence of such a contract does not arise until the case proceeds to the merits, at which point the claimant can only prevail on its claim if it proves (among other things) that it has rights under a ‘procurement contract.’”

Applying this standard, the Federal Circuit found that Avue non-frivolously alleged it was party to a procurement contract with the FDA and therefore sufficiently established the CBCA’s jurisdiction over its appeal. In reaching this conclusion, the Federal Circuit declined to address whether Avue’s EULA, by itself, was a “procurement contract.” The Federal Circuit instead directed the CBCA on remand to consider the merits of Avue’s assertion that it is a party to a procurement contract with the Federal Government, noting such a procurement contract may be evidenced, for example, by considering Avue’s EULA together with the FDA task order or reseller’s FSS contract.

Looking Ahead

The Federal Circuit’s decision in Avue Technologies eases a significant jurisdictional hurdle that companies such as Avue face when pursuing breach claims directly against the Federal Government. Software and other technology companies frequently opt to sell indirectly to federal customers through third-party resellers. Until now, however, relevant legal precedent indicated that such companies could not bring breach claims directly against the federal customer. Under Avue Technologies, software and other licensors that can non-frivolously allege that they are party to a procurement contract are likely to have their CDA claims resolved on the merits. Incorporating the EULA, terms of service, and similar terms into third-party reseller contracts with federal customers may position the company to at least pass an important CDA jurisdictional threshold.

Nonetheless, Avue Technologies goes so far as to only address CDA jurisdiction. There still remains significant challenges to establishing on the merits that the company is a party to a procurement contract with the Federal Government when selling through a reseller. As such, software and other licensors of technology to the Federal Government should continue to consider alternative avenues for relief, such as filing “pass-through” CDA claims sponsored by the reseller that has privity of contract with the government customer, or pursuing copyright infringement claims under the Tucker Act (28 U.S.C. § 1491) in the U.S. Court of Federal Claims.