United States: ASBCA Enforces Contractor's Commercial Software License Against Government

Mitchell Bashur is an Associate and Terry Elling is a Partner in Holland & Knight's Tysons office

The Armed Services Board of Contract Appeals' (ASBCA) recent decision in CiyaSoft Corporation confirms that government agencies that procure commercial computer software will be subject to a seller's commercial license terms where the contract does not require any specific license terms, even if the agency has not reviewed or discussed the license terms with the seller. In CiyaSoft Corporation, a software contractor entered into a contract to sell 20 licenses of commercial translation software to the government. When the software was delivered, it included the contractor's standard single user license agreement, the terms of which the government had not previously known and were not negotiated. The government then installed the same copy of the software on multiple computers. The commercial contractor, appearing pro se, pursued a claim for breach of the user license agreement.

The ASBCA sustained the appeal in part, finding that the government breached the user license agreement. The procurement of the license initially proceeded through an email quote from the seller, a sole source justification, and then issuance of an SF 1449, which is used for purchase of commercial items.

The contract included FAR 52.212-4 (Contract Terms and Conditions – Commercial Items) and FAR 52.212-5 (Contract Terms and Conditions Required to Implement Statutes or Executive Orders – Commercial Items). It did not however, include FAR 52.227-19 (Commercial Computer Software License) and did not otherwise address any other conditions or restrictions on the government's license rights in the software. Rather, the contract merely included a contract line item number (CLIN) stating that it was for 20 single use licenses.

The ASBCA found that although the contracting officer never discussed any terms of a licensing agreement and the contract was silent regarding any licensing agreement terms, the contract expressly referred to "licenses" and the government was unable to identify any other potentially relevant license agreement. Further, the government did not include the Commercial Computer Software License clause at FAR 52.227-19. FAR 52.227-19 includes several rights that often do not appear in contractor's standard commercial software licenses, such as the right to modify, adapt or combine the software with other computer software and to provide software to support contractors or subcontractors.

The ASBCA found that "it does not matter that the licensing agreement was neither negotiated, nor the terms known by the contracting officer. It is the policy of the government, when licensing commercial software to accept the licensing terms customarily provided by the vendor to other purchasers, as long as the license is consistent with federal law and otherwise satisfies the government's needs." At the time the contract was awarded in 2010, there were no provisions in the Federal Acquisition Regulation (FAR) addressing commercial "clickwrap" or "shrinkwrap" forms of licensing agreements. The ASBCA further cited to current commercial law in many jurisdictions which recognize the enforceability of these types of licensing agreements. Finally, the ASBCA found that the government was on inquiry notice that licenses were referred and incorporated into the agreement, but failed to inquire as to the terms.

The ASBCA ultimately concluded that:

Accordingly, based on the fact that it is, and has been, the policy of the federal government prior to the award of the contract to accept the terms of licensing agreements offered by vendors of commercial software that are customarily provided by the vendor to other purchasers and that vendors of commercial software have long included shrinkwrap and clickwrap license agreements with their software, which many courts have found to be valid, enforceable contract terms and the FAR currently also recognizes the validity of clickwrap and shrinkwrap licenses, we find the contract included the licensing agreement appellant shipped with its software. We also hold 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.

(emphasis added).

The decision is welcome news for commercial software providers and is entirely consistent with FAR 12.212, which provides that the government shall acquire commercial computer software and software documentation under the same license term the contractor customarily provides to the public. The decision, of course, is limited to the factual context before the ASBCA, including the absence of FAR 52.227-19. This clause is not mandatory, but if it is included, FAR 27.405-3(b) provides "inconsistencies in the vendor's standard commercial agreement regarding the government's right to use, reproduce or disclose the computer software are reconciled by that clause."

The CiyaSoft decision confirms contractors' right to enforce the terms of their customary commercial license agreements against the government, specifically when the government does not include any other software rights terms. The decision also serves as a reminder that government agencies must be careful to specify any particular license rights they wish to obtain in commercial computer software in the contract, and to review any relevant commercial software license in advance to confirm whether the contractor's customary license provides for sufficient rights to satisfy the agency's requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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