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For the U.S. Army and one of its software contractors, the conflict in Afghanistan is still going on. An unresolved dispute over licensing of language translation software has entered a new phase, eight years after the company first claimed breach of contract. Federal Drive with Tom Temin talks about the case with Smith Pachter McWhorter procurement attorney Joe Petrillo.

Interview transcript:

Joseph Petrillo: The contract was awarded in 2010 between a company named Ciyasoft… The contract was awarded by the 101st Airborne Division out of Afghanistan. And they were looking for software to translate from English into Dari or Pashto and vice versa. And the contract was for 20 single user licenses, it was pretty expensive software, it’s $4,840 per license. I guess it was not easy to find software that would do that at the time. And so they awarded the contract. But the contracting officer was very inexperienced and only been doing that job for six months. And the contract had a major problem. There was no actual software license in the contract. It didn’t have the far clause for commercial item software, which isn’t a required clause, but still is useful in this context. It didn’t have a license. And the issue there is the license defines what rights the government has to use the software. Now that problem was seemingly solved when the contractor shipped the software, which was on CD-ROMs. It included a written software license in the box, it included that license or a shorter version of it inside the container with the CDs under the shrink wrap of the container. Also, when you install the software, a screen guided the user to the contract number. So they could understand that there was a license involved.

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Tom Temin: Right, and the terms were one processor per CD and one user per CD.

Joseph Petrillo: That later became a point of controversy, as we’ll see. But the basic idea was it was a single user, whatever that ultimately meant. So we have both the shrink wrap and click wrap types of software license and the written, full written license there, but it’s in the box that was shipped. So shortly thereafter, Ciyasoft began to suspect that there were problems with this single user concept. First of all, they noticed that there was more than one installation on a single computer system. They were getting technical support inquiries from people who didn’t seem to be registered users. And so they started asking the Army about this. And after a while, they became convinced that the software license was being violated. So they filed a claim for breach of contract in 2014. As you mentioned, eight years ago, the Army denied the contract. So they appealed that to the Armed Services Board of Contract Appeals. And then the board did file a decision on this in 2018. And the board usually divides these cases into two parts. One is entitlement, whether you’re entitled to any kind of relief, whether the contractor is going to get relief, whether there’s been a breach or violation of clause, and secondly, how much, quantum. So on the entitlement phase, the government argued that it couldn’t breach a license that it never agreed to. There’s no evidence the contracting officer ever saw the license. So how could we breach it? The board, however, held that it was government policy to use commercial licenses when purchasing commercial software, Ciyasoft had provided its license. The contracting officer had a duty to inquire about the license terms and failed to do so. So it put that burden on the contracting officer and the regulations do require.

Tom Temin: We are speaking with Joe Petrillo. He’s a procurement attorney with Smith Pachter McWhorter, the contracting officer had the opportunity then to say, wait a minute, your license piece of paper here says one user one processor? Can we do this for two users per processor or something like that? There was that opportunity that the contracting officer did not take?

Joseph Petrillo: Sure. And actually the term should have been in the actual contract. And that would have been a better way to proceed in this instance, but it didn’t happen. And at the end of the day, the license that the contractor put in the box was the only license that was there. And the board noted that in commercial contracts in the United States, numerous jurisdictions enforce those licenses even when the user doesn’t see them until the user actually gets the software. So at the end of the day, in this 2018 decision, the board held that the Army had in fact breached the contract in two ways. It had installed the software on more than one computer, and it didn’t provide a list of registered users as the license required.

Tom Temin: Did award damages to the company?

Joseph Petrillo: No. This was just the first phase, the entitlement phase. It then said to the party, you go negotiate damages, and that’s what they’ve been doing ever since. And this ruling indicates that in the last four years, they haven’t agreed on what the damages are.

Tom Temin: Since 2018, on 20 copies of $5,000 software, they’ve probably spent millions of dollars on man hours, then, discussing this.

Joseph Petrillo: Well, there’s some indication in the decision that the contractor believes that the software was copied many, many, many times. And so I think the contractor probably feels that this is a very large claim, and the Army disagrees.

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Tom Temin: Right. Sort of a latter day INSLAW.

Joseph Petrillo: Yes, that was a very sad story, wasn’t it?

Tom Temin: Yes, you younger procurement aficionados will have to look that one up. Anyhow, so what is the latest development, then?

Joseph Petrillo:
The latest development was that the parties are at loggerheads on a couple of important issues regarding damages. On one issue, the Army argued… Well, let me let me back up a bit. In order to understand this issue, you got to understand something strange about this particular software. Usually Ciyasoft requires online registration of the software so it can keep track of whether the software has been installed on more than one computer. Ciyasoft felt that that wasn’t going to work in Afghanistan, there were problems getting internet access, particularly in the field, there were secured computers that didn’t have internet access. So instead of doing that, which it usually did, it required the Army to keep track of the installations and to provide it with a list of registered users. And as I mentioned in the earlier decision, the Army didn’t really do that. So the Army claimed, however, they claimed that that was a failure on the part of Ciyasoft to protect that software and a failure to mitigate damages. You let it become possible to make these multiple copies so we’re not responsible for it. Board ruled that the duty to mitigate damages arises after a breach, or when the circumstances make it clear that a breach is forthcoming, as the court used in the restatement of contracts. The Army didn’t show any circumstances that would indicate to Ciyasoft that it wouldn’t honor the license agreement. So the board ruled that Ciyasoft did not have an obligation to mitigate damages when it decided to change the registration method for its software.

Tom Temin: All right, then what happens next, then there’s back to negotiating?

Joseph Petrillo: Back to negotiating. There’s also a dispute about what it means to have a single user license. Ciyasoft is saying that that means one computer, one user, the Army saying that’s one computer could be multiple users on the same computer. Unfortunately, the board could not resolve that issue, because this was a decision made on motion. And it would have to have further evidence, which would mean a hearing. So the parties now have more guidance on how to negotiate the damages, and we’ll have to see how that goes. I think Ciyasoft has some issues here, and figuring out how many copies were made given the situation and the fact that this took place in a war zone basically.

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