Agency cancels third-party software license but original vendor still claims infringement

If an agency buy software through a reseller on a GSA Schedule contract, does the software vendor have a claim if the agency cancels the license?

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If an agency buys software through a reseller on a GSA Schedule contract, does the software vendor have a claim if the agency cancels the license? After all, it wasn’t the prime contractor. That’s the gist of a case just tossed by the Civilian Board of Contract Appeals. Smith Pachter McWhorter procurement attorney Joseph Petrillo brought the lessons learned so far in this case, to the  Federal Drive with Tom Temin.

Interview transcript:

Tom Temin: Joe, tell us about this case.

Joseph Petrillo: Sure. This is a case involving Avue Technologies software. As you know, all software is going to have a license associated with it when it’s sold, but some software sold through a dealer or distributor or reseller of some kind. And if that’s the case, in the government space, does the software manufacturer have direct rights under that license with the federal government and can it enforce those rights? In this case, Avue Technologies sold their software through a distributor Carahsoft under that distributor’s Federal Supply Schedule contract. That’s a big multi-award ordering vehicle administered by the General Services Administration. The GSA Schedule contract included the Avuew software license, and that license listed what the licensee could do with the software and had specific obligations in it that flowed directly to Avue Technologies. In this case, the software was sold on a subscription basis. And the order provided for a base year of subscription, and with four one-year options. The government in this case, it was the Food and Drug Administration, decided not to exercise any of the options. And the order came to an end after the base year. For some reason that’s not stated the opinion. Avue Technologies felt that FDA had misused the software or continue to use it in some way that was inconsistent with the license. So they brought a claim for infringement of the license. That claim was brought directly to FDA and GSA as well.

Tom Temin: We don’t know whether they continue to use it after they ostensibly, that is the FDA ended the license agreement, or perhaps they used it for some period of time to wind down use of it and transfer the data over. It’s hard to tell then, in other words?

Joseph Petrillo: Right, this particular ruling doesn’t go into the details of why you felt that there was an infringement. It just says that Avue submitted a claim on that basis. As I mentioned, the claim went to both FDA and GSA. It gets complicated in GSA Schedule contracts. Some disputes are within the ambit of the ordering agency. Other disputes have to go directly to GSA as the agency that administers the contract vehicle. And it isn’t always clear which, so in this instance, claims were denied. And Avue appealed directly to the Civilian Board of Contract Appeals. And initially, the government moved to dismiss saying that Avue was only a subcontractor, and the board said no, he was claiming rights under this license directly owed to it by the government. So it’s not just a subcontractor in that sense. After that happened, government then tried again to get the contract dismissed. And in this case, it said you don’t have jurisdiction to the board. Because this is not a procurement contract. The life software license is not a procurement contract. And the board looked to the definition of procurement contract in the Contract Disputes Act, and also in theFAR, and they found that it really wasn’t a procurement contract as defined there. The license did not obligate a view to provide services unless it had been incorporated into a separate contract, in this case, the Federal Supply Schedule contract of Carahsoft, and the government didn’t pay Avue directly, it was paying Carahsoft. So the board decided it was not a procurement contract, and they did not have jurisdiction. Because they didn’t have jurisdiction. They didn’t go forward and decide whether for instance, the license was binding on the government. Seemed to indicate it looked like it was binding. Didn’t decide whether there was any kind of direct contractual relationship with Avue, so-called privity of contract. None of that got decided because the board simply held it did not have the jurisdiction to hear the case.

Tom Temin: We’re speaking with procurement attorney Joe Petrillo of Smith, Pachter McWhorter. So really then the case got tossed not on the merits so much as just the jurisdictional question. So we don’t know then, what are Avue’s options? Can they go to, say, the Court of Federal Claims now?

Joseph Petrillo: Well, Avue certainly can appeal this ruling to the Court of Appeals for the Federal Circuit and see if it can get a different result. But that decision poses the broader question of what does a software manufacturer do when it’s selling its software licenses through a reseller. The Armed Services Board of contract appeals apparently hasn’t ruled on this issue, and it may go in a different direction for DoD contracts. Beyond that, even the civilian board noted that it had accepted this type of case and adjudicated it where the software manufacturer submitted its claim through the prime contractor as a pass through claim. That’s another avenue that software manufacturers can use. But of course, if the prime contractor is out of operation and solvent that there are other obstacles that might make that difficult to do or impossible to do.

Tom Temin: Sure, and Carahsoft is hardly out of business or inoperative. It’s a highly, highly successful reseller. But it seems like really, it’s not part of this dispute, because even though it was a reseller, once you buy something, in this case, Avue, you’ve bought it. You haven’t bought Carahsoft, you’ve bought Avue using Carahsoft as a vehicle to deliver. But the contract doesn’t sound to me like it’s with Carahsoft.

Joseph Petrillo: Well, that’s what Avue thought in this instance, they weren’t successful in convincing the board that that was the case under the Contract Disputes Act. There are other possibilities as well. I mean, a lot of software is copyrighted. And if the breach of the license amounts to a copyright infringement, the copyright owner can sue the government directly for infringement under a separate statute. That suit goes to the Court of Federal Claims. And in fact, the Court of Federal Claims has broader contract jurisdiction than just contract disputes, act jurisdiction. So there may be some opportunities to go directly to the Court of Federal Claims. There are a lot of questions here, and not all of them have answers. So if you’re a software manufacturer, I think this is an unsettling case, because it does indicate that there’s at least one route you might want to have to vindicate your rights. And it’s closed to you.

Tom Temin: It reminds me almost of the Inslaw case, I think that ran for 20 years litigation over that back in the ’70s and ’80s and I think into the ’90s. I lost the thread about 20 years ago of Inslaw, but I doubt Avue is going to want to pursue it quite that long.

Joseph Petrillo: Fortunately, Inslaw was a sui generis case and rather unique one, but most disputes don’t drag on for nearly that long.

Tom Temin: Joseph Petrillo is a procurement attorney with Smith Pachter McWhorter. Thanks so much.

Joseph Petrillo: Thank you, Tom.

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