Agency revokes third-party software license, but original provider still claims violation

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If an agency purchases software through a reseller under a GSA Schedule contract, is the software vendor entitled to a claim if the agency cancels the license? After all, it wasn’t the master builder. This is the essence of a case that has just been filed by the Civil Contracts Appeal Commission. Smith Pachter McWhorter’s procurement attorney, Joseph Petrillo, brought 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 will be associated with a license when sold, but some software is sold through a reseller, distributor or any reseller. And if so, in the government space, does the software maker have any direct rights under this license with the federal government and can they enforce those rights? In this case, Avue Technologies sold its software through a Carahsoft distributor under that distributor’s Federal Supply Schedule contract. It is a large multi-price command vehicle administered by the General Services Administration. The GSA Schedule agreement included the license to the Avuew software, and that license listed what the licensee could do with the software and had specific obligations that fell directly to Avue Technologies. In this case, the software was sold by subscription. And the order called for a base year of subscription, and with four one-year options. The government in this case, which was the Food and Drug Administration, decided not to exercise any of the options. And the order ended after the base year. For some reason this is not stated in the opinion. Avue Technologies found that the FDA misused the software or continued to use it in a manner inconsistent with the license. They therefore filed a complaint for license infringement. This claim was also taken directly to the FDA and GSA.

Tom Temin: We don’t know if they continue to use it after ostensibly i.e. the FDA terminated the license agreement, or maybe they used it for a while to reduce usage and transfer data. It’s hard to say then, in other words?

Joseph Petrillo: Okay, this particular decision doesn’t go into the specifics of why you felt there was a violation. It simply says that Avue submitted a claim based on this. As I mentioned, the complaint was made to both the FDA and the GSA. This gets complicated in GSA Schedule contracts. Some disputes are the responsibility of the ordering organization. Other disputes must go directly to the GSA as the agency administering the contract vehicle. And it’s not always clear which one, so in this case the requests were denied. And Avue appealed directly to the Civil Contract Appeals Board. And initially the government decided to reject saying that Avue was just a subcontractor, and the board said no, they were claiming rights under this license that were directly owed to them by the government. So it’s not just a subcontractor in that sense. After that, the government again tried to cancel the contract. And in that case, he said you don’t have jurisdiction over the council. Because it’s not a supply contract. The life software license is not a supply contract. And the board looked at the definition of supply contract in the contract dispute law, as well as in the FAR, and they found that it wasn’t really a supply contract as it is was defined there. The license did not obligate a view to provide services unless it was incorporated into a separate contract, in this case, Carahsoft’s Federal Supply Schedule contract, and the government did not pay Avue directly, he was paying Carahsoft. The commission therefore decided that it was not a supply contract and that it had no jurisdiction. Because they had no jurisdiction. They didn’t go ahead and decide whether, for example, the license was binding on the government. Seemed to indicate that it seemed like it was binding. Has not decided whether there is some kind of direct contractual relationship with Avue, what is called contract confidentiality. None of this was decided because the council simply ruled that it had no jurisdiction to hear the case.

Tom Temin: We speak with Smith’s Joe Petrillo sourcing attorney, Pachter McWhorter. So really, the case was dismissed not on the merits, but simply on the question of jurisdiction. So we don’t know what Avue’s options are? Can they go to, say, the Federal Claims Court now?

Joseph Petrillo: Well, Avue can certainly appeal that decision to the Court of Appeals for the Federal Circuit and see if she can get a different result. But this ruling raises the larger question of what a software maker does when it sells its software licenses through a reseller. The Armed Services Board of contract appeals has apparently not ruled on this issue, and it could go in a different direction for DoD contracts. Beyond that, even the civil board noted that they accepted this type of case and ruled it when the software maker submitted their claim through the prime contractor as a passing claim . This is another avenue that software makers can use. But of course, if the prime contractor is out of commission and solvent, there are other hurdles that could make this difficult or impossible to do.

Tom Temin: Sure, and Carahsoft is barely bankrupt or inoperative. He is a very, very successful dealer. But it really seems like that’s not part of this dispute, because even if it was a reseller, once you bought something, in this case Avue, you bought it. You didn’t buy Carahsoft, you bought Avue using Carahsoft as your delivery vehicle. But the contract does not seem to me as if it was with Carahsoft.

Joseph Petrillo: Well, that’s what Avue thought in this case, they failed to convince the board that was the case under the law of contract disputes. There are also other possibilities. I mean, a lot of software is copyrighted. And if the violation of the license amounts to copyright infringement, the copyright holder can directly sue the government for infringement under a separate law. This lawsuit is before the Federal Court of Claims. And in fact, the Court of Federal Claims has broader contract jurisdiction than contract disputes, the jurisdiction of statute. There may therefore be opportunities to go directly to the Federal Claims Court. There are many questions here, and not all of them have answers. So if you’re a software maker, I think this is a troubling case, because it indicates that there is at least one avenue you might want to take to enforce your rights. And it is closed to you.

Tom Temin: It almost reminds me of the Inslaw case, I think it was 20 years in the 70s and 80s and I think in the 90s. I lost track about 20 years ago of Inslaw, but I doubt that Avue wants to pursue him for so long.

Joseph Petrillo: Fortunately, Inslaw was a sui generis and rather unique case, but most disputes don’t last that long.

Tom Temin: Joseph Petrillo is a procurement attorney at Smith Pachter McWhorter. Thank you very much.

Joseph Petrillo: Thanks Tom.