ASBCA Enforces Contractor’s Commercial Software License Against Government | Holland & Knight LLP

The recent decision of the Armed Services Board of Contract Appeals (ASBCA) in CiyaSoft Corporation confirms that government agencies purchasing commercial computer software will be subject to the terms of a vendor’s commercial license where the contract does not require specific license terms, even if the agency has not reviewed or discussed the terms of the license with the seller. In CiyaSoft Corporation, a software vendor has entered into a contract to sell 20 commercial translation software licenses to the government. When the software was delivered, it included the contractor’s standard Single User License Agreement, the terms of which were not previously known and were not negotiated. The government then installed the same copy of the software on multiple computers. The commercial entrepreneur, appearing for himselfsued for violation of the End User License Agreement.

The ASBCA supported the appeal in part, finding that the government breached the End User License Agreement. The purchase of the license first proceeded through an email quote from the seller, a single source justification, and then the issuance of an SF 1449, which is used to 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). However, it did not include FAR 52.227-19 (Commercial Computer Software License) and did not otherwise address any other conditions or restrictions on government license rights to the software. Instead, the contract simply included a Contract Item Number (CLIN) indicating that it was for 20 single-use licenses.

The ASBCA found that although the procurement officer never discussed the terms of a license agreement and the contract was silent regarding the terms of the license agreement, the contract specifically referred to “licenses” and the government was unable to identify any other potentially relevant license agreements. Additionally, the government did not include the commercial computer software license clause in FAR 52.227-19. FAR 52.227-19 includes several rights that often do not appear in contractors’ standard commercial software licenses, such as the right to modify, adapt, or combine the software with other computer software and to provide computer software to support contractors or sub-contractors.

The ASBCA concluded that “it does not matter that the license agreement has not been negotiated, nor that the terms are known to the contracting officer. It is government policy, when granting of commercial software licenses, to accept the license terms customarily provided by the supplier to other purchasers, so long as the license complies with federal law and otherwise satisfies the needs of the government.” At the time the contract was was awarded in 2010, there was no provision in the Federal Acquisition Regulation (FAR) dealing with “clickwrap” or “shrinkwrap” commercial forms of license agreements. The ASBCA further cited current commercial law in many jurisdictions that recognize the enforceability of these types of licensing agreements.Finally, the ASBCA found that the government had received a notice of investigation stating that the licenses had been returned and incorporated into the agreement, but that he had not not investigated the conditions.

The ASBCA ultimately concluded that:

Therefore, in view of the fact that it is, and has been, Federal Government policy prior to contract award to accept the terms of license agreements offered by vendors of commercial software which are customarily supplied by the vendor to other purchasers and commercial software vendors have long included shrink-wrap and click-wrap license agreements with their software, which many courts have found valid and enforceable and which the FAR currently recognizes also the validity of the click-wrap and shrink-wrap licenses, we find that the contract included the license agreement that the appellant delivered with his software. We also hold the government may be bound by the terms of a commercial software license that it did not negotiate or view prior to receipt of the software, as 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 good news for commercial software vendors and is fully compliant with FAR 12.212, which provides that the government must acquire commercial computer software and software documentation under the same license term that the contractor customarily provides to the public. . The ruling, of course, is limited to the factual background before the ASBCA, including the absence of FAR 52.227-19. This clause is not required, but if included, FAR 27.405-3(b) provides that “inconsistencies in the vendor’s standard commercial agreement regarding the government’s right to use, reproduce, or disclose the computer software are reconciled by this clause”.

the CiyaSoft The ruling upholds contractors’ right to enforce the terms of their regular commercial license agreements against the government, particularly where the government does not include other software rights terms. The decision also reiterates that government agencies should ensure that they specify in the contract any particular license rights they wish to obtain over commercial computer software and that they review any relevant commercial software license in advance to confirm whether the usual license of the contractor provides sufficient fees to satisfy the requirements of the agency.