Counsel Commentary: The Software Reseller Problem

The federal government spends billions of dollars each year on commercial software licenses that are commonly sold through resellers who hold a prime contract with the government. The use of resellers allows commercial software vendors to avoid the burdensome requirements of being a prime contractor to the government, among other advantages. 

A recent decision from the Civilian Board of Contract Appeals (CBCA), however, serves as a warning to resellers. In a case on remand from the Federal Circuit, the CBCA ruled that Avue Technologies Corporation could not assert a claim against the government for breaking Avue’s end-user licensing agreement (EULA). Avue sells software to agencies through Carahsoft Technology Corporation, a large reseller that holds a Federal Supply Schedule (FSS) contract with the General Services Administration. 

In 2015, the Food and Drug Administration (FDA) placed an order under Carahsoft’s FSS contract for a software subscription. The FDA used Avue’s software in the base year of the order but did not exercise any of the four option years. Avue investigated the FDA’s account activity and learned that prior to the expiration of the base year, the FDA downloaded documents that Avue considered proprietary and believed this was a violation of the terms of its EULA. The FDA refused to act on the claim, and Avue filed an appeal with the CBCA in 2019. The CBCA ruled that Avue could not pursue a claim “in its own capacity” for breach of the EULA’s terms. Avue appealed to the Federal Circuit and prevailed. The Federal Circuit then instructed the CBCA to decide the merits on remand. 

In its ruling, the CBCA rejected Avue’s argument that it had privity of contract with the government, denying its claim. Going forward, if the CBCA decision is not overturned, software vendors that use resellers will need to take certain steps to ensure that they have the ability to enforce their EULAs. 

RJO shareholder Stephen L. Bacon discusses the implications of the ruling in his monthly Contract Management Magazine column, “The Software Reseller Problem.” In the article, Bacon explains the background that led up to the ruling, the CBCA’s initial proceedings, the federal circuit’s reversal and the CBCA’s recent ruling. 

“The CBCA’s decision in Avue underscores the need for software manufacturers to carefully scrutinize their agreements with resellers,” Bacon writes. “Avue could have avoided the procedural roadblocks it has faced in litigation if Carahsoft had been willing to “sponsor” Avue’s claim.”

The piece, which appears in the magazine’s October issue (subscription required), is the latest entry in Bacon’s monthly Counsel Commentary column and is published by the National Contract Management Association. It was used with permission.

Read Bacon’s latest Contract Management article here.