On June 27, 2018, the Armed Services Board of Contract Appeals (ASBCA) held for the first time that the government, much as with commercial customers, does not affirmatively need to agree to or even be aware of a commercial computer software license to be bound by the terms of the license. In Appeal of CiyaSoft Corporation, CiyaSoft appealed a claim asserting that the Army had breached the terms of its license by using more copies of the software than were permitted. Specifically, CiyaSoft objected to the government’s installation of the software on multiple computers, passing the software to non-government personnel and copying of the software thousands of times without CiyaSoft’s consent. When CiyaSoft objected and ultimately filed a claim, the Army denied CiyaSoft’s claim asserting that the contract between the parties contained no specific terms regarding how the government would access, secure and protect the software.

However, CiyaSoft had included with the software license terms limiting the software’s use in the manner by the government: (i) inside the box containing the CDs with the software, (ii) on a piece of paper inside the software’s shrinkwrap, and (iii) in clickwrap that was displayed during the software’s installation process. On appeal, the ASBCA found that although the contract between the parties did not negotiate all of the relevant license terms and the government never saw or discussed those license terms with CiyaSoft, the Army had a duty to inquire about those license terms and its failure to do so imputed knowledge of the licensing terms on the Army. The ASBCA explained:

The circumstances support finding the contracting officer had a duty to inquire as to its terms, which he failed to do, and to impute knowledge of same to him. Accordingly, based on the fact that it is, and has been, the policy of the federal government prior to the award of the contract to accept the terms of licensing agreements offered by vendors of commercial software that are customarily provided by the vendor to other purchasers and that vendors of commercial software have long included shrinkwrap and clickwrap license agreements with their software, which many courts have found to be valid, enforceable contract terms and the FAR currently also recognizes the validity of clickwrap and shrinkwrap licenses, we find the contract included the licensing agreement appellant shipped with its software. We also hold the government can be bound by the terms of a commercial software license it has neither negotiated nor seen prior to the receipt of the software, so long as the terms are consistent with those customarily provided by the vendor to other purchasers and do not otherwise violate federal law.

While the government generally is bound only by those terms that it has negotiated with the contractor, CiyaSoft shows that customary terms in commercial computer software licenses, which are not typically negotiated with the government, may be incorporated by reference into a government contract and are, thus, binding on the government much like they would be on any other end user customer. This is true even where the government does not directly negotiate the license terms with the contractor or is even aware of the terms, as the burden is on the government to object to any license terms it does not wish to be bound by.

Takeaway

As the government leverages greater commercial practices and seeks greater participation by commercial businesses in its procurements, the takeaways from CiyaSoft instruct that contractors should review their commercial computer software licenses to ensure that the terms maximize the protections afforded to the contractor’s proprietary interests in their software, namely terms that govern the use, access, distribution and reproduction of the software.  Contractors should also take note that commercial computer software is not limited to commercial item procurements but can be solicited or proposed in response to a requirement in an otherwise non-commercial item procurement. Accordingly, it is important that licenses be provided with commercial computer software in any procurement where such software is being delivered to the government. Finally, while Ciyasoft is certainly a victory for contractors, as a matter of best practice, contractors should still directly negotiate any license terms with the government, whenever possible, to avoid any confusion or the need to escalate the matter to the level of a claim on a dispute.