United States: Dispensing Of A Significant Jurisdictional Hurdle, Federal Circuit Holds Incorporated EULA Confers Jurisdiction

On March 6, the Federal Circuit held that a software company sufficiently established jurisdiction under the Contract Dispute Act (CDA) where its end-user license agreement (EULA) was incorporated into another contractor's Federal Supply Schedule (FSS) agreement with the Food and Drug Administration (FDA).

The ruling explains that an allegation of the existence of a contract with the government is all that is necessary to establish jurisdiction. This decision eliminates a long-limiting jurisdictional hurdle prohibiting companies without a direct contractual relationship from bringing direct claims against the federal government.

What happened?

The FDA, under a task order, purchased a software license from Carahsoft, a certified reseller of Avue Technology Corporation's annual technology subscriptions. The task order incorporated by reference Avue's undated and unsigned EULA. The Civilian Board of Contract Appeals (Board) dismissed the appeal explaining that it did not have jurisdiction because the EULA was not a "procurement contract."

Specifically, the Board found that it only had jurisdiction over CDA claim appeals when a contracting officer makes a decision "relative to a contract made by that agency." 41 U.S.C. § 7105(e)(1)(B). That contracting officer's decision must be with respect to a claim by a "contractor"—a term defined as "a party to a Federal Government contract other than the Federal Government." 41 U.S.C. § 7101(7). Therefore, those contractors not a party to a federal contract do not have the ability to appeal decisions under the CDA.

Carahsoft appealed, and the Federal Circuit disagreed with the Board's decision. The Federal Circuit held that "'a plaintiff need only allege' – that is, it need not prove – the existence of a contract to which it is a party 'to establish the Board's jurisdiction under the CDA 'relative to' an express or implied contract with an executive agency.'" Pointing to its prior decision in Engage Learning, the Federal Circuit found the Board misunderstood the court's well-established position on the subject. "[T]he determination of whether or not a contract in fact exists is not jurisdictional; it is a decision on the merits." Therefore, whether or not the EULA was a procurement contract was not a jurisdictional question.

The case has been remanded to the Board to determine whether the EULA is a "procurement contract" "giving rise to rights enforceable by Avue."

Going Forward

Software companies have long failed to overcome this initial jurisdictional obstacle when pursuing claims against the federal government. The Avue decision reduces a significant barrier to potential relief ensuring software suppliers obtain decisions on the merits. However, the Federal Circuit only went so far as to decide the narrow jurisdictional question. Significant questions remain as to whether Avue, as well as other suppliers, can establish it is a party to the contract. Given the current reality and unknowns, software suppliers should continue to consider filing "pass through" claims using their resellers which do have privity of contract with the government.

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