Nicole Owren-WiestJohn E. McCarthy Jr.Jonathan M. BakerSkye MathiesonM. Yuan ZhouChris Garcia

On June 27, 2018, in Appeal of CiyaSoft Corporation, the Armed Services Board of Contract Appeals held that the Government can be bound by terms of a commercial software license agreement that the contracting officer (CO) has neither negotiated nor seen.  CiyaSoft Corporation (CiyaSoft) submitted a claim asserting that the Army had breached its contract to purchase computer software by using more copies of the software than were permitted by the contract.  The Army denied the claim, in part, because the contract contained no terms specifying how the government would secure and protect the software.  Instead, CiyaSoft had included license terms limiting the software’s use (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 Board found that although the contract included no license terms and the CO never saw or discussed with CiyaSoft the license terms that accompanied the software delivery, the CO had a duty to inquire about what use rights applied to the software and the failure to do so imputed knowledge of the licensing terms on the Army.  Pointing to the longstanding policy embodied in the FAR that that the government should accept commercial computer license terms that are customarily provided to other purchasers, the Board held that “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.”

After finding that the Army could be subject to CiyaSoft’s license terms, the Board then assessed whether the software met the definition of “commercial computer software” under FAR 2.101 given that the software had not been sold to the individual members of the general public customarily and that it had been modified prior to its delivery to the Army.  The Board found that the software was “commercial” largely because it was developed without Government funds, had been sold to at least one non-governmental entity, it had been considered a “commercial item” by the CO, and modifications to the software prior to delivery to the Army did not affect the software’s core purpose.