HEALTHeSTATE, LLC developed digital healthcare systems and software for the government between 2006 and 2011. In 2012, ASM Research, a prime contractor for the government, hired HEALTHeSTATE as a subcontractor to build a veterinary services program called ROVR using HEALTHeSTATE's existing software. In 2014, ASM Research delivered the ROVR source code to the government with Government Purpose Rights. HEALTHeSTATE later asserted that it retained ownership of the code and that the government's use infringed its copyright or breached a contract. HEALTHeSTATE filed suit in the Court of Federal Claims alleging breach of contract and copyright infringement. The government and ASM Research moved for summary judgment. The Claims Court granted the motions, finding that HEALTHeSTATE failed to establish a valid contract because the alleged license terms were hidden from government officials, and that its copyright registrations were invalid because the company knowingly submitted inaccurate deposit copies. HEALTHeSTATE appealed to the Federal Circuit.
The Federal Circuit addressed three primary legal issues. First, regarding the Contract Disputes Act, the court affirmed that a claim must demand a 'sum certain' to allow a contracting officer to settle the matter with finality. HEALTHeSTATE's letter to the government requested compensation based on a range of 25% to 50% of contract values, which the court found to be an open-ended amount that failed to provide adequate notice of the claim's basis and amount. Second, on the breach of contract claim, the court analyzed whether an End-User License Agreement (EULA) embedded in the software formed a valid contract with the government. The court found that the EULA was 'hidden' and never displayed to users or government officials. Because no government agent with actual authority ever saw the EULA, there was no mutuality of intent or acceptance, and thus no valid contract existed. The court also noted that HEALTHeSTATE waived any argument regarding a different contract by failing to raise it during summary judgment proceedings. Third, regarding copyright infringement, the court applied the standard from 17 U.S.C. § 411(b)(1). This statute invalidates a registration if the inaccurate information was submitted with knowledge that it was inaccurate, and the inaccuracy would have caused the Register of Copyrights to refuse registration. The court found that HEALTHeSTATE's CEO admitted to submitting deposit copies containing code versions newer than the claimed completion dates and altered to remove third-party copyright notices. The court determined that HEALTHeSTATE was at least willfully blind to these inaccuracies. Since the Copyright Office confirmed it would have refused registration had it known of these errors, the registrations were invalid, and HEALTHeSTATE could not maintain an infringement claim.
The decision reinforces the strict requirement that government contractors must assert claims with a specific sum certain to trigger the Contract Disputes Act. It also clarifies that hidden software licenses do not bind the government unless an authorized official actually sees and accepts them. Finally, the ruling serves as a warning to software developers that submitting inaccurate deposit copies to the Copyright Office, even if done without explicit malice but with willful blindness, can invalidate copyright protection and bar infringement lawsuits. The case is affirmed with costs against HEALTHeSTATE.
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