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COREL CORP. v. U.S.

September 17, 2001

COREL CORPORATION PLAINTIFF,
V.
UNITED STATES OF AMERICA DEFENDANT.



The opinion of the court was delivered by: Roberts, District Judge.

    MEMORANDUM OPINION

Corel Corporation ("Corel"), a computer software manufacturer, has brought this action seeking declaratory and injunctive relief to enjoin the United States Department of Labor ("DOL") from implementing its decision to standardize its software applications exclusively to software manufactured by Microsoft Corporation ("Microsoft"). Plaintiff has filed an application for a preliminary injunction and was granted a consolidated hearing on the merits. The government has countered that this action must be dismissed because this Court lacks subject matter jurisdiction over Corel's claims and that, even if jurisdiction is proper, Corel has failed to state a claim on which relief can be granted. In the alternative, the government has moved for summary judgment based on the administrative record. Because I find that the manner in which DOL conducted its procurement of Microsoft software neither violated the applicable federal procurement statute nor was unreasonable, the government's motion for summary judgment will be granted and Corel's motion for a preliminary injunction will be denied.

BACKGROUND

I. DOL's Decision to Standardize to Microsoft

In 1996, Congress passed the Federal Acquisition Reform Act and the Information Technology Management Reform Act, Pub.L. No. 104-106, 110 Stat. 659 (1996) (codified in scattered sections of 40 U.S.C. and 41 U.S.C.), which together came to be known as the Clinger-Cohen Act. The Clinger-Cohen Act required federal agencies to develop a comprehensive plan for their information technology systems and acquisitions to assure maximum efficiency in those acquisitions consistent with the agency's strategic and management goals. See 40 U.S.C.A. § 1425(d) (West Supp. 2000).

In accordance with the Clinger-Cohen Act, DOL began to reassess its information technology systems. In or around April of 1998, DOL created a Management Review Council ("MRC") to oversee DOL's information technology acquisitions and retained Abacus Technology Corporation ("Abacus") to advise the MRC. (Administrative Record ("AR") Tab 12 at 381.) Abacus subsequently issued two reports, in August and September of 1998 respectively, which assessed DOL's existing information technology infrastructure and recommended improvements. (AR Tab 61; Tab 64.) In November of 1998, the MRC created the Technical Review Board ("TRB") to serve as the MRC's first-tier review board of Abucus's findings. (AR Tab 49 at 1664-65, 1669.)

The Abacus reports revealed that DOL was operating primarily in what is known as a "best of breed" software environment, meaning that several types of software applications from various manufacturers were being used on DOL computers. (AR Tab 12 at 381-83; AR Tab 61 at 2118; AR Tab 64 at 2314-16.) For example, a given component within DOL might have been using Corel's WordPerfect for word processing, Lotus 1-2-3 for spreadsheets, and Microsoft Powerpoint for graphics design. Abacus also found that different components of DOL were not only using different brands of software products, but were also using different versions of each brand of product. (AR Tab 36 at 845-46.) For instance, some components would use Microsoft Word for their word processing while others would use Corel WordPerfect. (Id.) Of the components using WordPerfect, some would be using WordPerfect version 6.1 while others would be using the more recent WordPerfect version 8. (Id.) According to DOL, this lack of standardization resulted in continued computer problems which DOL attributed largely to lack of "interoperability" between the operating system and the software applications and a lack of "integration" between the software applications themselves. (AR Tab 12 at 383-84; Tab 12a at 392a-392q; Tab 64 at 2314-16.)

In light of these findings, the MRC decided to explore standardizing to a single office automation "suite" (i.e. a single package of applications consisting of word processing, spreadsheet, data base, and graphics design programs). (AR Tab 55 at 1839.) It instructed Abacus to collect information on available office suites and selected an evaluation team to recommend which office suite DOL should purchase. (AR Tab 36; Tab 53.) The two competing office suites identified as potentially meeting DOL's needs were Microsoft Office and Corel Office Suite. (AR Tab 12 at 387.)

Microsoft Office was the clear favorite early on and throughout the process. Abacus had recommended conversion to Microsoft Office at the outset (AR Tab 61 at 2120), although that recommendation was not included in Abacus's final report comparing Microsoft Office and Corel Office Suite. (AR Tab 36.) However, a draft justification for choosing Microsoft Office over Corel Office Suite was circulated to DOL's constituent agencies only two days after Microsoft representatives made their presentation to the DOL evaluation team on March 24, 1999. (AR Tab 41 at 1349a-1349d; Tab 42.) Corel did not make its presentation until April 15, 1999, (AR Tab 17 at 466; Tab 28 at 671-72), and provided updated cost and pricing data shortly thereafter. (AR Tab 27 at 666-67.)

On April 19, 1999, the evaluation team recommended to the TRB that Microsoft Office be chosen as DOL's standard office suite. (AR Tab 22 at 587-608.) The evaluation team's justification cited Microsoft Office's compatibility with other Microsoft products being used throughout DOL, particularly Microsoft's operating system. (Id. at 601.) The justification also noted the perceived superior "integration" amongst the various components of Microsoft Office (i.e. the word processor, spreadsheet, and data base programs all worked together smoothly). (Id.) The evaluation team added that Microsoft Office was the market leader in office suites, having been "installed on more than 80 percent of all personal computers" and noted that "the majority of the Department is already using or planning to move to Microsoft Office." (Id. at 601) (emphasis in original). Finally, the evaluation team asserted that a conversion to Microsoft Office would be less expensive than a conversion to Corel Office Suite. (Id. at 604.)

In late May or early June of 1999, the TRB concurred with the evaluation team and subsequently issued its final recommendation to the MRC on June 15. (AR Tab 12.) The TRB adopted the evaluation team's reasoning that DOL's predominant use of Microsoft's operating system, the fact that many agencies within DOL had were already using or planned to convert to Microsoft, Microsoft Office's reputation from market research as "the top-rated automation suite for the value it provides to its users," and the lower cost of converting to Microsoft as opposed to Corel all militated in favor of selecting Microsoft Office over Corel Office Suite. (Id. at 385.) On June 17, 1999, the MRC officially adopted the TRB's recommendation that Microsoft Office be chosen. (AR Tab 11.)

The process leading up to the MRC's final recommendation was not without controversy. Several DOL constituent agencies, particularly those that were using Corel software, roundly criticized the analysis and purported justifications for standardizing to Microsoft-only software. (AR Tab 8 at 337-44, Tab 20 at 476-84.) These agencies expressed serious concerns about the adequacy of the cost-benefit analysis that had been done and strongly questioned the soundness of Abacus's technical assessment of the benefits associated with switching completely to Microsoft. (Id.) Moreover, Corel repeatedly expressed its concern in writing to DOL officials regarding DOL's purported failure to comply with applicable federal procurement rules which, in Corel's view, required DOL to provide Corel with more specific information about DOL's minimum technical specifications so that Corel could make a comprehensive presentation of its product. (AR Tab 9 at 354-56; Tab 17 at 460-61.) Although not every criticism and complaint was resolved, DOL proceeded with its decision to standardize to Microsoft.

II. DOL's Implementation of the Standardization Decision

The agreement between DOL and GTSI gives DOL the right to place delivery orders with GTSI under the NIH contract over three years at a total cost of approximately $2.8 million. (AR Tab 3A at 13.) On July 8, 1999, DOL's Office of the Assistant Secretary for Administration and Management ("OASAM") placed with GTSI a $350,000 delivery order for various Microsoft software licenses. (AR Tab 3A at 13; Tab 3B.) The entire standardization process is expected to cost DOL $22.4 million over three years. (AR Tab 11 at 376.)

III. Corel's Failed Bid Protest and This Lawsuit

Corel responded to DOL's placement of the OASAM order by lodging a protest with the General Accounting Office ("GAO"). (Compl. at ¶ 25.) The GAO dismissed Corel's protest. See In re Corel Corp., No. B-283862 (Comp.Gen. Nov. 18, 1999).

Rebuffed by GAO, Corel filed this suit challenging the DOL's decision standardize to Microsoft Office on the ground that the decision was not made in accordance with federal procurement law and was arbitrary and capricious under the Administrative Procedure Act ("APA"), 5 U.S.C. § 701-706 (1994). The government then moved to dismiss or, in the alternative, for summary judgment. Corel countered by applying for a preliminary injunction to enjoin further implementation of the standardization decision and requested a consolidated hearing on the merits.*fn1

In its opposition to plaintiffs motion for a preliminary injunction, DOL indicated for the first time that it would be placing another order for approximately $1 million worth of Microsoft licenses from an as yet unnamed reseller. Corel immediately moved to temporarily enjoin DOL from placing that order. Following oral argument on Corel's motion, I denied it from the bench. GTSI subsequently intervened as a defendant and Corel was permitted to take limited discovery on the issue of whether DOL had acted in bad faith by choosing Microsoft before Corel was given a fair opportunity to make its presentation to DOL. Pursuant to Federal Rule of Civil Procedure 65(a)(2), a consolidated hearing on Corel's motion for a preliminary injunction and the merits followed.

DISCUSSION

I. The Statutory and Regulatory Scheme

This dispute involves the sometimes arcane world of federal procurement law and, in particular, the intersection between two federal procurement statutes. The first statute, the Competition in Contracting Act of 1984 ("CICA"), Pub.L. No. 98-369, 98 Stat. 1175 (1984) (codified at 10 U.S.C. § 2304 and 41 U.S.C. § 253), was enacted to combat wastefulness in the federal procurement process. Congress had grown concerned that federal agencies were overspending on goods and services by making noncompetitive procurements from a single vendor instead of reaping the natural cost benefits of a full and open competition among several vendors. See H.R. Conf. Rep. No. 861, at 1421 (1984), reprinted in 1984 U.S.C.C.A.N. 1445, 2109. Accordingly, CICA amended the then-existing federal procurement regime to impose a general requirement that federal government agencies solicit and procure property or services via "full and open competition through the use of competitive procedures" as described in the CICA and accompanying Federal Acquisition Regulations ("FAR"). 41 U.S.C. § 253(a)(1)(A). These competitive procedures generally require an agency to publish a notice of solicitation, specify its needs, use advanced planning and market research, avoid restrictive specifications, state the factors it will consider in assessing bids and the relative weights it will assign to those factors, conduct written or oral discussions with competitive bidders, and award the contract based on the bids as they are received or with minor clarifications. See id. at §§ 253a, 253b.

Despite the strong preference for full and open competition, not every government procurement must comply with CICA. An agency can avoid having to follow CICA's full and open competition rules in one of two ways. First, CICA itself contains several relatively narrow exceptions which are listed in section 253(c). For instance, under the so-called "sole source" exception, an agency may award a contract without full and open competition when "the property or services needed by the executive agency are available from only one responsible source and no other type of property or services will satisfy the needs of the executive agency." 41 U.S.C. § 253(c)(1). The FAR further provides that "[a]n acquisition that uses a brand name description or other purchase description to specify a particular brand name, product, or feature of a product, peculiar to one manufacturer does not provide for full and open competition regardless of the number of sources solicited." 48 C.F.R. § 6.302-1(c) (1999). Before an agency can engage in a "sole source" or "brand-name only" procurement, the agency's contracting officer must satisfy a series of requirements justifying and authorizing the use of noncompetitive procedures. See 41 U.S.C. § 253(f); 48 C.F.R. § 6.303-1, 6.303-2, 6.304, 6.305. Once the contracting officer jumps through these statutory and regulatory hoops, the procurement may proceed on a noncompetitive basis.

The second way for an agency to exempt itself from CICA is to procure goods or services in accordance with another federal procurement statute. In a savings clause, CICA specifies that its open competition requirements do not apply "in the case of procurement procedures expressly authorized by statute." 41 U.S.C. § 253(a)(1). Thus, the exceptions contained in CICA itself and those contained in other procurement statutes "are separate and distinct routes which an agency may pursue without compliance with the full and open competition requirement." National Gateway Telecom, Inc. v. Aldridge, 701 F. Supp. 1104, 1113 (N.J. 1988), affd, 879 F.2d 858 (3d Cir. 1989).

Of chief relevance here is FASA's streamlining of procurement via so-called "indefinite quantity contracts" which are also known as "task or delivery order contracts." 48 C.F.R. § 16.501-1, 16.501-2. Task and delivery order contracts, of which the NIH's Electronic Computer Store Program is an example, essentially create a menu of goods or services of an indefinite quantity that can be ordered by an agency on an as needed basis. See 41 U.S.C.A. § 253k (West Supp. 2000); 48 C.F.R. § 16.501-1.*fn2 Importantly, FASA also provides that when an agency makes an order pursuant to a task or delivery order contract, the agency is not required to publish a notice of solicitation nor is it required to hold a "competition . . . that is separate from that used for entering into the contract." 41 U.S.C.A. at § 253j(a)(2); see also 48 C.F.R. § 6.001(f) (exempting from CICA and FAR's open competition requirements "[o]rders placed against task order and delivery order contracts entered into pursuant to subpart 16.5."). In other words, once the task or delivery order contract itself has been obtained through full and open competition, orders made pursuant to that contract are immune from CICA's full and open competition requirements. FASA also contains a nonreviewability clause which bars bid protests connected to orders placed under task or delivery order contracts "except for a protest on the ground that the order increases the scope, period or maximum value of the contract under which the order is issued." Id. at § 253j(d). In sum, these provisions work to streamline the federal procurement process by allowing agencies to create menus of goods and services through full and open competition, and by preventing disappointed bidders in most instances from protesting the orders that agencies make from those menus.

II. Corel's Complaint and Motion for a Preliminary Injunction

Corel has brought this action arguing that DOL failed to comply with CICA because DOL did not competitively solicit proposals from office suite manufacturers nor did it justify and authorize the use of noncompetitive procedures. In Count I of its five-count complaint, Corel alleges that DOL's decision to standardize its office automation suite to Microsoft products was arbitrary and capricious in violation of APA, CICA, the FAR, and the North American Free Trade Agreement ("NAFTA") as implemented by the FAR. In Counts II and III, Corel alleges that DOL's purchase of Microsoft-only products constituted a improper sole source award and restriction on competition. Count IV alleges that DOL unlawfully bundled its office automation suite with its operating system. Count V alleges that DOL failed to comply with the NAFTA-implementing provisions contained in the FAR because DOL unfairly favored Microsoft, an American company, over Corel, a Canadian company.

To be entitled to the preliminary injunctive relief it now seeks, Corel "must show 1) a substantial likelihood of success on the merits, 2) that it would suffer irreparable injury if the injunction is not granted, 3) that an injunction would not substantially injure other interested parties, and 4) that the public interest would be furthered by the injunction." Mova Pharm. Corp. v. Shalala, 140 F.3d 1060, 1066 (D.C.Cir. 1998) (internal quotations and citation omitted); see also Washington Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir. 1977). As the D.C. Circuit has held, "[t]hese factors interrelate on a sliding scale and must be balanced against each other." Serono Labs., Inc. v. Shalala, 158 F.3d 1313, 1318 (D.C.Cir. 1998). However, there is no need to proceed past the first step of the preliminary injunction analysis if the government's dispositive motion should be granted. Accordingly, I will address that motion first.

III. Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment

The government and GTSI*fn3 argue that this action must be dismissed for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), or for failure to state a claim under Rule 12(b)(6). In the alternative, the government and GTSI maintain that summary judgment must be entered in their favor based on the administrative record. Before I address ...


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