When it was first enacted in 1863, the original purpose of the False Claims Act was to prosecute war profiteers who were selling sick mules and broken muzzle-loaded rifles to the Union Army. In recent years, its use has expanded to reach a broader scope of market participants — including the upstream suppliers and manufacturers of products that ultimately get purchased with federal dollars. Because the government uses technology products and services, this naturally includes tech companies. Consequently, device manufacturers, software developers and technology service providers who do not think of themselves as traditional government contractors have found themselves facing the potential for liability under the False Claims Act.

The Reach of the False Claims Act -

The False Claims Act imposes civil liability when false or fraudulent “claims for payment” are presented to the government. It can reach anyone who presents a false claim to the government, as well as anyone who “causes” another company to present a false claim. It also applies to anyone who makes “a false record or statement” that is likely to influence a claim to the government, regardless of who submits that claim. Those who are held liable under the statute could face treble damages, as well as cumulative civil penalties that can reach as high as $11,000 per claim. This had led to sizable recoveries: The U.S. Department of Justice recently reported recovering $3.5 billion during 2015 alone. Since 2009, it has recovered over $26.4 billion through settlements and judgments. Beyond monetary damages, a company could also face suspension and debarment from federal contracting in some circumstances.

Originally published in Law360 on March 22, 2016.