US District Judge Gray Miller said that IBM’s conduct “smacked of intentional wrongdoing”

IBM has lost a major court battle against rival BMC Software this week, with a US court ordering the technology specialist to pay $1.6 billion to BMC in reparations. 

The case relates to the two companies’ relationship with US telecoms giant AT&T, with BMC accusing IBM of stealing the operator as a client, breaking various agreements in the process.

Back in 2007, BMC struck a deal with AT&T to provide software services for the operator’s mainframe computers. At the same time, AT&T was already partnered with BMC’s rival, IBM, for mainframe servicing.  

As a result, in 2008, IBM and BMC signed an agreement to govern their business relationship, which was amended in 2015 to include a clause disallowing IBM from moving mutual clients to its own software.

Despite this agreement, however, later that year AT&T began what was called Project Swallowtail, migrating from BMC’s software to IBM’s.

BMC accused IBM of deliberately stealing the AT&T account in direct violation of their agreement and took legal action in 2017.

Now, five year’s later, US District Judge Gray Miller has ruled heavily in favour of BMC, saying that IBM had induced BMC to sign the 2015 amendments in order to gain an advantage in luring AT&T to migrating to their services.

"The court finds by clear and convincing evidence that IBM fraudulently induced BMC into entering the 2015 OA so that it could exercise rights without paying for them, secure other contractual benefits, and ultimately acquire one of BMC’s core customers," wrote Judge Miller. "IBM did this intentionally."

The judge noted that IBM’s close access to BMC software being used by AT&T, giving them insights into how to win over the client.

"IBM’s scheme to defeat BMC’s contractual rights cheated BMC – a software company wholly dependent on the licensing of its intellectual property – out of hundreds of millions of dollars it was entitled to receive under the contract in exchange for the rights IBM exercised. Based on all the foregoing facts, the court finds that IBM’s conduct in this case was both fraudulent and malicious," Miller said.

BMC had initially sought $791 million for IBM’s breach of contract and an additional $104 million in lost business from the AT&T account.

In his ruling, however, Judge Miller awarded BMC $717.7 million in contractual damages, $168.2 million in prejudgement interest, and a further $717.7 million in punitive damages. 

“IBM’s business practices — including the routine eschewal of rules — merit a proportional punitive damages award,” he said. 

IBM says that the verdict is “entirely unsupported by fact and law” and will appeal the decision.


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