IBM was ordered to pay Houston-based computer company BMC $1.6 billion for fraud and breach of contract because it moved joint customer AT&T from BMC software to IBM software.
On Monday, U.S. District Judge Gray Miller delivered his final judgment [PDF] in the case, which began five years ago and ended in a bench trial in March.
For years IBM had serviced AT&T mainframes which, at least since 2007, relied on BMC software. IBM and BMC entered into an agreement in 2008 governing the business relationship between the two companies. And in 2015, the two IT teams agreed to several changes, including an outsourcing (OA) attachment that prohibited IBM from transferring joint customers to its own software.
That year, AT&T embarked on Project Swallowtail, an internal initiative to migrate from BMC software to IBM software. So in 2017, BMC sued IBM for breach of the agreement and other claims.
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Judge Miller dismissed several BMC contract and trade secret claims, but accepted BMC’s breach of contract claim after finding that the 2015 OA governing IBM’s conduct was clear and “there is no had no dispute over the material fact that IBM had replaced BMC’s products with its own”.
The judge, explaining substantial punitive damages in his findings of fact [PDF]accuses IBM of deliberately violating its agreement with BMC to steal AT&T as a customer.
“The court finds with clear and convincing evidence that IBM fraudulently induces BMC to enter the 2015 OA so that it could exercise rights without paying for them, obtain other contractual benefits and ultimately acquire one of major customers of BMC,” Justice Miller wrote. “IBM did this intentionally.”
The court determined that BMC believed that its contract with IBM “would put IBM’s troubling history of non-compliance to bed” and that Big Blue had exploited BMC’s credulity for its own gain.
This verdict is completely unsupported by facts and law, and IBM intends to seek a full reversal on appeal.
Judge Miller continued: “IBM’s business practices – including the systematic non-compliance with the rules – merit a proportionate award of punitive damages. …Finally, IBM’s conduct vis-à-vis BMC offends the sense of justice and propriety that the public expects of corporate America.”
In an email to The register Tuesday, Patrick Tagtow, Executive Vice President and General Counsel at BMC said, “We are pleased with the court’s decision which establishes a foundation for BMC and our partner ecosystem to focus on customer success. The integrity of our business and contracts is essential to being a strategic supplier and partner to our customers.”
IBM rejected the decision and said it intended to appeal the decision.
“This verdict is completely unsupported by fact and law, and IBM intends to seek a full reversal on appeal,” IBM said in an emailed statement. “IBM acted in good faith in all respects in this undertaking. The decision to remove BMC Software technology from its mainframes was solely that of AT&T, as was acknowledged by the court and confirmed in the testimony of AT&T representatives admitted to the court case.” ®