IBM ordered to pay $1.6b to BMC

Big Blue's 'routine eschewal of rules' justifies large penalty, judge says


IBM has been ordered to pay Houston-based IT firm BMC $1.6 billion for fraud and contract violations because it moved mutual client AT&T from BMC software to IBM software.

On Monday, US District Judge Gray Miller issued his final judgment [PDF] in the case, which began five years ago and culminated in a bench trial in March.

For years, IBM had serviced AT&T's mainframe computers which at least since 2007 have relied on BMC software. IBM and BMC in 2008 entered into a contract governing the business relationship between the two companies. And in 2015, the two IT outfits agreed several amendments including an Outsourcing Attachment (OA) that disallowed IBM from moving mutual clients over 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 violating 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 was no dispute of material fact that IBM displaced BMC’s products with its own."

The judge, explaining the substantial punitive damages in his findings of fact [PDF], slams IBM for willfully violating its agreement with BMC to steal AT&T as a customer.

"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," Judge Miller wrote. "IBM did this intentionally."

The court determined BMC had believed its contract with IBM "would put IBM’s troubling history of non-compliance to bed," and that Big Blue exploited BMC's credulousness for its own gain.

This verdict is entirely unsupported by fact and law, and IBM intends to pursue complete reversal on appeal

Judge Miller continued, "IBM’s business practices – including the routine eschewal of rules – merit a proportional punitive damages award. … Finally, IBM’s conduct vis-à-vis BMC offends the sense of justice and propriety that the public expects from American businesses."

In an email to The Register on Tuesday, Patrick Tagtow, SVP and general counsel at BMC: "We're pleased with the court's ruling that establishes a foundation for BMC and our partner ecosystem to focus on customer success. The integrity of our business and contracts is critical to being a strategic vendor and partner to our customers."

IBM rejected the decision and said it intends to appeal the ruling.

"This verdict is entirely unsupported by fact and law, and IBM intends to pursue complete reversal on appeal," IBM said in an emailed statement. "IBM acted in good faith in every respect in this engagement. The decision to remove BMC Software technology from its mainframes rested solely with AT&T, as was recognized by the court and confirmed in testimony from AT&T representatives admitted at trial." ®


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