BMC's $1.6B victory over IBM is TKO on appeal

Always read the terms and conditions carefully

IBM has managed to overturn a $1.6 billion judgment against it after an appeals court decided the IT giant was well within its rights to replace software on a customer mainframe belonging to rival BMC with its own code.

The ruling [PDF], handed down yesterday by a three-judge panel at the Fifth US Circuit Court of Appeals, rests on the nature of some very specific contract language and its meaning, upon which the appeals panel believes a federal court in the southern district of Texas made a mistake. 

In essence, the 2022 decision that saw IBM hand BMC $1.6 billion comes down to IBM being in the wrong when it replaced some BMC mainframe code with IBM code at AT&T, a client both corporations provided services for.

The judge in the original Texas case determined IBM had violated an outsourcing agreement (OA) between it, BMC, and AT&T by pushing the telco to buy Big Blue's software to replace the BMC code. The judge said IBM's behavior was one in a long stream of examples of it eschewing business rules and behaving in a manner that "offends the sense of justice and propriety that the public expects from American businesses."

According to Fifth Circuit Court of Appeals Judge Edith Jones, writing for the tribunal, none of that really matters when the language of the contract doesn't explicitly prohibit anything IBM did. 

According to Jones, the OA allowed IBM to use and access software on BMC machines in order to serve customers. While the agreement doesn't allow IBM to displace any existing customer software for its own products, it does allow Big Blue to "discontinue use of BMC customer licenses for other valid business reasons."

IBM's argument on appeal was that AT&T's request to swap BMC software for IBM's gear fell within other valid business reasons, and the appeals court agreed.

"BMC defends the district court's interpretation, which depends on differentiating between the terms 'displace' and 'discontinue,' while narrowing the ambit of 'other valid business reasons,'" Judge Jones wrote for the panel, "to conclude [the OA] categorically bars IBM from replacing BMC software with IBM software in a mainframe at a customer's request. We disagree … for several reasons."

During the appeal dictionaries were pulled out, legal semantics ensued, and the end result is that IBM is off the hook for that considerable legal bill. 

The Register reached out to both IBM and BMC. We didn't hear back from IBM, and BMC declined the chance to comment. ®

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