Judge says IBM owes BMC $1.6 billion over software deal

A man stands near an IBM logo at the Mobile World Congress in Barcelona, ​​Spain, February 25, 2019. REUTERS/Sergio Perez

(Reuters) – A federal judge in Houston ruled on Monday that International Business Machines Corp must pay $1.6 billion to mainframe software competitor BMC Corp after finding that IBM had improperly replaced BMC’s mainframe software at AT&T Corp. by his.

U.S. District Judge Gray Miller said IBM fraudulently convinced software company BMC to sign a contract that allowed IBM “to exercise rights without paying for them, obtain other contractual benefits, and ultimately , to acquire one of BMC’s major customers”.

IBM’s conduct “offends the sense of justice and propriety that the public expects from American companies,” the court said.

IBM, based in Armonk, New York, said in a statement that the decision was “not supported by facts and law” and that it intended to appeal. The company said the decision to replace BMC’s software “rests solely with AT&T.”

BMC senior vice president and general counsel Patrick Tagtow said the company is pleased with the decision.

IBM and BMC are competitors in the software industry, but have an agreement for IBM to maintain and operate mainframes running BMC software. As part of their contract, BMC had agreed to let IBM maintain its software on customer mainframes for free, and IBM said it would not convince BMC customers to replace its software.

AT&T was one of Houston-based BMC’s largest customers and hired IBM to handle its mainframe operations. The court said IBM had already agreed to replace BMC’s software at AT&T when negotiating the contract in 2015 and had no intention of complying.

Miller said IBM thought it could settle a dispute over the provision for “dimes on the dollar.”

AT&T, which was not part of the lawsuit, did not immediately respond to a request for comment.

Miller said Monday that BMC was entitled to $717.7 million in unpaid license fees. He added the same amount in punitive damages for IBM’s “fraudulent and malicious” conduct and $168.2 million in interest.

Miller also said IBM did not violate other parts of the agreement or steal any trade secrets from BMC.

The case is BMC Software Inc v. International Business Machines Corp, US District Court for the Southern District of Texas, No. 4:17-cv-02254.

For BMC: Sean Gorman and Christopher Dodson of Bracewell

For IBM: Richard Werder of Quinn Emanuel Urquhart & Sullivan; and Paul Yetter of Yetter Coleman

Our standards: The Thomson Reuters Trust Principles.