IBM will not have to pay BMC Software $1.6 billion after successfully appealing a court judgment that found the IT infrastructure giant improperly replaced BMC’s mainframe software used at AT&T with its own.
The Fifth US Circuit Court of Appeals said this week the judgment in the original 2022 case over IBM’s liability was made in error.
Court quashes IBM’s $1.6bn BMC payment
Both BMC and IBM provided mainframe services to AT&T. BMC signed a master purchase agreement with the telco in 2007 to provide mainframe software services, while IBM, which offers competing software, was its mainframe outsourcer.
In 2008, IBM and BMC agreed on a contract laying out how they would work together for mutual clients, and in 2015 added an amendment to the contract that disallowed IBM from moving shared customers over to its own software.
But in that same year, AT&T began what it dubbed 'Project Swallowtail,' a project to migrate from BMC software to IBM software.
A five-year legal battle ensued, culminating in a 2022 judgment against IBM. In his ruling, US District Court Judge Gray Miller said that the “close access that IBM personnel had to AT&T’s mainframe environment and experience with how BMC products operate in that environment” gave it “exclusive insights into how the software products AT&T used, including BMC products, worked under the operational demands of AT&T’s computing environment.”
The judge said that IBM’s conduct constituted “intentional wrongdoing,'" and that the company entered into the 2015 contract with no intention of following it.
"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,” Miller added.
IBM appealed the decision, and this week discovered it had been successful. Writing on behalf of a three-judge panel that considered the appeal, US Circuit Judge Edith Jones said AT&T had switched over to the IBM software "independently" and that BMC had "lost out to IBM fair and square."
DCD has approached IBM and BMC for comment.
OpenText sells mainframe business acquired from Micro Focus
Elsewhere in the world of mainframes, Open Text has announced it has divested its application modernization and connectivity (AMC) business unit, selling it to Rocket Software for $2.25 billion.
Open Text acquired AMC as part of its takeover of UK IT company Micro Focus, which closed last year. The business unit employs 750 people, who will transfer to Rocket, which specializes in IT infrastructure modernization and is backed by private equity firm Bain Capital.
Mark J. Barrenechea, OpenText CEO & CTO said: "We intend to use the net proceeds from the divestiture to reduce our debt by $2 billion and lower our net leverage ratio to under 3x.
“Further, the divestiture allows the company to focus on the future of information management, which is innovation and growth in the cloud, security, and AI markets and the opportunity to expand our capital allocation program for shareholders."
