Appeal court overturns $1.6bn mainframe software ‘poaching’ ruling against IBM

IBM has successfully overturned a $1.6 billion ruling that it improperly replaced mainframe software from rival BMC at AT&T.

A US Appeal Court this week overruled a lower court’s judgement in deciding that “BMC lost out to IBM fair and square.”  AT&T “independently decided” to displace BMC software from its mainframe environment, the three-judge appeal court panel ruled.

“AT&T’s decisions and conduct — not IBM’s — are most consequentially tied to BMC’s lost profits from AT&T,” a ruling from the U.S. Court of Appeals for the 5^th Circuit concluded.

IBM and BMC both develop software that runs on IBM mainframes. Under a 2008 agreement, IBM provides outsourcing services to BMC and its customers, including AT&T.

The Master Licensing Agreement (MLA) and an Outsourcing Attachment that governed the business relationship between IBM and BMC were amended in 2013 and 2015.

In 2015, AT&T began a plan to migrate from BMC software to IBM software in its mainframe environment. AT&T wanted to replace BMC’s products in order to reduce costs.

BMC filed a lawsuit claiming IBM had violated their master licensing agreement by convincing AT&T to switch over to Big Blue’s software.

In 2022, a US district judge ruled in BMC’s favour, ordering IBM to pay BMC $717 million in lost licensing fees, $168 million in interest, and a further $717 million in punitive damages.

The lower court made its ruling on the basis that the deal between the enterprise software firms blocked IBM from “displacing” BMC products with IBM software.

IBM appealed. This week appeal court judges decided that the lower court had erred, overturning the $1.6 billion judgement. AT&T had decided to switch to IBM’s software independently for “other valid business reasons”, a provision covered in licensing and outsourcing agreements between IBM and BMC.

The appeal court further ruled that IBM did not violate its deal with BMC in supplying AT&T with IT services that facilitated the switchover.

IBM welcomed the ruling. “We are extremely pleased the Fifth Circuit Court of Appeals found no wrongdoing by IBM and entered a complete reversal of the district court’s verdict,” it said in a statement, adding, “IBM acted in good faith in every aspect of this engagement, and we are grateful the Court agrees.”

CIO.com approached BMC for comment on the ruling, asking whether it planned to launch any further appeal. A spokesperson told us that the enterprise software firm had “no comment at this time.