IBM asked to pay $1.6 billion to BMC for poaching AT&T account

According to a ruling by a federal judge, International Business Machines Corp. (IBM) has to pay $1.6 billion to BMC Software Inc. for swapping in its own software while servicing their mutual client.

US District Judge Gray Miller on Monday rejected IBM’s claim that it acquired the mainframe software account of BMC’s core customers, AT&T Corp., fair and square. Miller awarded damages based on his earlier determination that IBM’s role in AT&T’s decision to dump BMC “smacked of intentional wrongdoing.” His ruling came after a seven-day non-jury trial in March.

The judgment is one of the largest ever to arise from a commercial dispute.

In spite of IBM moving towards cloud and artificial intelligence services in recent years, mainframes are still an important part of its information technology portfolio. The company unveiled a new mainframe model in April, reflecting the continued relevance of the decades-old computing systems even amid growing cloud adoption.

IBM and BMC had long operated under a carefully negotiated agreement that forbade IBM to encourage mutual clients to switch to its own competing software product line. BMC sued IBM in 2017 claiming its rival planned to breach their agreement and poach AT&T’s software business when the two companies renewed their power-sharing deal in 2015.

In his ruling, Miller said IBM “believed -- especially in light of BMC’s reluctance to engage in litigation -- that it could ‘always settle for a small percentage of the claim’ or for ‘pennies on the dollar,’” citing trial evidence.

The judge said, “IBM’s conduct vis-à-vis BMC offends the sense of justice and propriety the public expects from American business.”

IBM said it had “acted in good faith in every respect in this engagement” and vowed to appeal.

“This verdict is entirely unsupported by fact and law, and IBM intends to pursue complete reversal on appeal,” IBM said in a statement. “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.”

BMC said it was “pleased” with the ruling.

The Houston-based software company had asked the court to award $791 million for IBM’s breach of their agreement and $104 million for lost profits on the AT&T contract. It also asked Miller to consider tripling the damages if he found that IBM intentionally interfered with BMC’s client relationship.