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Client Poaching Case Costs IBM Over a Billion Dollars

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A man stands near an IBM logo at the Mobile World Congress in Barcelona, Spain, February 25, 2019. | Image by Sergio Perez via Reuters

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International Business Machines Corp. (IBM) of Armonk, NY, is being required by a federal judge to pay BMC Software, Inc., to the tune of $1.6 billion.

The reason? Replacing its software with that of the other company while working for Dallas-based AT&T, a client both companies have in common.

U.S. District Judge Gray Miller of Houston rejected IBM’s claim on Monday. The technology firm stated that it had fairly acquired the contested mainframe software from a core customer of BMC, the Dallas Morning News reports.

A seven-day trial without a jury was held in March, but the ruling was not given until the end of May. Judge Miller determined IBM’s role to be one of intentional wrongdoing rather than an honest mistake.

Sean Gorman, the Bracewell LLP partner who represented BMC, said this was one of the largest commercial dispute judgments, according to the Dallas Morning News.

In the last few years, IBM has moved increasingly toward cloud– and AI-based services. Nevertheless, mainframes still make up a good portion of the company’s infrastructure.

IBM and BMC previously negotiated an agreement that forbade the former to encourage any clients they had in common to switch to IBM’s software products. In 2017, BMC sued IBM, claiming that its rival was planning to poach AT&T’s software business despite a renewal in 2015 of the original agreement, according to court documents.

According to IBM, it had not encouraged AT&T to switch products. Instead, the company decided on its own. Therefore, according to IBM, the agreement was not breached.

Miller, in his ruling, stated that IBM mistakenly thought it could settle for “pennies on the dollar” in case of any litigation between the two companies, according to the Dallas Morning News. The judge stated that IBM’s conduct regarding BMC was beneath the sense of justice that the public expects of an American business.

IBM has said it will appeal, The Orange County Register reports. The company claims that the verdict is not supported by the law or facts.

Meanwhile, the Senior VP of BMC stated that the ruling bolsters the company’s integrity. BMC has said it is pleased with the judge’s decision. It is asking for $791 million to be awarded for a breach of the initial agreement and $104 million to compensate for lost profits from the contract with AT&T, according to the Register.

Miller awarded $717.7 million in actual contractual damages, $168.2 million in prejudgment interest, and $717.7 million in punitive damages.

While the ruling mostly favored BMC, the judge did reject the company’s bids for lost profits, unfair competition, and additional contract breaches.

Miller stated that he came up with the damages based on BMC’s argument of fraudulent inducement.

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