IBM Wins Reversal of $1.6 Billion Poaching Award to BMC

Madlin Mekelburg, Bloomberg News

The IBM office in Foster City, California, U.S., on Wednesday, July 14, 2021. International Business Machines Corp. (IBM) is scheduled to release earnings figures on July 19. Photographer: David Paul Morris/Bloomberg , Bloomberg

(Bloomberg) -- International Business Machines Corp. won a court decision overturning $1.6 billion in damages it was ordered to pay BMC Software Inc. in 2022 for swapping in its own software while servicing their mutual client, AT&T Inc.

Setting aside what was called one of the largest-ever judgments in a commercial dispute, the US 5th Circuit Court of Appeals in New Orleans ruled Tuesday that IBM lawfully acquired the mainframe software account of AT&T, one of BMC’s core customers. The three-judge panel found that IBM didn’t breach an agreement between the firms that forbade it from encouraging mutual clients to switch to its product line.

“Because the client made that decision without unfair influence from IBM, BMC lost out to IBM fair and square,” Circuit Judge Edith Jones wrote for the panel.

Read More: IBM Has to Pay BMC $1.6 Billion for Poaching AT&T Account

A spokesperson for BMC declined to comment on the ruling.

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

Houston-based BMC sued IBM in 2017, accusing the company of violating a longstanding agreement that forbade IBM to poach mutual clients to switch to its own competing software product line when acting as an IT outsourcer. IBM maintained that AT&T opted to switch to its product line for its own reasons, not because of pressure from IBM.

The appeals court judges agreed. They noted that, while the agreement prohibited IBM from using its position to gain insights into BMC’s customers in order to sell them IBM software, it did allow for IBM to help customers discontinue the use of BMC licenses “for other valid business reasons.”

“AT&T initiated this switchover independently and without any lobbying or influence of IBM,” Jones wrote. “Consequently, IBM contends it did not violate the provision’s nondisplacement proviso because it did not compete for or solicit AT&T’s decision.”

The case is BMC Software v. IBM, 22-20463, US Fifth Circuit Court of Appeals (New Orleans).

(Updates with IBM comment in fifth paragraph.)