US Supreme Court: IBM spared contractual penalty in the billions
The US software giant IBM avoids a fine of 1.6 billion US dollars after the US Supreme Court refuses to hear the case.
The US Supreme Court building in Washington, DC
(Image: Sunira Moses CC BY-SA 3.0)
The US Supreme Court on Monday refused to hear the contract dispute between US software company IBM and BMC Software. The judges refused to hear BMC's appeal against a ruling that rejected one of the highest fines ever imposed in a commercial case. In the initial proceedings, a court had awarded BMC compensation payments amounting to 1.6 billion US dollars.
The Houston-based company BMC develops and licenses mainframe software products. It accuses IBM of unlawfully replacing BMC's mainframe software with its own in the provision of information technology services for the joint customer AT&T, thereby breaching a license agreement. IBM had been contracted by the US telecommunications group AT&T to manage its mainframe operations. BMC and IBM had an agreement that allowed IBM to maintain mainframes running BMC software with a “non-displacement” clause. According to the news agency Reuters, this clause prohibited IBM from converting the software of BMC customers to its software. In an initial trial in 2022, a district court in Houston ruled in BMC's favor and ordered IBM to pay BMC 1.6 billion US dollars in damages for breach of contract.
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However, in April last year, the 5th US Court of Appeals overturned the arbitration award against IBM. The license agreement allowed IBM to replace BMC's software with competing software as long as the customer initiated the replacement itself, the appellate judges ruled. Accordingly, the key clause of the agreement stated that while IBM may not replace BMC products with its products during the application, it may discontinue the use of BMC customer licenses for other legitimate business reasons.
BMC then appealed to the US Supreme Court. The Court of Appeals' ruling granted IBM “virtually unlimited rights” to use the smaller company's software, BMC argued. IBM, in turn, urged the Supreme Court to dismiss the appeal, arguing that the dispute was a federal issue and did not raise questions that would warrant review by the Supreme Court. The Supreme Court has now refused to hear the case. IBM will therefore be spared the billion-euro fine.
(akn)
