Plenty of room exists in the gallery, but the entirety of Courtroom 9-D in Houston’s Bob Casey federal courthouse is saturated with nearly three-dozen lawyers, paralegals and other corporate representatives sporting dark-colored suits.
The number of lawyers reporting to 9-D even attracted the curiosity of the courthouse security officer, who inquired Tuesday morning about the large civil corporate trial underway in U.S. District Judge Gray Miller’s courtroom — a rare occurrence these days, as courts across the state and country ease their way back into in-person proceedings as pandemic restrictions loosen.
So many lawyers are here because more than $700 million could be at stake in a bench trial between Houston-based BMC Software and New York-based IBM.
At issue in the large-dollar showdown is whether defendant IBM’s “displacement” of BMC mainframe software from mutual client AT&T’s systems misappropriated trade secrets, constituted fraud by IBM, and justifies plaintiff BMC’s damages claim, which, if punitive damages are also awarded, flirt with rounding up to 10 figures.
BMC argues IBM illegally displaced BMC’s mainframe software from AT&T’s systems while performing an outsourcing project several years ago. IBM argues it did nothing wrong because it was carrying out AT&T’s wishes and BMC’s claims are not justified by the law and their governing contract.
During opening statements Monday morning, BMC reiterated a textualist theme.
BMC’s lead lawyer Sean Gorman displayed email after email — mostly internal IBM emails — to demonstrate that IBM clearly understood the terms of the non-displacement agreement at the heart of the dispute, despite what IBM said externally to BMC.
He also displayed multiple excerpts of BMC and IBM’s contract to explain what IBM was obligated to do — for example, IBM could displace BMC’s products with IBM’s products if IBM paid additional licensing fees.
Gorman said his client has “always relied on the plain meaning” of BMC’s contracts with IBM and the language “speaks for itself.”
“IBM knew how it worked, IBM didn’t want to pay, IBM didn’t pay, and that’s why we’re here,” Gorman said.
But Paul Yetter, IBM’s lead lawyer, countered that BMC breached the non-displacement contract when it did not inform IBM that AT&T had purchased special rights in its own contract with BMC that allowed IBM, as its outsourcer, to displace BMC software in AT&T’s systems without paying extra.
“At best, BMC could (and did) try to leverage payments from IBM,” Yetter said.
In addition to breaching their contract, Gorman said IBM also misappropriated BMC’s trade secrets by using its proprietary information to hurt its business.
Even worse, Gorman said, IBM actually contacted BMC technical support while it was executing “Project Swallowtail,” the nickname of the project that removed BMC’s mainframe software from AT&T’s systems.
He said IBM also committed fraud by making a material misrepresentation when negotiating the parties’ contract that it would not displace AT&T’s BMC products with IBM products.
Gorman said the court should also award punitive damages, but he didn’t specify how much.
“IBM is in every market … for BMC to stand up to IBM takes great courage,” Gorman said, and IBM needs to know “that this conduct is not acceptable.”
Although the court has already found IBM breached parts of its contract with BMC, Yetter told Judge Miller that BMC has not met its burden to recover on damages for multiple reasons, including that BMC’s damages model does not match the evidence and the law.
Yetter said BMC’s $700 million-plus damages model accounts for 19 years’ worth of profits that BMC earns from its licensing fees each year.
He said even if IBM did not end up being the outsourcer to remove BMC’s products, BMC would have found itself in the same position with another outsourcer because, at the end of the day, AT&T made the decision to remove BMC’s products.
Moreover, IBM did not commit fraud because IBM always made it clear that it interpreted the contract to mean customer-directed displacement projects were allowed, Yetter said.
BMC’s first witness Monday was Raul Ah Chu, vice president of global outsourcers & systems at BMC, who was extensively involved in contract negotiations between BMC and IBM in 2008, 2013 and 2015. During 2015 contract negotiations, BMC argues, IBM began aggressively pushing for BMC to amend the non-displacement provision so that Project Swallowtail, which IBM was simultaneously negotiating with AT&T, was kosher.
But everyone Ah Chu dealt with at IBM “never argued over what” the words in the contract meant.
“The words were what it meant,” he said.
Ah Chu’s testimony continued Tuesday morning under cross-examination by IBM lawyer Rick Werder of Quinn Emanuel.
BMC’s second witness is Brian Jones, a global sales director at BMC who was a key negotiator in two outsourcing agreements reached with IBM in 2013 and 2015. The Scotsman began his testimony late Tuesday morning.