BMC Software, Inc. v. Int'l Bus. Machs. Corp.
| Docket Number | Civil Action H-17-2254 |
| Decision Date | 30 May 2022 |
| Parties | BMC Software, Inc., Plaintiff, v. International Business Machines Corporation, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
FINDINGS OF FACT AND CONCLUSIONS OF LAW
BMC filed this case against IBM on July 21, 2017. Dkt. 1. In its initial and first amended complaints, BMC applied for a preliminary injunction to prevent AT&T and IBM from completing Project Swallowtail, an AT&T-initiated project involving the migration of BMC software to IBM software that BMC claimed caused ongoing damages and infringed on its trade secrets.[1] Id. at 19- 32; see also Dkts. 37, 38, 92, 170. United States Magistrate Judge Nancy K. Johnson held a preliminary injunction hearing from November 28 through December 1, 2017. Dkt. 219 at 1. Ultimately, Judge Johnson concluded that BMC failed to establish a substantial threat of irreparable injury if Project Swallowtail were allowed to proceed. Id. at 26-27. To the extent that BMC argued that Project Swallowtail caused ongoing damages, the court found that the evidence was “too speculative to form the factual basis for the issuance of an injunction.” Id. at 27. Turning to BMC's trade secrets claim, the court concluded that BMC's software patches did not contain protected source code, even as they were subject to confidentiality restrictions found in the 2008 Master Licensing Agreement (the “MLA”), one of the contracts governing the parties' relationship. See Id. at 29-30. This court adopted Judge Johnson's factual findings in full and her conclusion that BMC failed to show a substantial threat of injury justifying the extraordinary equitable relief it sought. Dkt. 270 at 9-11.
BMC also sought a jury trial through its initial and first amended complaints. See Dkts. 1 at 33, 37 at 55. IBM moved to strike BMC's jury demand on the theory that the MLA's waiver of jury trial provision applied to BMC's claims under the 2015 Outsourcing Attachment (the “2015 OA” or the “OA”), another contract governing the parties' relationship. See Dkt 213. Looking to the contracts' plain meaning, Judge Johnson agreed that the MLA and the 2015 OA formed an integrated whole. See Dkt. 256 at 14-21. On January 25, 2019, this court adopted Judge Johnson's conclusion in full because the “straightforward language of the 2015 OA indicates the parties' clear intention for the 2015 OA and the MLA to form an integrated contract.” Dkt. 287 at 6. BMC filed a Second Amended Complaint (the “SAC”) on February 22, 2019, wherein it raised twelve causes of action, including: breach of sections 5.4, 5.1, and 1.1 of the 2015 OA; anticipatory breach of contract; breach of section 8 of the MLA; fraudulent inducement; breach of the duty of good faith and fair dealing; tortious interference; common law misappropriation of trade secrets; misappropriation of trade secrets under Texas Uniform Trade Secrets Act (“TUTSA”) and Federal Defend Trade Secrets Act (“DTSA”); and unfair competition. See Dkt. 295 at 23-48. In its Answer, IBM raised ten affirmative defenses including, in relevant part, that section 5.4 of the 2015 OA is unenforceable under New York law and that the equitable doctrine of unclean hands barred BMC's claims because BMC failed to perform under the 2015 OA. See Dkt. 299 at 22-27.
In July 2020, BMC moved for partial summary judgment on IBM's breach of sections 1.1 and 5.4 of the 2015 OA (Dkt. 381), construction on damages limitations provisions in the MLA (Dkt. 385), certain IBM affirmative defenses (Dkt. 387), and IBM's counterclaim for breach of the 2015 OA's most-favored customer provision (dkt. 391). With respect to its motion for partial summary judgment on the MLA's damage limitations, BMC argued that MLA section 10 authorized the recovery of licensing fees that are “payable” to BMC. Dkt. 385 at 16-18. In its motion on IBM's affirmative defenses, BMC did not move for summary judgment on IBM's defense that section 5.4 is an unenforceable restrictive covenant under New York law. See generally Dkt. 387.
Likewise, IBM moved for partial summary judgment on its counterclaims (dkt. 394) and summary judgment on all of BMC's claims (dkt. 396). Echoing its affirmative defense, IBM argued in the former that BMC's interpretation of the 2015 OA's non-displacement provision rendered it an unenforceable restrictive covenant under New York contract law. See Dkt. 394 at 21. In the latter motion, IBM claimed that all of BMC's claims failed as a matter of law. See generally Dkt. 396.
On referral from this court, United States Magistrate Judge Christina Bryan issued a Memorandum and Recommendation (the “M&R”) adjudicating the parties' competing motions. See generally Dkt. 561. In relevant part, the Magistrate Court: (1) recommended denying summary judgment to both parties on BMC's claims for breach of sections 1.1, 5.1, and 5.4 of the 2015 OA after finding that the 2015 OA was ambiguous;[2] (2) recommended denying summary judgment to IBM on BMC's claim for breach of MLA section 8, fraudulent inducement, and BMC's claims for breach of TUTSA, DTSA, and common law unfair competition; (3) recommended granting summary judgment on BMC's lost profits damages model because it was barred by MLA section 10; (4) recommended granting summary judgment on certain of IBM's affirmative defenses except ratification; and (5) recommended denying summary judgment to both parties on IBM's counterclaim for breach of the 2015 OA's most favored customer provision. Id.
After reviewing the parties' objections, this court adopted the M&R only in part. See Dkt. 586. The court granted BMC summary judgment on its claim for breach of section 5.4 of the 2015 OA after finding that the 2015 OA was unambiguous and there was no dispute of material fact that IBM displaced BMC's products with its own. See Id. at 2-5. The court also determined that section 5.1 of the OA was unambiguous. Id. at 5-6. Because the court determined that sections 5.1 and 5.4 were unambiguous, it did not defer ruling on BMC's claim for breach of section 1.1. Id. at 6. Finding that section 1.1 “merely puts IBM to an election regarding how it would use BMC products in relation to its provision of IT Services at AT&T, ” the court concluded that BMC could not “proceed on an independent claim for breach of section 1.1.”[3] Id. The court next adopted the M&R's recommendation that MLA section 9's consequential damages limitation barred BMC's lost profits model. Id. at 8. However, the court noted that this decision would not preclude BMC “from arguing that the damage limitation provisions are unenforceable if it succeeds on its claim for fraudulent inducement of the 2015 OA.” Id. Turning next to the MLA's “paid or payable” language, the court did not determine whether BMC's licensing fees were recoverable. See Id. at 9. Finally, with respect to IBM's counterclaim for breach of the 2015 OA's most favored customer provision, the court concluded that IBM “failed to raise a genuine issue of material fact as to the existence of a comparable competitor or its damages.” Id. at 9.
Following further briefing from the parties, the court clarified in a subsequent order that: (1) its finding that the 2015 OA was unambiguous constituted objective evidence that there was a meeting of the minds; (2) the determination of IBM's breach of section 5.4 did not resolve the other elements of BMC's contract claims, including its own performance; (3) whether section 5.4 is an unenforceable restrictive covenant was not squarely resolved at summary judgment because BMC did not technically move for summary judgment on IBM's unenforceability affirmative defense; (4) whether IBM displaced BMC products for the “sole purpose” of supporting AT&T- an issue critical to BMC's breach of section 5.1 claim-remained to be tried; and (5) the breach, causation, and damages elements of BMC's breach of MLA section 8 claim remained to be tried. Dkt. 603 2-10.
BMC has six remaining claims against IBM. Of those six, three are breach of contract claims: (1) IBM's breach of section 5.4 of the 2015 OA; (2) IBM's breach of section 5.1 of the 2015 OA; (3) IBM's breach of section 8 of the MLA. BMC also claims that IBM fraudulently induced it into signing the 2015 OA. Finally, BMC claims that IBM misappropriated its trade secrets under TUTSA and DTSA, and, for any information that does not qualify as a trade secret, BMC asserts a claim for common law unfair competition by misappropriation. See Dkts. 295, 561, 586, 603.
IBM denies it breached the MLA or the 2015 OA, fraudulently induced BMC into the 2015 OA, and misappropriated BMC's trade secrets. In addition, IBM asserts that even if BMC can prove some or all its claims, it cannot show any damages. See Dkt. 299.
As a result of the parties' waiver of a jury trial, this case was tried to the court from March 14 through March 24, 2022. Both parties moved for judgment on partial findings. See Dkts. 665, 751, 752. Both parties filed proposed findings of fact and conclusions of law, as well as multiple post-trial briefs on the remaining issues. See Dkts. 668 (BMC Software's Trial Brief on Standard for Fraudulent-Inducement Claim), 687 (Defendant IBM's Post-Trial Brief Addressing Damages Issues Raised at Trial), 689 (IBM's Post-Trial Proposed Findings of Fact and Conclusions of Law), 694 (Defendant IBM's Posttrial Brief and Response to BMC's Motion for Judgment on Partial Findings), 723 (BMC Software, Inc.'s Corrected Post-Trial Proposed Findings of Fact and Conclusions of Law).
The parties agreed to the following facts:
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