The 10 Biggest IBM Lawsuits in Company History
International Business Machines Corporation (IBM) dates back to the late 1800s when Herman Hollerith founded Tabulating Machine Company. In 1991, Charles Flint bought Hollerith’s company and transformed it into Computing, Tabulating & Recording Company.
It quickly evolved to be IBM and grew to become the top provider of computer systems worldwide. The founders are long departed, and IBM has weathered major storms, but it still stands as the reputable company it is today.
One of the hurdles it has jumped has to be the endless litigations. So far, here are the ten biggest IBM lawsuits in the company’s history.
10. $100 Million – Candace Curtis, et. al. v. International Business Machines Corporation
Several IBM lawsuits were filed in 2004 after workers and retired employees claimed that they had developed cancer due to exposure to a disk drive plant at IBM’s San Jose location. One of the plaintiffs was Curtis, then 22 years old.
IBM’s plant causes disability in children
She alleged that she suffered retardation because her mother had been inhaling toxic fumes while working at IBM’s plant in Fishkill. According to CRN, Curtis’s mother had been affected as she dipped silicon wafers into the harsh chemicals.
As a result, Curtis was born with a deformed skull and without kneecaps. IBM continued to deny its responsibility for Curtis’s injuries, saying that it was hard to tell if her deformities were exclusively due to her mother’s work experience at the plant.
IBM agrees to pay $100 million
However, as the jury was about to be selected, IBM preferred to settle with Curtis and offered her $100 million, but the terms were undisclosed. Perhaps IBM did not expect to pay that much, considering that in 2001, it had paid $40 million to the parents of a boy born with defects.
The boy suffered respiratory abnormalities and was born blind. Unfortunately, for IBM, Curtis was only the first of the many lawsuits it would settle that year.
9. $128 Million – State of Indiana v. International Business Machines Corporation
Indiana’s former Governor, Mitch Daniels, decided to privatize and automate welfare application processes. It was a $1.37 billion contract with IBM, but the plan was catastrophic, and many Indiana residents lost their welfare, food stamps, and Medicaid.
Indiana’s governor automation and privatization plan fails
Allegedly, while the poor, elderly and disabled suffered, Daniels’ allies earned millions from the contracts awarded to them. The former Governor, however, denied claims that he was too close to companies winning lucrative contracts. It took two years for Daniels to admit the privatization and automation process was not working; thus, he canceled the IBM contract. ACS took over from IBM and was awarded a $638 million contract.
Indiana sues IBM for breach of contract
The state, on behalf of the Family and Social Services Administration, sued IBM for breaching the contract. Fortunately, the judge ruled in favor of the state, and IBM was ordered to pay $128 million in damages. However, IBM said that the state owed it $50 million in unpaid fees; thus, the software company owed Indiana $78 million.
8. $170 Million – Pennsylvania Department of Labor and Industry v. International Business Machines Corporation
Pennsylvania’s former Governor, Tom Wolf, and his administration contracted IBM to deliver a computer system to help in tax assessment and benefits payment. The contract was worth $109.9 million, and the target delivery date was February 2010. According to CBS News, the Pennsylvania taxpayers ended up paying almost $170 million for a project that was poorly delivered.
IBM hands over a dysfunctional computer system
Instead of handing over a functioning system to the state of Pennsylvania, IBM delivered a faulty project, and the state had to dig deeper into its pockets to deal with the failures. By the time the contract expired, Pennsylvania had spent $60 million over budget. Moreover, since 2013, the state continued paying heavily to improve the system, and by 2021, had spent another $100 million.
Pennsylvania accuses IBM of fraud
In 2017, the department of Labor and Industry filed a lawsuit against IBM. It accused IBM of fraudulent misrepresentation, breach of contract, constructive fraud, negligent misrepresentation, and fraudulent concealment.
It sought to recover the $170 million it had spent, but in 2021, Wolf’s administration discontinued the lawsuit. Wolf claimed that they had settled although IBM did not admit to any wrongdoing.
7. $320 Million – Cooper v. IBM Personal Pension Plan
Kathi Cooper was the lead plaintiff in a class action IBM lawsuit filed on behalf of 250,000 former and current IBM workers. In the suit, the plaintiffs alleged that the cash-balance plan that IBM used discriminated against older workers; younger workers would accrue benefits faster than their older counterparts.
IBM’s pension fund favors younger employees
The plan, which IBM had implemented in 1999, provided employees with an individual account that they would cash out when they left employment. According to The Los Angeles Times, the cash-balance plan was to entice younger workers to stay longer with the company since they were more likely to switch jobs. As the judge prepared to rule, IBM agreed to pay $320 million.
IBM saves $1 billion in pension fund lawsuit
However, the settlement would be limited to an extra $1.4 billion if the court found that a new pension plan was discriminatory against older workers.
IBM had stated that if it had lost the ruling, the lawsuit would have cost it $6.5 billion but the plaintiffs believed the company was exaggerating. Cooper opined IBM would have paid $1.7 billion; thus, the plaintiffs still appealed. However, the judge rejected the bid that would have cost IBM $1.4 billion.
6. $400 Million – Compuware Corporation v. International Business Machines Corporation
When IBM began selling software tools, it stated that it aimed to reduce the cost of ownership of IBM’s mainframe computing systems. In 2000, it launched File Manager and Fault Analyzer products thus competing with Compuware’s Abend-AID and File-AID products. IBM ended up a monopoly seller of basic computer software and high-end mainframe computers.
Compuware accuses IBM of mainframe software copyright infringement
IBM’s decision to enter the AD tools market resulted in Compuware filing a lawsuit. It alleged that IBM had begun denying independent software vendors critical information about its mainframe software. The lawsuit also alleged copyright infringement and antitrust issues among other violations.
IBM settles lawsuit with Compuware
For three years, the IBM lawsuit dragged on until the two software firms settled their differences with IBM agreeing to spend $400 million on Compuware software and services over four years. The amount was split such that $140 million would be for licensing Compuware services and $260 million for buying Compuware software.
5. $600 Million – Bridgestone Americas, Inc. v. International Business Machines Corporation
IBM completed some work for Bridgestone in May 2009, thereby guaranteeing Bridgestone that the software company could extend the SAP OTC design to Bridgestone’s subsidiaries. Thus, in December 2009, the two companies reached an agreement allowing IBM to design and implement the solution in Bridgestone’s subsidiaries.
IBM delays Bridgestone’s SAP OTC implementation
However, the first phase was delayed but both parties unanimously agreed they were partly to blame; hence, the delivery date was changed to October 2011. Unfortunately, by January 2011, key IBM personnel left and the project began lagging. In August 2011, the delivery date was changed again from October 2011 to January 2012.
Bridgestone sues IBM for fraud and breach of contract
By December 2011, IBM proposed the implementation be eliminated due to risks identified. Still, Bridgestone went live in January 2012 with the solution. It was chaotic because Bridgestone could not rely on it to process orders, track products or even perform basic accounting procedures. Thus, the company sued IBM for negligent representation, committing fraud, and breaching the contract.
4. $775 Million – United States of America v. Microsoft Corporation
According to The New York Times, Microsoft and IBM entered an agreement to develop an OS/2 operating system to replace MS-DOS, IBM’s original operating system. The agreement was publicized in November 1989.
Microsoft breaches IBM contract
Microsoft went back on its word when it developed the Windows operating system for business customers instead. As the article cites, the breach affected other software makers because they had developed software for OS/2, not Windows. Applications written for one operating system cannot function in another operating system unless the developer does the porting process, which is expensive and time-consuming.
Department of Justice files lawsuit
In 1995, the DOJ filed an antitrust lawsuit against Microsoft, and IBM preferred negotiating a settlement over filing a separate lawsuit. In 2000, a judge found that Microsoft had engaged in anticompetitive practices and in 2005, Microsoft agreed to pay IBM $775 million. IBM also was awarded $75 million credit to use Microsoft software. The settlement was termed one of the largest at a time when Microsoft was dealing with a string of lawsuits.
3. $1.6 Billion – BMC Software v. International Business Machines Corporation
in 2007, BMC and AT&T entered a master purchase agreement whereby BMC would be the mainframe software services provider. However, IBM was AT&T’s mainframe outsourcer. Therefore, IBM and BMC signed a master licensing agreement (MLA) in 2008 detailing how they would work with mutual clients. Later in 2015, they added an outsourcing attachment to the MLA.
IBM breaches MLA with BMC
In June 2015, AT&T conducted Project Swallowtail in which they would migrate from using BMC software to IBM software. By doing this, BMC claimed that IBM had breached the contract forbidding each from encouraging mutual clients to switch to the other’s software product line. IBM argued that AT&T decided to switch from BMC to IBM which was fair game.
IBM lawsuit filed for fraudulent inducement
BMC filed a lawsuit alleging fraudulent inducement, trade misappropriation, common law unfair competition, and breach of contract. Judge Gray Miller ruled in favor of BMC for fraudulent inducement but dismissed the other claims. Consequently, IBM owed BMC 717.7 million in contractual damages and a similar amount in punitive damages. BMC was also entitled to recover $168.2 million in prejudgment interest.
2. $2.5 Billion – International Business Machines Corporation v. GlobalFoundries U.S. Inc.
In 2013, IBM and GlobalFoundries began discussing how they would collaborate such that IBM would transfer its microelectronics business along with $1.5 billion to GlobalFoundries. In exchange, GlobalFoundries would manufacture and develop high-performance semiconductor chips for IBM, to be used in its computer serves and mainframes.
The discussion birthed a deal inked in October 2014, according to EnterpriseAI. It was a ten-year agreement that GlobalFoundries would deliver 14-nanometer technologies. It would also provide 10-nanometer and chip etching techniques for IBM’s Power and System z processors.
GlobalFoundries breaks agreement with IBM to supply HP chip
IBM consummated the agreement with $750 million, but after three months, GlobalFoundries said it could not supply, manufacture or develop one type of HP chip mentioned in the deal. Despite the delay, IBM honored the agreement by paying the rest of the money to GlobalFoundries in installments. On the other hand, GlobalFoundries kept breaking the contract and finally, in 2018, said it would not proceed with making a replacement for the HP chips.
IBM seeks $2.5 billion from GlobalFoundries for misrepresentation
Thus, IBM sued GlobalFoundries for misrepresenting the facts in the business deal because had it known, it would not have signed the contract. In September 2021, a New York state judge dismissed the fraud claim but IBM won an appeal, seeking $2.5 billion in damages.
1. $2.5 Billion – Iusacell SA de CV v. International Business Machines Corporation
According to Chicago Tribune, Iusacell Sa de CV is a Mexican mobile operator that suffered $2.5 billion in losses after IBM made fraudulent representation.
IBM sued for $2.5 billion under Mexican law
So, the Mexican company sued IBM seeking $2.5 billion in damages. However, IBM said that the suit was a transparent attempt by Iusacell to avoid contractual obligations. IBM’s Mexico unit signed a contract with Iusacell, agreeing to improve and operate Iusacell’s systems. Per the IBM lawsuit, Iusacell claimed that the software company agreed to provide unlimited resources, but IBM only offered limited and inadequate resources.
IBM prefers arbitration to litigation
As a result, Iusacell lost billions in profits, and under Mexican law, it was entitled to sue to recover lost profits and actual damages. IBM moved to stay due to the pending arbitration in which it hoped it would only pay $300 million.