IBM Hits Back At Neon Mainframe Lawsuit

The bad blood between IBM and Neon Enterprise Software shows no sign of abating, after IBM hit back at Neon’s lawsuit in a sharply worded counterclaim.

Neon makes software designed to help businesses reduce the licensing costs on their IBM mainframe systems, and Big Blue has now launched its response to the lawsuit Neon filed against IBM in December.

IBM officials are claiming the smaller company’s zPrime software violates IBM’s copyrights and induces mainframe customers to violate their mainframe contracts.

In the 37-page document, filed 27 January in US District Court in Texas, IBM compares Neon to an unethical cable TV technician.

“This case is about Neon’s attempted hijacking of IBM’s intellectual property,” reads the IBM document, filed by attorney Shannon Ratliff and lawyer Paul Yetter. “Neon’s business model expressly depends upon Neon inducing IBM’s customers to violate their agreements with IBM. In this respect, it is no different than that of a crafty technician who promises, for a fee, to rig your cable box so you can watch premium TV channels without paying the cable company. Even if it could be accomplished technically, it is neither lawful nor ethical.”

IBM is asking the court to not only throw out Neon’s 14 December lawsuit, but to find that Neon has violated IBM’s copyright protections, interfered with IBM’s contracts with customers and violated the Lanham Act by making false claims to IBM’s mainframe customers. IBM also is asking that it be awarded all of Neon’s profits as well as damages.

The main point of contention is Neon’s zPrime software, introduced in June 2009.

zPrime lets IBM mainframe customers move workloads around in such a way as to enable them to avoid paying licensing fees to IBM, which Neon officials say can save those customers millions of dollars a year.

IBM’s System z mainframes come with CPs (central processors). Customers pay for the CPs in the systems up front, then pay a monthly fee for the workloads that run on those processors. The more workloads that run on the CPs, the greater the fees.

Over the last decade, IBM officials – in hopes of capturing some of the newer workloads, such as those in Linux or Java – began offering specialty processors, dubbed zAAP (System z Application Assist Processor) and zIIP (System z Integrated Information Processor). These speciality engines cost substantially less than the CPs, and are not subject to the same software usage fees for workloads running on them.

However, according to IBM, the workloads that run on these speciality processors are limited to those that are outlined in contracts between IBM and the customers, and moving any more workloads onto these processors violates the contract.

That’s where the two sides disagree. Neon officials have said there is nothing in IBM’s contracts limiting the workloads that can be put on the speciality engines, which they say are nearly identical to the CPs. In an interview in November, Neon Chairman and CEO Lacy Edwards said his company had had lawyers review IBM contracts to make sure that using zPrime would not violate the terms.

IBM argues that by telling IBM mainframe customers that using zPrime would not violate their contracts – and that zPrime was developed with IBM’s approval – Neon officials are running up against the Lanham Act. According to IBM, Neon also is hurting IBM’s business, not only monetarily but by forcing IBM to go after mainframe customers that are using the zPrime software, thus damaging the goodwill IBM has built up.

In addition, IBM points out that Neon is a mainframe customer and says Neon is violating its own license for its System z10 by running zPrime on it.