AUSTIN (CN) – “Business-side” IBM employees can use confidential legal documents to collect fees from customers who used an infringing data-processing product, a federal judge ruled.
Neon Enterprise Software filed a federal complaint against IBM in December 2009.
At issue was the Neon product zPrime, which, according to the original complaint, allowed IBM mainframe computer users to dodge software licensing fees by processing legacy workloads, or “those workloads that can only be processed on IBM mainframes,” through specialty processors, rather than through the costly central processor.
Neon said IBM drove customers away from its product by claiming that zPrime violated the terms of the IBM mainframe agreement, and by threatening zPrime users with fees and legal action.
“In sum and substance, having sold products to its customers without limitation on their use, IBM is attempting unlawfully and retroactively to impose such restrictions, all to the billion-dollar-plus detriment of consumers throughout the United States and the world at large,” according to Neon’s complaint.
The lawsuit sought punitive damages for Lanham Act violations, unfair competition under California law, business disparagement and tortious interference with prospective contracts.
IBM fought back with answer and counterclaims for copyright infringement and violation of the Digital Millennium Copyright Act in January 2010.
“This case is about Neon’s attempted hijacking of IBM’s intellectual property,” IBM said. “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.”
Ultimately the companies settled in May 2011, agreeing to a permanent injunction that requiring Neon to kill the zPrime product.
Neon agreed to stop selling zPrime, to transfer all copies of it to IBM and to take all steps possible to stop customers from using it.
With all the claims dismissed, and the unopposed injunction against Neon in place, the parties put a protective order on trade secrets that came out in discovery.
Less than two months after the dismissal, however, IBM moved to produce, seeking documents it claimed were necessary to ensure that Neon was complying with the settlement agreement. It also sought to use documents already in its possession beyond the scope of the permissions granted by the protective order in the case.
IBM claimed it needed access to discovery-commissioned expert reports related to zPrime’s code, which fell under the protective order. Employees on the “business side” at IBM allegedly needed these documents to collect additional usage fees from IBM customers who bought and used the zPrime.
Neon opposed the motion saying IBM was trying to overstep the boundaries of settlement; that IBM has audit rights under its license agreements with its customers and can obtain the requested information that way; and that IBM’s maneuver would expose Neon to consumer lawsuits for disclosure of confidential information.
U.S. Magistrate Judge Andrew Austin partially granted IBM’s motion on Monday.
“IBM is permitted to make the expert reports … as well as the zPrime customer list, Neon post-injunction payment information, and zPrime code, available to IBM employees with a ‘need to know’ of the information for purposes of collecting alleged outstanding charges owed to IBM by zPrime users,” he wrote. “No use beyond this shall be permitted.”