IBM Strikes Back at Neon

In a 37-page response to a lawsuit by Neon Enterprise Software, IBM accuses the software maker of copyright infringement and false advertising for its zPrime product, which is designed to let mainframe customers move more workloads onto cheaper IBM specialty processors. IBM argues that customers using zPrime are violating their contracts and that Neon knowingly gives mainframe users false information about their contracts and about whether zPrime has IBM's approval.

IBM is firing back at a company that makes software designed to help businesses reduce the licensing costs on their IBM mainframe systems.

Is a sharply worded response and counterclaim to the lawsuit Neon Enterprise Software 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 Jan. 27 in U.S. 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 Dec. 14 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 specialty 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 specialty 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 specialty 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.

"IBM faces many lawful competitors in the marketplace," IBM said in its response document. "Neon is not one of them. IBM has invested billions of dollars over the past decade to create and improve its System z offerings to make them the most competitive and innovative in the marketplace. Its substantial investment is entitled to judicial protection from Neon's attempted piracy."

IBM's mainframe business has grown over the past decade, in contrast to analysts' assumptions that it would be greatly hurt by the rise of smaller, x86 systems. During that time, several companies have offered System z customers products designed to reduce their mainframe costs. Some, like T3 Technologies and Platform Computing, sought to sell non-IBM systems that could run mainframe workloads.

Others, like Neon, are offering software solutions to help businesses reduce their mainframe costs. TmaxSoft, which has offered its OpenFrame software as a way of helping businesses migrate off the mainframe, is now selling it as a way of enabling businesses to shift their applications written in legacy code like COBOL and PL1 to Linux. Businesses can then move those workloads onto the IFL (Integrated Facility for Linux) specialty engine, which would save companies on their z/OS licensing fees, a TmaxSoft official said earlier in January.

IBM has aggressively protected its mainframe business, leading some competitors and industry groups to accuse it of abusing its monopoly power in the space. However, a lawsuit filed against IBM was dismissed in October.

Still, the Department of Justice reportedly is looking into claims of anti-competitive practices by IBM around its System z business.