Neon Amends IBM Mainframe Complaint

Neon Enterprise Software, which is suing IBM over alleged anticompetitive behavior involving IBM's mainframe business, has filed an amended complaint giving more specific details about that behavior. At issue is Neon's zPrime software, which is designed to help IBM mainframe customers reduce their licensing costs. IBM has filed a countersuit against Neon.

Neon Enterprise Software has amended its lawsuit against IBM, giving specific examples that Neon executives say illustrates Big Blue's monopolistic behavior in its mainframe business.

In the amended complaint filed Feb. 17, Neon outlines instances where IBM officials have warned System z mainframe customers that use of Neon's zPrime software is illegal, threatens their licensing deals with IBM and could lead to IBM changing the cost structure of those deals.

Neon officials say that such actions highlight the lengths IBM will go to to protect its mainframe business from outside competition and illustrates how dependent these customers have become on IBM to run mission-critical workloads.

"IBM's willingness to threaten retaliation against any IBM Mainframe Customer that uses zPrime makes clear that its customers are -locked-in,' and, in addition, that IBM is quite willing to use as a massive hammer its customers' dependence on IBM's System z Offerings," Neon officials say in the 44-page complaint, filed in U.S. District Court in Texas. "Customers that had an alternative would tell IBM to -pound sand.'"

Neon initially filed suit against IBM in December, claiming that IBM's tactics have hurt its business and are part of a pattern of behavior the giant tech vendor has exhibited over the years when dealing with other companies whose products have threatened to take away mainframe revenues.

At issue in this case is Neon's zPrime software, which the company introduced in June 2009. The software enables mainframe users to shift more workloads off the mainframes' more expensive CPs (central processors) and onto the cheaper SPs (specialty processors) that IBM has created over the past decade to let the mainframes run more modern workloads, including Linux and Java applications.

Not only are the SPs cheaper than the CPs to buy, but also to operate. IBM's licensing model calls for customers to pay for the amount of work running on the central processors-the more workloads that run on them, the more businesses pay to IBM. However, workloads running on the SPs don't face the same licensing costs.

Neon officials say that by using zPrime, businesses can move more workloads onto the SPs, potentially saving millions in licensing costs.

IBM executives, who filed a countersuit against Neon in January, claim that zPrime violates Big Blue's copyrights and entices System z customers to violate their mainframe contracts. The workloads that run on the specialty engines are governed by contracts between IBM and the customers, and that moving more workloads onto the SPs violate those contracts.

Neon disagrees, saying there are no provisions in IBM customer contracts limiting what workloads can be shifted to the specialty engines, which officials say are essentially identical to the central processors.

Neon officials say that after zPrime was released, more than 50 System z customers expressed interest, with some testing the software. However, Neon's lawsuit accuses IBM of using coercion and threats to warn its customers away from zPrime, citing in the amended complaint at least nine such instances. Some companies, such as Federal Express and Experian, told Neon they decided not to pursue Neon contracts because of threats from IBM, Neon said in the complaint.

IBM also has worked to block Neon's ability to do business by refusing to let it participate in user conferences and making it more difficult for Neon to gain routine discounts on mainframe software, all of which makes it harder to Neon to do business.

In their suit, IBM executives said they are entitled to protecting the billions of dollars invested in the mainframe business over the past decade, and that Neon's zPrime is nothing more than piracy of IBM's IP. IBM has worked to open up the mainframes to more modern workloads, and to expand their reach into such areas as the midmarket sector.

"IBM faces many lawful competitors in the marketplace," IBM said in its response document. "Neon is not one of them."

A number of smaller tech companies have looked for ways to grow their businesses by helping System z customers reduce their mainframe costs. Some, like Platform Computing and T3 Technologies, aimed to build non-IBM systems that could run mainframe workloads.

Others, like Neon and TmaxSoft, are looking at ways to make it easier for businesses to move their workloads onto the less expensive SPs.