IBM Corporation v. Micro Focus (US), Inc. was a copyright and breach-of-contract action that IBM filed on 21 November 2022 in the United States District Court for the Southern District of New York. IBM alleged that Micro Focus had used its access to IBM software through IBM developer programs to copy and reverse engineer IBM’s CICS Transaction Server for z/OS (CICS TS). According to IBM, the result was Micro Focus Enterprise Server and Micro Focus Enterprise Developer.[1] On 8 June 2023 the court let the copyright claim proceed. It dismissed the contract claim, which rested on the developer agreements’ ban on reverse engineering, as preempted by the Copyright Act.[3] The parties dismissed the whole action with prejudice by stipulation in July 2024.[5] IBM announced a settlement. It also said that Rocket Software, which had acquired the products at issue, had agreed to modify them.[6]
Background
CICS TS is IBM’s transaction processing subsystem for the z/OS mainframe operating system. According to the complaint, CICS TS web services let mainframe applications exchange data with web and networked applications. They use a “web service binding file”, or WSBIND file.[1][3]
IBM gives third-party developers discounted access to its mainframe software through programmes including IBM PartnerWorld and the z/OPD Developer Discount Program. The complaint says participants in the Developer Discount Program accept IBM’s Client Relationship Agreement, an Attachment for Developer Discount (IBM Z) and an Addendum. It says those terms bar “reverse assembling, reverse compiling, translating, or reverse engineering the Program” and the creation of derivative works.[1] Micro Focus admitted in its answer that it had at times been a member of the Developer Discount Program.[4] The complaint says IBM sent a notice of non-renewal on 31 May 2021 and that Micro Focus’s membership ended by 31 August 2022.[1]
The dispute
IBM’s allegations
The original complaint named Micro Focus International plc and Micro Focus (US), Inc. It pleaded copyright infringement and breach of contract, and sought damages, statutory damages and an injunction.[1] IBM alleged that Micro Focus’s WSBIND file had “near identical architecture and design” to IBM’s and used IBM internal structures not available outside IBM. It also alleged that log files from the two products’ LS2WS utilities were nearly identical, and that Micro Focus encoded the file in EBCDIC even though its products ran in an ASCII environment. IBM said these similarities showed copying and reverse engineering.[1]
After Micro Focus contested personal jurisdiction over the UK parent, IBM told the court it would amend its complaint to proceed against Micro Focus (US), Inc. alone.[2] The court’s June 2023 opinion was captioned against that entity alone.[3] In the same letter IBM cited Bowers v. Baystate Technologies (Fed. Cir. 2003), which held that a contract claim based on a prohibition of reverse engineering was not preempted by the Copyright Act.[2]
Micro Focus’s position
Micro Focus moved to dismiss the amended complaint and, separately, to disqualify IBM’s counsel.[3] After the ruling it filed an answer that denied infringement and asserted affirmative defences. It also counterclaimed for declarations that its Enterprise Suite did not infringe any valid IBM copyright and that IBM’s asserted copyrights were invalid.[4] Micro Focus alleged that the CICS TS web services elements at issue were not copyrightable, relying on 17 U.S.C. § 102(b) and the open web-services standards they implement. It also alleged that IBM brought the suit to prevent complementary products and to interfere with OpenText’s acquisition of Micro Focus, which closed in January 2023.[4] These were Micro Focus’s allegations and were not tested at trial.
Decision or outcome
Opinion and order of 8 June 2023
Judge Briccetti granted the motion to dismiss in part and denied it in part, and denied the motion to disqualify.[3]
- Copyright claim: proceeds. The court rejected Micro Focus’s argument that IBM had not alleged the WSBIND file was covered by IBM’s registrations for nine versions of “IBM CICS Transaction Server for z/OS”. It also held that IBM had adequately pleaded entitlement to statutory damages and attorneys’ fees. The start date of the alleged infringement was a matter for discovery.[3]
- Breach of contract claim: dismissed as preempted. Applying Second Circuit law under Section 301 of the Copyright Act, the court found both parts of the test met. The subject-matter requirement was met because the works at issue were software. The equivalency requirement was met because the gravamen of each contract term IBM relied on was “to prohibit Micro Focus from infringing IBM’s exclusive rights to copy and distribute its software”. The terms included the ban on reverse engineering. The court held that the contract claim “is simply a restatement of [IBM’s] claims under the Copyright Act for unlawful copying and distribution” and dismissed it.[3]
Dismissal and settlement
The case continued in discovery on the copyright claim and the counterclaims until July 2024.[7] On 9 July 2024 the parties filed a stipulation under Federal Rule of Civil Procedure 41(a)(1)(A)(ii) dismissing “the entire action including all claims and counterclaims” with prejudice, “each side to bear its own attorneys’ fees and costs”.[5]
In a statement dated 8 July 2024, IBM said it “has settled a lawsuit accusing Micro Focus of infringing IBM’s copyrights related to IBM’s CICS web services”. It said that the products at issue had since been acquired by Rocket Software, which was not a party to the lawsuit, and that Rocket had agreed “to modify the relevant products”.[6] No other settlement terms were published, and the court made no finding on infringement or copyright validity.
Significance for software licensing and SAM practice
- Reverse-engineering clauses and preemption. The June 2023 opinion held that, on the facts pleaded, a contractual ban on reverse engineering and derivative works in IBM’s developer-program agreements could not be enforced as a separate contract claim in the Second Circuit. It was treated as equivalent to copyright.[3] IBM had pointed to Bowers v. Baystate, a Federal Circuit decision that reached the opposite result on a reverse-engineering clause.[2] The opinion is a district court decision and does not bind other courts. It shows that the enforceability of licence use restrictions in the US can depend on the circuit and on how the claim is framed.
- Developer and partner-program licences. The dispute arose from discounted developer access, not a production licence. The case shows that partner and developer-program agreements carry their own use restrictions, separate from the IBM Passport Advantage terms that govern ordinary production entitlements.[1]
- Product changes after settlement. IBM’s statement said the settlement led to product modifications by the new owner of the product line, not only a payment.[6] Settlements of this kind can therefore change the software that customers license, even though those customers were not parties to the case (see license compliance).
See also the earlier IBM litigation over UNIX and Linux, SCO Group, Inc. v. International Business Machines Corp..
Lessons learned
- The enforceability of contractual bans on reverse engineering can depend on the US circuit and on how the claim is framed. The court treated the developer agreements’ reverse engineering ban as equivalent to copyright and preempted, although IBM had cited a Federal Circuit decision that reached the opposite result.[3][2]
- Developer and partner program agreements carry their own use restrictions, separate from production licence terms. The dispute arose from discounted developer program access, whose terms barred reverse engineering and derivative works.[1]
- A settlement between vendors can change the software that customers license. IBM stated that Rocket Software, which had acquired the products, agreed to modify them as part of the settlement.[6]