IBM, Compuware Reach $400M Settlement

Dueling lawsuits end as IBM agrees to buy Compuware software and services

IBM signed a $400 millionsettlement agreement last week with software developer Compuware Corp. to resolve a series of lawsuits between the two companies. The agreement ends a dispute that began three years ago, when Compuware filed suit against IBM for a litany of alleged violations, including copyright infringement and antitrust law abuses.

Under the terms of the deal, IBM agreed to spend $400 million over the next four years on Compuware software and services, the companies said. IBM will spend $260 million on Compuware services and pay an additional $140 million to license Compuware software.

IBM and Compuware also entered a patent cross-licensing agreement and will exchange technical information to ensure interoperability between their products.

An IBM spokesman said the $260 million services component of the deal won't come directly out of the company's pocket; IBM will offer Compuware subcontracting deals through IBM Global Services valued at that amount.

Zaineb Bokhari, a software analyst at New York-based Standard & Poor's Equity Research Services, described the outcome as anticlimactic, considering the amount of time and money Compuware had devoted to advancing its case.

Surprising Terms

"I was surprised at the settlement terms. It reads more like a partnership than a legal settlement," Bokhari said. "You think, 'Gee, there's other software companies that are doing this without a legal battle.' "

Still, Bokhari said she expects the deal to benefit both companies, which can now move on without the further expense and distraction of a courtroom fight.

She said she doesn't think the deal will affect customers. "From a competitive standing overall, it's not like anything has changed in any way," Bokhari said.

Compuware filed its initial complaint in March 2002, charging that IBM used Compuware source code in several of IBM's own tools, steered its services customers to IBM products and denied rival vendors the technical information needed to build software for IBM systems.

A trial on those charges began last month in the District Court for the Eastern District of Michigan, near Compuware's Detroit headquarters.

Those Compuware allegations set off a web of litigation between the two companies.

IBM countersued in the Michigan court, alleging that Compuware violated six IBM patents. In January 2004 the company filed another patent-infringement lawsuit against Compuware, this time in New York's Southern District Court.

Hostilities Cease

Those lawsuits ceased as a result of the deal, which settles all outstanding litigation between the companies.

In a conference call with analysts and reporters last week, Compuware Chairman and CEO Peter Karmanos predicted that the deal will help both companies.

"This is a great win for everyone but the lawyers," he quipped.

In fact, Karmanos said he expects a reduction in legal costs to be a significant boon to Compuware, saving the company $20 million to $40 million per year. The long legal battle has cost Compuware about $95 million, Karmanos estimated.

Under the agreement, IBM will get an enterprise software license that covers all Compuware products.

A joint task force with representatives of both companies will determine how IBM will use the Compuware products, Karmanos said, adding that he aims to convince IBM to buy more products from his company.

Compuware, which had complained in its lawsuit that IBM had become stingy in supplying important technical information to independent software vendors, is now satisfied that it's receiving what it needs, according to Karmanos.

Karmanos also said the deal won't reduce pricing pressure. "We're still going to compete with them, and that works out well for all our customers," he said.

Cowley and Larson are reporters for the IDG News Service.

Copyright © 2005 IDG Communications, Inc.

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