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IBM-Neon Fight Flares

IBM Countersues, Neon Thumbs its Nose, Dares IBM To Prove its Claims

IBM has countersued Neon Enterprise Software, the uppity little Texas outfit that had the temerity to try to use IBM's special mainframe processors to break Big Blue's stranglehold on the mainframe market.

Out to tarnish the ISV so users get scared and slink away, IBM used a poison pen to write its filing.

It told the Texas court where Neon lodged its anti-competitive suit a month ago that Neon is a thief, comparing it to 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."

It claims that it "faces many lawful competitors in the marketplace" but "Neon is not one of them."

Of course it's unclear who IBM might mean since it's driven all of its competitors out of the mainframe market, which is one of the reasons why it's being investigated by the Justice Department and why complaints have been lodged with the European Commission.

Anyway, IBM alleges that Neon has misappropriated IBM IP, infringed IBM copyrights, interfered with IBM contracts, breached its own contract with IBM, violated the Digital Millennium Copyright Act "by trafficking in software designed to facilitate infringement and circumvent technological measures in IBM's mainframe computer systems," and, to top it all, trampled on the Lanham Act by trying to rip IBM off.

IBM wants the "pirate" to pay damages though it doesn't say how much. But it wants compensatory damages, treble punitive damages, compensation for lost profits, any profits Neon earned and interest. And it wants an injunction. It also wants the court to throw out Neon's suit claiming IBM is out to destroy it as "meritless." Oh, yes, and it wants attorneys' fees and court costs too.

It claims the suit is not about its "purported monopoly" or it stifling innovation, but "about Neon's attempted hijacking of IBM's intellectual property."

"Neon's business model," it says, "expressly depends upon Neon inducing IBM's customers to violate their agreements with IBM."

It claims Neon and its zPrime widgetry mean to entice mainframe users into copping "much more" mainframe computing capacity than they're entitled to or have paid IBM for, upsetting the "pricing balance" in the process.

It points out that Neon means to be paid a part of the allegedly misappropriated use-based monthly fees that IBM would otherwise collect from its mainframe sites. Way less than IBM would charge, Neon retorts.

See, Neon's zPrime software diverts copyrighted legacy software like DB2, CICS, IMS and z/OS from running on mainframe processors and runs them instead, free of IBM's notoriously exorbitant fees, on the IBM-discounted zAAP and zIIPs processors that IBM claims are contractually reserved only for Java/XML and DB2 apps although IBM admits they're no different than the machine's central processors.

The weak link in IBM's argument may prove to be its tacit admission here that to compete against modern distributed systems it's practically had to give the store away while it can gouge its poor locked-in legacy customers all it likes.

In what must be one of the fastest responses on record - because it was such a slam dunk, its lawyer said - Neon answered IBM's complaint late Monday night, musing over the fact that both times it's heard from IBM Big Blue has cast itself as a monopoly, first as an electric utility and now as a cable TV company, letting Neon wrack up an easy shot.

IBM has objected to zPrime since it came out last summer but it never backed up its claims that Neon violates pre-existing contractual workload restrictions.

Neon, in turn, has dismissed IBM's unsupported claims as codswallop, claiming that its lawyers - and its clients' lawyers - have been all over IBM's paperwork and no restrictions on workloads exist.

Then, seeming to give substance to Neon's position, IBM a few weeks ago started refusing to sell mainframe customers any more specialty processors unless they promised in writing not to use them for allegedly unauthorized workloads.

Neon Monday claimed that IBM has now taken to supplying the words of that promise and that by a simple process of elimination - since it can't mean anybody else - IBM is outlawing zPrime in violation of the Clayton Antitrust Act, which says you can't sell a product by forbidding your customers to buy a competing product.


In its countersuit, IBM stands on the Machine Code License that users sign and supposedly agree to IBM-authorized workloads restrictions as well as its so-called IBM Customer Agreement (ICA) and the client's "Purchase Supplements."

IBM defines Machine Code, or Licensed Internal Code (LIC), as z/OS and the DB2, CICS and IMS middleware or legacy applications and says that the Machine Code License says customers can't use a mainframe's dormant or "built-in capacity" beyond what IBM has authorized. Hence, they can't run zPrime.

And, to indicate its intent, IBM holds up its printed and online point-of-sale boilerplate, product announcements, technical support documents, product usage guides and mainframe capacity resources as though such bumf had legal weight.

Neon, in its response, claims this is all an illusion to prevent mainframe customers from saving hundreds of millions of dollars and asks where the heck all these lists of implicated, forbidden workloads are; surely, it says, if IBM had such a thing it would have attached it as an exhibit to its filing and dares IBM to cough one up.

"There is no such list," it asserts in boldface. "There are no contractual limitations on the type of workloads that IBM's customers can run on the specialty processors for which they long ago paid in full. This no doubt explains IBM's recent efforts to secure amendments to its existing customer agreements."

"The Machine Code License in no sense distinguishes between general and specialty processors, and, z/OS does not direct workloads to specialty processors based on what customers are ‘contractually permitted to process on specialty processors.'"

IBM maintains - at great length in the countersuit - that Neon has misrepresented its licenses with the kicker allegation that Neon - in contravention of the Machine Code License - appropriates general-purpose computing capacity that zPrime users aren't paying for.

The argument isn't that well-developed or linear but IBM's contends that if the customer uses Machine Code beyond IBM's authorization then it's using built-in or general-purpose capacity without authorization.

If that's so then Neon wants to know why IBM sells specialty processors at all.

IBM claims that it implemented technological countermeasures through the LIC and z/OS switch-to service and dispatcher to ensure that only authorized workloads are executed on zAAP and zIIP processors and protect its copyrights- copyrights Neon calls into question.

IBM says Neon breaches that barrier and has "no other commercially significant purpose than to circumvent the protection afforded by z/OS."

It also says - and this is a peach of a contorted argument - that when zPrime runs applications or middleware, all allegedly copyrighted works, on the specialty processors it copies the programs into the zAAP or zIIPs chip's cache memory and that that constitutes copyright infringement because it isn't IBM-authorized.

Neon claimed last summer that 50 companies were testing zPrime. In November, 14 companies were supposed to be in production. IBM claims the loss of goodwill - Neon says goodwill in IBM's mouth really means fear - will only get worse if IBM has to enforce its contractual rights against its own customers.

This we gotta see; IBM suing its own customers.

IBM’s countersuit is here. Neon’s answer is here.

This piece first appeared here.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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MADAME P J BAILEY 02/19/10 11:51:00 AM EST

IBM should keep looking over its shoulder !

Analysis of upcoming IBM Stockholder meeting --

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