IBM is taking the former head of its Thailand operation, Patama Chantaruck, to court to claw back $470,000 in benefits it believes she owes after going to work for a rival and – allegedly – breaking the terms of a non-compete clause.

Chantaruck went to work for Big Blue in October 2018, joining as country general manager of Thailand and veep of Indo China Expansion. IBM said in its lawsuit [PDF], filed in a New York federal court, that she had “only a few peers of similar ranking in the Asia Pacific region.”

On joining IBM, Chantaruck entered into a binding Long-Term Performance Plan (LTPP) in which she received equity awards in return for agreeing to “safeguard IBM’s Confidential Information and not engage in certain proscribed competitive conduct within specific time periods,” according to Big Blue in its lawsuit.

As part of this contractual policy, IBM was allowed to “cancel and rescind” any awards if it found Chantaruck was involved in “detrimental activity.” This was defined in the LTPP as including “accepting employment with competitors within restricted time periods” – which the complaint refers to as “rescission periods,” according to the IT giant.

The exec resigned from IBM Thailand effective February 28, 2022. From April 11, 2022 – which was “within the rescission periods” – she had moved to a “highly similar” role at Accenture, IBM complained.

IBM regards Accenture as a rival.

“IBM and Accenture entities compete particularly in the information, digitalization, and consulting spaces, both globally and within the Asia-Pacific region,” Big Blue’s complaint added, saying Accenture is IBM’s “largest competitor by revenue” in professional services.

Chantaruck has remained the country managing director of Accenture Thailand since.

“By accepting her position within Accenture Thailand during a restricted time period, Defendant violated her obligations to IBM under the plan,” according to the complaint. IBM demanded repayment of the monetary benefits but so far, Chantaruck has “refused and failed to pay awards totaling $470,220.906.”

As such, Chantaruck is in breach of her contract, the complaint alleged. In addition to the monetary payments made by IBM, the exec would be required to pay all costs and expenses IBM incurs in relation to this litigation, should IBM’s case in America prevail.

Readers of this blog will remember that I previously posted on the shocking case brought by whistleblower Paul Cimino against IBM arising out of a predatory software audit conducted by IBM of the Internal Revenue Service (“IRS”).   Although Cimino worked for IBM he was apparently so horrified by IBM’s complete fabrication of non-compliance findings in order to force the IRS into a new and more expensive ($265 million to be exact) license agreement that he blew the whistle and filed a claim under the federal False Claims Act (“FCA”).

The district court dismissed the key fraudulent inducement claim finding that it was not credible that the IRS would enter into a new and more expensive contract with IBM just to get out from under substantial audit penalties.   The D.C. Circuit Court of Appeal disagreed and found that Mr. Cimino had plausibly alleged that “but for” the fraudulent audit, the IRS would never had entered into the new license agreement.  The court remanded the case back to the trial court for further proceedings. This is a big win for Cimino and although decided under the FCA, can be instructive for all those companies out there who have suffered through predatory audits by major software publishers.

The Court explained the case as follows:

“This qui tam action began when Paul Cimino filed a complaint alleging that IBM violated the FCA. As a former senior sales representative for IBM, Cimino helped sell software to the IRS. Based on knowledge acquired on the job,  Cimino alleged that IBM fraudulently induced the IRS to enter a $265 million license agreement for “unwanted, unneeded” software.

Faced with the possibility of losing significant revenue, IBM allegedly devised a scheme to pressure the IRS into another long-term deal. IBM planned to conduct a “friendly” audit, anticipating that the IRS was overusing the software and therefore would owe a significant amount in compliance penalties. IBM would then leverage the penalties by offering to waive them in exchange for a new agreement.

IBM retained Deloitte LLP to perform the audit.  Contrary to IBM’s expectations, Deloitte’s initial audit showed the IRS was not significantly overusing the licenses and owed only $500,000 in compliance penalties—a relatively small amount for a contract of this size. IBM never released these audit results to the IRS. Instead, IBM worked with Deloitte to manipulate the results. For example, IBM counted licenses on discontinued servers as in constant use, even though they were never used. Deloitte first presented the number of overused licenses from this manipulated audit to Adam Kravitz at the IRS. Cimino alleged that “Kravitz rejected the audit findings because, in his words, ‘IBM cannot substantiate that the IRS is out of compliance.’”  IBM then manipulated the audit again to show an outstanding $292 million in compliance penalties. IBM shared this number with the IRS, despite the fact that one IBM employee considered the number “ridiculous,” and another “was ‘not comfortable representing’ that number to the IRS.”

As we have warned before, avoid “friendly” software audits by software publishers as there is nothing friendly about them.  If Oracle or IBM or whatever software company wants to conduct an audit, then they should issue a formal audit notice and do so.  These “friendly” audits are often nothing more than fishing expeditions where the sales team hopes to turn non-compliance findings into a big payday and a big contract.  Licensees should stand on their contractual rights and not fall into these traps.

Another interesting aspect of the case is how IBM allegedly was attempting to charge the IRS by claiming licensing fees for non-use of the IBM software.  The court pointed to allegations that IBM claimed fees for discontinued servers for constant use even though they were never used.  We see similar attempts by Oracle and others to charge customers a licensing fee on servers where no Oracle software is being used, such as in the case of Oracle’s expansive VMware assertions, which involve non-contractual and non-binding policies.  Customers under audit should carefully review license agreements and challenge during audit resolution negotiations policies that are not expressly incorporated into the contract.  Careful attention should be paid to assertions that payment must be made for non-use by the customer of the auditing company’s software, or for potential future use that has not yet occurred.  

We were pleased to see that the appellate court reversed the lower court’s dismissal and is allowing this whistleblower suit to proceed past the pleading stage.  Only when predatory software vendors are held to account by the courts will such behaviour end.  Tactical Law will continue to monitor the case.  Please check back here for periodic updates.

Google has requested the US Supreme Court to overturn the Federal Circuit judgement which ruled that Google had infringed Oracle’s copyrights by using JAVA APIs in its Android OS.

The search giant warned that the entire concept of software APIs (application programming interface) would come under threat if the honourable Court rules in favour of Oracle in the decade-long legal battle covering Android and Java.

In its filing to the court on Monday [PDF], Google argued that it had done nothing unlawful by using some parts of Oracle’s Java APIs to help make Android OS communicate more easily with other programmes.

“We’re asking the Court to reaffirm the importance of the software interoperability that has allowed millions of developers to write millions of applications that work on billions of devices,” Kent Walker, Google’s chief legal officer, said in a blog post.

“An Oracle win would upend the way the technology industry has always approached the important issue of software interfaces.”

“It would for the first time grant copyright owners a monopoly power to stymie the creation of new implementations and applications,” Walker warned.

Google purchased Linux mobile OS start-up Android for about $50 million in 2005. At that time, the start-up was using Java’s class library APIs in its mobile OS. The first phone based on Android OS was launched by Google in 2008.

In 2010, Oracle sued the search giant over its unlicensed use of JAVA APIs in Android OS, saying it owed nearly $8.8 billion for Google’s use of the code.

However, Google rejected all those accusations, claiming that that its use of the software was covered by the American copyright doctrine of fair use. The company said it “reused only the material that was required by the Java language to perform the function of responding to the developers’ calls,” which was permissible under the “merger doctrine.”

In 2016, a jury ruled in favour of Google, stating that Google’s use of JAVA APIs was fair use. That decision, however, was overturned in 2018 by a federal appeals court.

According to Walker, the Supreme Court, in this case, will examine if copyrights can be extended to “nuts-and-bolts software interfaces, and if so, whether it can be fair to use those interfaces to create new technologies.”

Walker argues that a ruling in favour of Oracle would make it costlier and difficult for start-ups and developers to create more products for people to use.

The US Supreme Court is scheduled to hear oral arguments in this case in March and a final ruling is expected by the end of June.