Many IT-solution providers develop and sell hardware, software or support services (or some combination of all three) intended to reduce costs associated with deploying someone else’s enterprise-level software products in the licensee’s network environment.  For business owners, the high cost of deploying some industry-standard, server-based software deployments can lead to near-desperation in efforts to remain competitive while keeping associated costs from breaking the bank. In many cases, third-party solutions designed to achieve those ends can seem too good to be true. However, in those cases, a prudent business owner will start with the assumption that they are, in fact, too good to be true, and he or she will conduct a thorough level of due diligence before (1) obligating the company to contractual obligations with a provider that can’t deliver on its promises and, possibly, (2) exposing the company to legal liability.

An excellent case-in-point is the recent settlement reached between IBM (the mother ship of high-end software solutions) and an Austin-based firm called Neon Enterprise Software. Neon developed a product called zPrime, which is a software solution designed, in essence, to allow certain IBM mainframe software licensed on a process-capacity basis to run on lower-priced IBM processors that do not trigger the same capacity-counting rules as a server’s “primary” processors. By deploying zPrime, IBM mainframe customers effectively could reduce a large portion of their processor-capacity-based licensing fees to zero. In response, IBM began to threaten Neon’s customers with legal liability based on the argument that use of zPrime constitutes a violation of applicable IBM license agreements. Neon sued IBM in an effort to stop these practices, and IBM then countersued Neon based on allegations of tortious interference with the contractual relationship between IBM and its customers. IBM’s most recent counterclaim and Neon’s most recent answer to that counterclaim provide a good summary of the arguments in play in the litigation. However, despite the vigor with which both parties appeared to be pressing their respective cases, IBM and Neon reached a settlement in early June 2011, under the terms of which Neon agreed to pull zPrime from the market.

For Neon’s customers’ IT procurement teams, this litigation undoubtedly caused a number of headaches. Those customers’ deployments of zPrime likely initially resulted in license-breach notices from IBM (which doesn’t really need to threaten much past termination of associated license agreements in many cases, since that action alone could be devastating for businesses with IBM-based mainframe architectures). Then, following loss of zPrime as a supported product (or perhaps once the case appeared to be a lost cause for Neon), those customers were required to absorb an unanticipated and possibly very high bill for the license-rights required to deploy mainframe software at regular-capacity levels.

The Neon case is just one example of what can happen under these circumstances. Oracle, for instance, is known to threaten its hardware customers with license-breach claims based on attempts to use non-Oracle service providers for support and maintenance of Oracle systems. This leaves many of those customers feeling as though they are joined at the hip to Oracle, despite the availability of support services from third-party providers that may be better and cheaper. Whatever the circumstances, it is important to keep the following in mind when considering solutions like zPrime, third-party maintenance for Oracle systems, or similar, third-party work-arounds for high IT costs:

  • Read – slowly and carefully – licenses or other agreements with the software or system source (e.g., IBM or Oracle) to determine if the proposed third-party solution is likely to result in heat from that source.
  • Read – slowly and carefully – any proposed statements of work or services agreement with the third-party provider to determine whether any work to be performed or solution to be delivered by that provider could result in legal exposure from the system source.
  • Consult with counsel. Even if it looks like there may be a conflict – in fact, even if the system source has sent a letter saying that there is a conflict arising from a solution known to have been deployed already – that does not mean that the source’s legal team is correctly applying the law. The customer may be well within its contractual and other legal rights in working with the third party, leaving it up to the system source to demand different terms during the next round of renewal talks.