United States Court of Appeals 

for the Fifth Circuit ____________ 

No. 22-20463 

____________ 

BMC Software, Inc., 

Plaintiff—Appellee, 

versus

International Business Machines Corporation, 

Defendant—Appellant. 

______________________________ 

Appeal from the United States District Court 

for the Southern District of Texas 

USDC No. 4:17-CV-2254 

______________________________ 

Before Jones, Stewart, and Duncan, Circuit Judges.

Edith H. Jones, Circuit Judge: 

Defendant International Business Machines Corporation (“IBM”) 

appeals from a judgment awarding over $1.6 billion in contract and fraudulent 

inducement damages to Plaintiff BMC Software, Inc. We conclude that the 

district court’s determination concerning liability was in error. Accordingly, 

we REVERSE. 

I. Background 

BMC is a Houston-based software company that develops and 

licenses proprietary mainframe software products. BMC’s mainframe 

United States Court of Appeals 

Fifth Circuit 

FILED 

April 30, 2024 

Lyle W. Cayce 

Clerk 

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2 

software products, and the accompanying services that BMC provides, are 

used by its customers to run, manage, and secure operations on their 

mainframe computers. IBM is a New York-based information technology 

company that also manufactures mainframe computers, creates mainframe 

software, and provides information technology (“IT”) outsourcing services. 

BMC and IBM directly compete in developing and selling mainframe 

software. But IBM also provides necessary outsourcing services to BMC

and BMC’s customers, including AT&T.

1

 In 2008, IBM and BMC entered 

into a Master Licensing Agreement (“MLA”) covering a broad range of 

interactions between the parties and an Outsourcing Attachment. The 

Outsourcing Attachment authorized IBM to use BMC’s software in its IT 

servicing business for customers to whom BMC licensed BMC software. 

IBM and BMC amended the Outsourcing Attachments in 2013 and again in 

2015 (the “2015 OA”). 

The parties’ dispute over the 2015 OA is the focus of this appeal. 

Three of its provisions are relevant. First, Section 1.1 provides IBM with 

five options for using BMC’s software. Among those options, the “Access 

and Use” option authorizes IBM to use BMC software without a license 

charge under certain circumstances, as provided in Section 5.1: 

BMC will allow [IBM] to use, access, install and have 

operational responsibility of the BMC Customer Licenses 

(together, “Access and Use”) under the terms of the BMC

Customer’s license agreement with BMC for no fee, including 

on Computers owned or leased by BMC Customer and at 

BMC Customer’s facility, provided that the BMC Customer 

Licenses are used solely for the purposes of supporting the 

BMC Customer who owns such licenses[.] 

_____________________ 

1

 Although this case concerns an AT&T-initiated project, AT&T is not a party. 

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3 

Finally, Section 5.4 limits IBM’s ability to “displace” BMC software in 

certain BMC customers’ mainframes as follows: 

This Non-Displacement provision applies only to [IBM]’s Access and Use of BMC Customer Licenses by [IBM]’s strategic outsourcing division (or its successor) for the BMC Customers listed on Exhibit K . . . . Subject to the foregoing, [IBM] 

agrees that, while [IBM] cannot displace any BMC Customer 

Licenses with [IBM] products, [IBM] may discontinue use of 

BMC Customer Licenses for other valid business reasons. All 

terms of Sections 5.1, 5.2 and 5.3 apply to [IBM’s] use of 

BMC Customer licenses belonging to any Exhibit K Customers[.] 

The two predecessor Outsourcing Attachments contained nearly identically 

worded “non-displacement” provisions, but the 2015 OA is unique in that it 

limits the provision’s applicability to fifty-four identified BMC customers 

(Exhibit K), including AT&T. The evidence indicates that both parties were 

well aware of the competitive implications of IBM’s servicing BMC-licensed 

customers,2

 but during each of these contract negotiations, they were unable 

to agree to modify the “non-displacement” term’s language. 

 Meanwhile, in April 2013, AT&T and IBM began to explore a project 

to replace BMC software with software from providers including IBM on the 

AT&T mainframe, a project codenamed Project Swallowtail. The district 

court describes the commencement of the project thus: “Though IBM 

thought that participating in Project Swallowtail could further its long-term 

growth and expansion goals, there is no indication that it initiated the 

partnership with AT&T” (emphasis in original). In March 2014, however, 

_____________________ 

2

 Indeed, the parties sparred over two previous instances in which IBM had 

provided outsourcing services pursuant to which BMC customers ended up transitioning 

to IBM software. One such instance led to a negotiated settlement and release of IBM. 

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4 

AT&T ceased work on Project Swallowtail, opting instead to renew its 

agreement with BMC. 

 The district court then found: 

Around February 2015, AT&T changed its mind and decided 

to restructure its mainframe environment after all, at which 

point it approached IBM about a new initiative codenamed 

Project Cirrus...AT&T’s working strategy for Cirrus was to 

transition IBM’s mainframe IT services contract to a 

‘consumption model that includes all 3rd party software, new 

labor and hardware options, reaping ‘drastic[]’ savings on 

‘mainframe total costs’ in the process...And it wanted IBM to 

lead the project because ‘IBM ha[d] skills and expertise’ 

necessary ‘to successfully execute the project.’...AT&T 

specifically wanted to replace BMC’s products with other 

vendors’ products primarily out of cost considerations....

After learning of IBM’s involvement in Project Swallowtail, BMC

filed suit against IBM. In its Second Amended Complaint, BMC asserted 

twelve causes of action, including claims that IBM’s work in migrating 

BMC software, inter alia, to IBM software in AT&T’s mainframe 

environment violated certain provisions of the 2015 OA. BMC also alleged 

that IBM fraudulently induced BMC to enter the 2015 OA. 

Eventually, both parties sought summary judgment on various claims 

and counterclaims. The district court awarded summary judgment to IBM

on the claim for breach of Section 1.1, explaining that the section “merely 

puts IBM to an election regarding how it would use BMC products in 

relation to its provision of IT Services at AT&T,” and “IBM elected to 

proceed pursuant to § 1.1(a): ‘Access and Use— (Sections 5.1, 5.2, 5.3 and 

5.4).’” 

But the district court denied IBM’s motion for summary judgment 

on BMC’s Section 5.1 breach-of-contract claim. In so doing, the district 

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5 

court concluded that “§ 5.1 is unambiguous and must be interpreted to 

preclude access and use of [IBM] licenses to displace BMC products.” This 

conclusion reinforced the court’s principal conclusion that the Section 5.4 

non-displacement provision unambiguously prevented IBM from 

“displacing” BMC products with IBM software. The court granted partial 

summary judgment to BMC because IBM “displaced BMC Customer 

Licenses with IBM products when it implemented Project Swallowtail at 

AT&T.” 

A bench trial was held to resolve the remaining issues. Having found 

that IBM breached the 2015 OA, the district court addressed the damages 

IBM would owe BMC. The district court concluded that “BMC

established that its license fees represent[ed] the direct damages expressly 

contemplated under the contract” and, therefore, ordered IBM to pay 

BMC “$717,739,615.00 in unpaid license fees.” The district court then 

doubled the damages with a punitive damage assessment on the ground that 

IBM fraudulently induced BMC into signing the 2015 OA.

3

 Summing up 

the actual and punitive damages with other incidental damages, the judgment 

awarded BMC approximately $1.6 billion.4

II. Standard of Review 

This court reviews the district court’s order granting partial summary 

judgment “de novo, applying the same legal standards as the district court.” 

_____________________ 

3

 To reach this surprising outcome as a matter of Texas law, the court had to find 

that the damage disclaimers and limitations in provisions of the MLA were unenforceable 

under New York law. 

4

 The district court also awarded BMC $168,226,367.29 in prejudgment interest, 

$16,287,868.40 in attorneys’ fees, $4,094,718.13 in litigation costs, $1,232,558.00 in “postjudgment and conditional appellate expenses, and “post-judgment interest from the date 

of the entry of judgment at the federally mandated rate.”

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Ryder v. Union Pac. R.R. Co., 945 F.3d 194, 199 (5th Cir. 2019). Entering 

summary judgment is proper “if the movant shows that there is no genuine 

dispute as to any material fact and the movant is entitled to judgment as a 

matter of law.” Fed. R. Civ. P. 56(a). And “[f]ollowing a bench trial, 

findings of fact are reviewed for clear error and legal issues are reviewed de 

novo.” Tex. Ent. Ass’n, Inc. v. Hegar, 10 F.4th 495, 504 (5th Cir. 2021) 

(quoting One Beacon Ins. Co. v. Crowley Marine Servs., Inc., 648 F.3d 258, 262 

(5th Cir. 2011)). 

III. Discussion 

IBM challenges the district court’s conclusion that it breached the 

2015 OA by replacing BMC’s software partially with IBM software at 

AT&T’s instigation on the AT&T mainframe. Because the interpretation 

of the 2015 OA is dispositive, we do not reach other issues raised by IBM 

concerning liability for fraudulent inducement and damages. 

 The district court determined that IBM breached Section 5.4 of the 

2015 OA as a matter of law by executing AT&T’s request to replace BMC’s 

software with IBM software in AT&T’s mainframe. According to the 

court, this “non-displacement provision” unambiguously barred IBM from 

replacing BMC’s software with IBM software in AT&T’s mainframe even 

if AT&T requested IBM to complete this task. Though we, too, find the 

language of Section 5.4 unambiguous, we hold that “other valid business 

reasons” under Section 5.4 supported IBM’s service in effecting AT&T’s 

switchover, which partially included IBM software. 

 New York law governs our interpretation of the 2015 OA. “Whether 

or not a writing is ambiguous is a question of law to be resolved by the 

courts.” See W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 

1990) (citation omitted). The terms of a contract are clear and unambiguous 

if, after applying these rules of construction, “the agreement on its face is 

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reasonably susceptible of only one meaning.” Greenfield v. Philles Recs., Inc., 

780 N.E.2d 166, 171 (N.Y. 2002). “Under longstanding rules of contract 

interpretation, ‘[w]here the terms of a contract are clear and unambiguous, 

the intent of the parties must be found within the four corners of the contract, 

giving a practical interpretation to the language employed and reading the 

contract as a whole.’” Tomhannock, LLC v. Roustabout Res., LLC, 

128 N.E.3d 674, 675 (N.Y. 2019) (quoting Ellington v. EMI Music, Inc., 

21 N.E.3d 1000, 1003 (N.Y. 2014)). “Particular words should be considered, 

not as if isolated from the context, but in the light of the obligation as a whole 

and the intention of the parties manifested thereby.” Donohue v. Cuomo, 

184 N.E.3d 860, 870–71 (N.Y. 2022) (quoting Kolbe v. Tibbetts, 3 N.E.3d 115, 

11561 (N.Y. 2013)). Furthermore, “a contract must be construed in a manner 

which gives effect to each and every part, so as not to render any provision 

‘meaningless or without force or effect.’” Nomura Home Equity Loan, Inc., 

Series 2006-FM2 v. Nomura Credit & Cap., Inc., 92 N.E.3d 743, 748 (N.Y. 

2017) (quoting Ronnen v. Ajax Elec. Motor Corp., 671 N.E.2d 534, 536 (N.Y. 

1996)). 

 Among the options contained in the 2015 OA for using BMC’s 

software, IBM selected the “Access and Use” option, which allowed IBM

to: 

use, access, install and have operational responsibility of the 

BMC Customer Licenses (together, ‘Access and Use’) under 

the terms of the BMC Customer’s license agreement with 

BMC for no fee, including on Computers owned or leased by 

BMC Customer and at BMC Customer’s facility, provided 

that the BMC Customer Licenses are used solely for the 

purposes of supporting the BMC Customer who owns such licenses 

. . . . 

(Emphasis added). In other words, IBM could access and use BMC’s 

software without itself paying a license fee but only to support BMC 

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customers who owned BMC software licenses. Critically here, in Section 5.4 

of the 2015 OA, IBM agreed to “non-displacement,” that is, for certain listed 

customers (including AT&T), “while [IBM] cannot displace any BMC

Customer Licenses with [IBM] products, [IBM] may discontinue use of 

BMC Customer Licenses for other valid business reasons.” (Emphasis 

added).

IBM contends that under the “other valid business reasons” 

language in Section 5.4, it had the right to execute AT&T’s request, for 

AT&T’s own reasons, to swap out BMC’s software for IBM software in 

AT&T’s mainframe. BMC defends the district court’s interpretation, 

which depends on differentiating between the terms “displace” and 

“discontinue,” while narrowing the ambit of “other valid business reasons” 

to conclude that Section 5.4 categorically bars IBM from replacing BMC

software with IBM software in a mainframe at a customer’s request. 

 We disagree with BMC’s and the district court’s interpretation of 

Section 5.4 for several reasons. First, reliance on dictionary definitions of 

“displace” and “discontinue” does not fully explain the section’s meaning. 

A holistic reading of the provision better harmonizes the entirety of the 

provision and accords with other parts of the parties’ contract. Second and 

third, BMC’s interpretation either renders the descriptor “other valid 

business reasons” superfluous or arbitrarily and unreasonably cabins it. 

Fourth, as construed by BMC, Section 5.4 runs a serious risk of being an 

unenforceable restrictive covenant. 

 First, BMC contends, the verbs “displace” and “discontinue” bear 

distinct meanings in Section 5.4. Thus, “displace” is “to remove from the 

usual or proper place” or, in a secondary definition, to “supplant.” Displace, 

WEBSTER’S THIRD NEW INT’L DICTIONARY (1981). “Discontinue” means 

to “break the continuity of: cease to use ....” Discontinue, WEBSTER’S 

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THIRD NEW INT’L DICTIONARY (1981). BMC urges that the “nondisplacement” clause absolutely bars IBM from replacing BMC software 

with its own software in a customer’s mainframe, but the “discontinue” 

clause allows IBM to “discontinue” BMC software in a customer’s 

mainframe, so long as IBM is not replacing BMC’s software with IBM

software. 

New York law does not countenance BMC’s stark dichotomy 

between “displace” and “discontinue.” If these terms bore wholly distinct 

meanings, there would be no need for Section 5.4 to say that IBM may not 

“displace” under some circumstances but may “discontinue” for other

reasons. Read that way, the provision would simply state: while IBM

“cannot displace any BMC Customer Licenses with [IBM] products, [IBM] 

may discontinue use of BMC Customer Licenses.” This revision of the 

section, however, renders “for other valid business reasons” superfluous, 

contrary to New York law. Nomura Home Equity Loan, Inc., 92 N.E.3d at 748 

(“[A] contract must be construed in a manner which gives effect to each and 

every part, so as not to render any provision meaningless or without force or 

effect.”). 

A holistic reading of Section 5.4 must make sense of the entire 

sentence. Such a reading acknowledges that the “cannot displace” clause 

prohibits IBM from competing unfairly with BMC by using its outsourcing 

services to (a) gain inside knowledge as to how BMC’s customers use BMC 

software and (b) sell IBM software to the same customers with this special 

knowledge. The second clause, however, accepts the reality that IBM, in 

performing outsourcing services for BMC customers, may be tasked by them 

to “discontinue” BMC software for “other valid business reasons.” This 

reading harmonizes all of the provision’s language in accord with state law. 

Under Section 5.4, in other words, IBM could not displace or discontinue 

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BMC software in a customer’s mainframe in favor of IBM software absent a 

“valid (not unfairly competitive) business reason.” 

 Advocating the holistic reading of Section 5.4, IBM argues that 

“other valid business reasons” encompasses discontinuance of BMC’s 

software in favor of its own software in AT&T’s mainframes at AT&T’s 

request. Here, it is undisputed, as found by the district court, that AT&T 

initiated this switchover independently and without any lobbying or influence 

of IBM. Consequently, IBM contends it did not violate the provision’s nondisplacement proviso because it did not compete for or solicit AT&T’s 

decision. 

 In fact, the holistic interpretation of Section 5.4 is also supported by 

other provisions in the parties’ agreements. Paragraph 3 of the 2008 MLA, 

for instance, outlines five restrictions on IBM’s use of BMC’s software, but 

not one of those bars IBM from substituting BMC’s software for IBM

software in a customer’s mainframe at the customer’s request. This court 

may not rewrite the parties’ agreements to enforce a restriction that is not 

there. See Salvano v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 647 N.E.2d 

1298, 1302 (N.Y. 1995) (“The court’s role is limited to interpretation and 

enforcement of the terms agreed to by the parties; it does not include the 

rewriting of their contract and the imposition of additional terms.”). 

 Another provision of the 2015 OA further supports the conclusion 

that “other valid business reasons” permitted IBM to execute the software 

changeover instigated by AT&T. The 2015 OA delegates to IBM the 

authority to “use, access, install and have operational responsibility” for the 

BMC licenses owned by licensees like AT&T, so long as IBM used those 

licenses “solely for the purposes of supporting the BMC Customer who 

owns such licenses.” In other words, IBM could access BMC’s software to 

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11 

assist BMC’s customers with their broad range of needs and requests.5 That 

is exactly what IBM did when it executed AT&T’s policy to partially 

replace BMC software with IBM software in the AT&T mainframes. In 

following the customer’s request, IBM was solely “supporting the BMC 

Customer” that owned the licenses. That the district court found no 

violation of Section 5.1 is compatible with finding no violation of Section 5.4. 

BMC’s cramped reading of Section 5.4 to categorically bar IBM

from replacing BMC software with IBM software, even if AT&T requested 

IBM to perform that task also leads to one of two absurd results. On one 

hand, it would allow IBM to replace BMC’s software with any other 

competing software at AT&T’s request, so long as the competing software 

is not that of IBM. Alternatively, Section 5.4 would require AT&T to 

discharge IBM as its IT-outsourcer if it decided to replace BMC’s software 

with software of the customer’s choice, but only if it elects IBM replacement 

software. Either way, once AT&T decided to switch from BMC software 

to a competing software, whether that of IBM or any other seller, the damage 

to BMC would be done—the customer would be lost to BMC. BMC’s 

interpretation of Section 5.4 enables it to micromanage AT&T’s decision to 

use IBM as an outsourcer for replacement software even after AT&T has 

chosen no longer to be a BMC customer. In addition to producing absurd 

results, BMC’s interpretation is commercially unreasonable and therefore 

unsustainable under New York law. See, e.g., Macy’s Inc. v. Martha Stewart 

Living Omnimedia, Inc., 6 N.Y.S.3d 7, 11 (App. Div. 2015) (“It is well settled 

‘that a contract should not be interpreted to produce an absurd result, one 

_____________________ 

5

 Notably, the district court concluded in its post-trial opinion that IBM did not 

breach Section 5.1 because Section 5.1 purely required IBM to act “for the sole purpose of 

supporting AT&T” when accessing and using AT&T’s BMC licenses, and “IBM used 

the licenses to achieve what AT&T wanted done—and nothing more.” 

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that is commercially unreasonable, or one that is contrary to the intent of the 

parties.’” (quoting Cole v. Macklowe, 953 N.Y.S.2d 21, 23 (App. Div. 2012))). 

BMC’s reading of Section 5.4 is also untenable because it risks 

making Section 5.4 an unenforceable illegal restriction on competition under 

New York law. Courts applying New York law use a “standard akin to a 

‘simple rule of reason, balanc[ing] the competing public policies in favor of 

robust competition and freedom of contract,’” in determining whether to 

enforce a restrictive covenant like Section 5.4. Crye Precision LLC v. 

Bennettsville Printing, 755 F. App’x. 34, 36–37 (2d Cir. 2018) (quoting Baker’s 

Aid, a Div. of M. Raubvogel Co. v. Hussmann Foodservice Co., 730 F. Supp. 

1209, 1214 (E.D.N.Y. 1990)). Applying that standard to this case, this court 

must determine (1) “whether [BMC] has demonstrated a legitimate 

business interest that warrants the enforcement of” the restriction, 

“(2) “the reasonableness of the covenant[] with respect to geographic scope 

and temporal duration,” and (3) “the degree of hardship that 

enforce[ment]” “would inflict” on IBM. DAR & Assocs., Inc. v. Uniforce 

Servs., Inc., 37 F. Supp. 2d 192, 197, 200 (E.D.N.Y. 1999). 

As applied here, we need not advance past the first criterion above. 

Read as BMC advocates, Section 5.4 imposes a restriction on IBM’s 

servicing of its outsourcing customers with no legitimate purposes. We start 

with the proposition that IBM and BMC compete only in developing and 

selling software. Thus, Section 5.4 reasonably exists to “prevent[] IBM

from leveraging its special position as an IT-outsourcer, its access to BMC

products in client environments, and the unique knowledge it thereby gains 

to unfairly compete for BMC’s software clients.” But in the case of 

AT&T’s decision to switch to IBM software, Section 5.4 had nothing to do 

with this sort of gamesmanship by IBM. After all, as the district court found, 

“AT&T independently decided to displace BMC software,” and therefore, 

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“AT&T’s decisions and conduct—not IBM’s—are most consequentially 

tied to BMC’s lost profits from AT&T.” (Emphasis added).

Once AT&T independently decided to switch from BMC software 

to IBM software, BMC had already “lost” the only competition it had with 

IBM. Because the client made that decision without unfair influence from 

IBM, BMC lost out to IBM fair and square. Under these circumstances, 

there is no legitimate reason to enforce Section 5.4 against IBM. 

Consequently, BMC’s interpretation of Section 5.4, which would bar IBM

from completing a software switchover a customer independently requests, 

likely converts this provision into an illegal, and therefore unenforceable, 

restraint on competition pursuant to state law. See McConnell v. 

Commonwealth Pictures Corp., 166 N.E.2d 494, 496 (N.Y. 1960).6

 The only reasonable reading of Section 5.4 that comports with New 

York law is the holistic reading that takes account of all the language of the 

provision at issue. Under that reading, IBM could not, on its own accord, 

supplant BMC’s software in AT&T’s mainframe with IBM software. But 

IBM could replace BMC software with IBM software in AT&T’s 

mainframe at AT&T’s request. The phrase “other valid business reasons” 

unambiguously requires this result. See Greenfield, 780 N.E.2d at 171. IBM

did not breach Section 5.4 by agreeing to provide IT services to perform this 

task. In concluding otherwise, the district court erred. 

Conclusion 

For the foregoing reasons, the judgment of the district court is 

REVERSED and RENDERED. 

_____________________ 

6

 The district court reached the opposite conclusion in holding that the nondisplacement provision served BMC’s “legitimate business interest” in precluding IBM 

from receiving an “unfair advantage when competing with BMC in the software business.” 

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