IBM Corporation v. Micro Focus, Inc.

Background

IBM alleged that Micro Focus copied material from IBM’s CICS TS software. IBM’s amended complaint attached nine copyright registrations identifying CICS TS versions and subversions 2.3 through 5.2. IBM also identified allegedly copied features in Micro Focus’s Enterprise Developer and Server products.

Fact discovery ended on December 15, 2023, while expert discovery was still ongoing. Micro Focus moved to exclude information IBM disclosed after fact discovery closed, including financial documents, printed source code, and a fourth accused feature identified in a supplemental response to interrogatories. Micro Focus’s principal concern became IBM’s alleged attempt to use later CICS TS versions—versions 5.3 through 6—in its damages theory even though, according to Micro Focus, those versions had not been clearly identified during fact discovery.

IBM responded that the disclosures were timely or justified. It said some financial information about later versions had been produced during fact discovery, that additional financial documents were produced in response to a later request from Micro Focus, that the printed source code duplicated code Micro Focus had already reviewed, and that the additional functionality was discovered during a late deposition. IBM also stated that it intended to use later CICS TS versions to prove damages, not infringement.

Rule 37 Analysis

Federal Rule of Civil Procedure 37(c)(1) generally prevents a party from using information or a witness that it failed to disclose as required by Rule 26, unless the failure was substantially justified or harmless. Even when a violation is unjustified and prejudicial, courts consider four factors before excluding evidence: the explanation for the failure, the importance of the evidence, the prejudice to the opposing party, and whether a continuance could address the prejudice.

The court found that IBM had substantial justification for some specific late-produced materials. The financial-document supplement responded to a request from Micro Focus, the source code was not new but was provided in hard-copy form after earlier review, and the additional functionality was disclosed after it emerged during a late deposition.

The court reached a different conclusion about IBM’s broader damages theory involving later CICS TS versions. Although IBM had produced some information concerning those versions, the court found that IBM had not clearly disclosed during fact discovery that the later versions allegedly incorporated copied elements from versions 2.3 through 5.2 and would be used to support damages. The court found that IBM lacked sufficient justification for this failure and that the failure was not harmless because Micro Focus had not had a full opportunity to investigate and cross-examine the evidence.

Preclusion Factors and Additional Discovery

The first factor favored Micro Focus because IBM had not sufficiently explained why it failed to disclose the scope of its damages theory earlier. The second factor favored IBM because the evidence could affect the amount of damages a jury might award. The third factor favored Micro Focus because the late disclosures limited its ability to investigate the financial data, depose relevant witnesses, cross-examine IBM’s witnesses, and incorporate the information into its experts’ analysis.

The fourth factor—whether a continuance and additional discovery could cure the prejudice—favored allowing the case to proceed without exclusion. The court noted that no trial date had been set and that the complexity and importance of the case made additional discovery feasible. Balancing the factors, the court concluded that excluding the evidence was unnecessary and that additional discovery and expert-report supplementation could address Micro Focus’s concerns.

Discovery Concerning Micro Focus’s Financials

After the Supreme Court’s decision in Warner Chappell Music, Inc. v. Nealy, IBM requested discovery into Micro Focus’s financial information from the date Micro Focus allegedly copied CICS TS in 2014 through the present. Micro Focus questioned the feasibility of producing nearly a decade of revenue information but did not dispute that the information was relevant to damages. The court granted IBM’s request and directed the parties to discuss a production schedule and promptly submit any remaining disputes to the court.

Disposition

Judge Victoria Reznik denied Micro Focus’s motion to exclude IBM’s disclosures. The court ordered additional fact discovery and any necessary supplementation of expert reports concerning the later CICS TS versions and the additional accused functionality. The court also granted IBM’s request for discovery into Micro Focus’s financials relating to Enterprise Server and Enterprise Developer from 2014 through the present. The parties were directed to meet and confer and jointly propose a schedule by May 31, 2024. The opinion addressed discovery and evidence management; it did not decide the ultimate copyright-infringement merits.