Yahoo Finance IBM Sued for Allegedly Profiting Off a Business It Spun Off Years Ago
(Bloomberg) -- GlobalFoundries Inc. filed a lawsuit against International Business Machines Corp., claiming that Big Blue is continuing to profit from a chip business that it spun off nearly eight years ago.
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Recent IBM licensing deals with Intel Corp. and Rapidus Corp. are based on trade secrets acquired by GlobalFoundries in a 2015 transaction, the chipmaker said in a lawsuit filed Wednesday in New York. “IBM is unjustly receiving potentially hundreds of millions of dollars in licensing income and other benefits,” GlobalFoundries said in a statement.
The legal fight stems from the transfer of IBM’s chipmaking unit to GlobalFoundries, a contract manufacturer of semiconductors. The business was unprofitable, and IBM paid $1.5 billion to unload the asset, but it came with a deep library of patents. As part of the deal, GlobalFoundries became IBM’s exclusive provider of certain power processors for the next decade. IBM later sued for breach of contract.
GlobalFoundries is seeking damages and a ruling that would stop the company from using the trade secrets.
In response, IBM said in a statement that “GlobalFoundries filed this meritless lawsuit after a court rejected the company’s attempt to dismiss IBM’s legitimate fraud and breach of contract claims.”
The lawsuit puts a spotlight on a key revenue source for IBM: intellectual property licensing. The Armonk, New York-based company uses its hoard of patents to generate a high-margin income stream, making about $28 billion since 1996. The computing pioneer has long been the top recipient of US parents, though it slipped to No. 2 last year.
In its suit, GlobalFoundries said that IBM’s “insatiable licensing ambitions” has led it to provide advanced technology to Chinese companies and advocate against reforms by the Committee on Foreign Investment in the US for stronger intellectual property protections.
IBM Chief Executive Officer Arvind Krishna said in an interview Wednesday that he is an advocate of better trade with China outside of the areas overseen by the US International Traffic in Arms Regulations, which restrict the export of certain defense and military related technologies.
“We don’t ever cross the line,” Krishna said of trade restrictions. He added that IBM doesn’t pay any money to political action committees or politicians, though the company is a member of trade associations.
GlobalFoundries raised concerns about IBM applying for government funding set aside for chipmakers. Federal legislation passed last year will provide billions to boost semiconductor manufacturing and research in the US.
IBM also has started “systemic poaching of GF’s most qualified semiconductor manufacturing engineers,” which has accelerated after the 2022 Rapidus announcement, GlobalFoundries said.
To focus on software and services, IBM has divested a number of businesses in recent years, including managed infrastructure unit Kyndryl Inc. and part of its Watson Health assets. It’s also considering selling its Weather Channel division. The company is reporting its quarterly results Wednesday.
(Updates with IBM statement in the fifth paragraph, CEO comments in the eighth.)
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