A U.S. District Judge has ordered IBM Corp. to pay $1.6 billion to BMC Software Inc., a major provider of enterprise software, in connection with a 2017 lawsuit over a customer contract.

The ruling was reported by Bloomberg today. In a statement responding to the development, IBM said that “this verdict is entirely unsupported by fact and law” and indicated it plans to appeal.

BMC launched in 1980 with an initial focus on selling software for IBM mainframes. The company over the years expanded its product portfolio to other areas, including cloud infrastructure management, and has built up a customer base that includes more than three-quarters of Forbes Global 50. In 2018, BMC was acquired by investment firm KKR for $8.5 billion.

The mainframe software market continues to be an important focus area for BMC. The company sells software products that help organizations operate their IBM mainframes more efficiently, secure business data and perform other tasks. BMC competes with IBM in some parts of this market.

In 2017, BMC filed a lawsuit against the technology giant over a contract with AT&T Inc., a mutual customer. The $1.6 billion penalty that IBM received on Monday was issued in connection with the 2017 lawsuit.

BMC and IBM have reportedly long maintained an agreement that specifies IBM can’t encourage mutual customers to switch from BMC software to its competing products. BMC’s lawsuit charged that IBM breached the agreement. In particular, the lawsuit accused the technology giant of planning to encourage mutual customer AT&T to remove BMC software from its mainframes and use IBM products instead.

IBM reportedly argued that AT&T switched products “for its own reasons.” According to the company, such a move by a mutual customer doesn’t constitute a breach of its agreement with BMC. 

On Monday, U.S. District Judge Gray Miller ruled in favor of BMC. IBM has been ordered to pay $717.7 million in actual contractual damages, $168.2 million in prejudgment interest and $717.7 million in punitive damages, plus 2% annual interest.

BMC had asked the court for $791 million in damages related to its agreement with IBM, as well an additional $104 million for lost profits. The company reportedly also requested that the court consider tripling the penalty. The Monday ruling rejected some BMC claims related to lost profits, breach of contract and unfair competition.

“This verdict is entirely unsupported by fact and law, and IBM intends to pursue complete reversal on appeal,” IBM said in a statement. “IBM acted in good faith in every respect in this engagement. The decision to remove BMC Software technology from its mainframes rested solely with AT&T, as was recognized by the court and confirmed in testimony from AT&T representatives admitted at trial.”

BMC didn’t immediately respond to the Bloomberg report today. If an appeals court reverses the Monday ruling, the company could reportedly still seek damages from IBM over the AT&T software contract in other ways.

IBM says eight of the top 10 telecommunications providers, 45 of the world’s top 50 banks and numerous other major enterprises use its mainframes to run mission-critical applications. The company’s newest mainframe, the IBM z16, debuted last month. The system features a custom processor with machine learning optimizations and can protect customers’ encrypted data from decryption attempts carried out using a quantum computer.

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