IBM Hit With $6 Million Software Fraud Suit

Internet retailer Harry & David claims IBM knowingly sold it e-commerce software that violated other companies' patents and then refused to back the merchant when those companies sued or complained.

Harry & David claims IBM knew that the software it sold it had already been shown to violate patents held by NCR and Charles Hill & Associates, according to a lawsuit Harry & David filed against IBM in late February.

"The e-commerce programs infringed on the Hill, the NCR, and other patents," Harry & David claims in court papers filed in U.S. District Court in Oregon.

The software in question includes version 5.6 of IBM Websphere Commerce, as well as earlier versions. Websphere Commerce provides numerous tools that businesses can use to create Web sites and transact sales over the Internet.

Harry & David is seeking a minimum of $6 million in costs and damages from IBM for alleged fraud and breach of contract.

Harry and David said it purchased Websphere Commerce 5.6 from IBM in March 2004. NCR notified Harry & David a year later that parts of the software violate NEC patents. Harry & David was also sued for patent infringement by Charles Hill in June of 2007.

NCR contends that the software steps on its patents for e-catalogs, while Charles Hill claims it violates its Web caching patents.

Harry & David said it was forced to settle with both companies. Harry & David also claims IBM breached its customer agreement by not indemnifying it against the patent claims.

Harry & David said IBM was aware as far back as 2002 that its e-commerce products violated the NEC and Charles Hill patents. It noted that IBM had previously settled a patent suit filed against it by Charles Hill and had struck a licensing agreement with NEC.

Nonetheless, IBM "continued to market the e-commerce programs to the general public" without notifying customers about the patent liability issues, the lawsuit contends

IBM has yet to file a formal response in the case. A company spokesman did not immediately return a call seeking comment.