Court to IBM: Some Assembly Required

A court recently scrutinized IBM’s form set of contracts over which document governed its relationship with one of its corporate customers. There was a dispute over which document actually controlled and the court found some ambiguity on the matter, so the court left the issue open pending further developments in the case. To avoid such a result, the best practice in similar situations is to ensure that there is a complete, signed understanding of the agreement between the parties. If multiple documents are to be used, cross-referencing should be clear, as should which document overrides the other.

IBM’s Case

In the case at issue (Irwin Seating Company v. IBM, Federal District Court, Western District of Michigan, June 22, 2005), IBM and other providers had proposed a solution for scheduling management to its customer. When implementation allegedly veered off track and the deal soured, the customer sued based on the proposal for services.

IBM’s proposal included a Statement of Work (SOW) and an accompanying, unsigned signature page stating:

Each of us agrees that the complete agreement between us about these services consists of 1) this SOW, and 2) the IBM Services Agreement (or any equivalent agreement signed by both of us). (Emphasis added.)

IBM argued that another document known as the “IBM Customer Agreement” was an “equivalent agreement” within the meaning of the SOW and governed the parties’ relationship. Relying upon an earlier IBM case in another jurisdiction involving similar language, IBM maintained that the SOW referenced an IBM Customer Agreement. But the court distinguished the other case factually and noted that the SOW here did not specifically refer to such a document. It did not help Big Blue’s case that the allegedly governing document bore neither party’s signature. The court declined to go along with IBM’s contention and instead decided to wait until the case developed further: “There is no basis at this point in the proceeding upon which the court could determine whether or not the IBM Customer Agreement is equivalent to the IBM Service Agreement.” Solving the Problem of Multiple Documents

If a company as established as IBM can be foiled on this type of issue, your company should be on the lookout for it too. The governing document should be signed and the various incorporated documents cross reference one another specifically so as to clearly show an intent to form a coherent agreement or to override another document as appropriate. In the event of a later dispute, a court will look first to the documents themselves to determine the contents of the agreement. Only if there is ambiguity in the meaning of a written provision of the contract will a court review external evidence of what the parties meant by their deal. Needless to say, the court’s resolution of that ambiguity may not go your way, so written clarity is important.

Conclusion

If you are unclear what provisions govern your issue—or how to draft a multi-part contract—consultation with an attorney will likely clarify the matter.

John Gliedmanis an attorney with the law firm of Brown Raysman Millstein Felder & Steiner LLP. A graduate of Harvard Law School and the Computer Counsel columnist for www.Computerworld.com, Gliedman specializes in IT and business process services agreements as well as intellectual property licensing. He thanks David Cohen, a summer associate with the firm, for his assistance with preparing this article. John Gliedman welcomes comments and questions, and he may be reached at jgliedman@brownraysman.com or (212) 895-2000.