Case: 3:21-cv-00031 Document #: 1 Filed: 03/31/21 Page 1 of 57
`
`lIN THE DISTRICT COURT OF THE VIRGIN ISLANDS
`DIVISION OF ST. THOMAS AND ST. JOHN
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`
`
`Civil Action No. __________
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`JURY TRIAL DEMANDED
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`)))))))))))
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`
`)
`
`COMPLAINT
`
`
`
`
`
`Defendants.
`
`Plaintiff,
`
`
`
`v.
`
`XINUOS, INC.,
`
`
`
`
`
`INTERNATIONAL BUSINESS
`MACHINES CORP. and RED HAT,
`INC.
`
`
`
`
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`

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`Case: 3:21-cv-00031 Document #: 1 Filed: 03/31/21 Page 2 of 57
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`
`
`COMPLAINT
`
`1.
`
`Plaintiff Xinuos, Inc. (“Xinuos”), for
`
`its Complaint against Defendants
`
`International Business Machines Corp. (“IBM”) and Red Hat, Inc. (“Red Hat”) alleges on
`
`knowledge as to itself, its own acts and facts known to it and reasonable inferences therefrom, and
`
`on information and belief as to all other matters, as follows:
`
`2.
`
`This case is simple. IBM and Red Hat conspired to illegally corner a market and
`
`crush competition. First, IBM stole Xinuos’ intellectual property and used that stolen property to
`
`build and sell a product to compete with Xinuos itself. Second, stolen property in IBM’s hand,
`
`IBM and Red Hat illegally agreed to divide the relevant market and use their growing market
`
`powers to victimize consumers, innovative competitors, and innovation itself. Third, after IBM
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`and Red Hat launched their conspiracy, IBM then acquired Red Hat to solidify and make
`
`permanent their scheme. Fourth, IBM has been misleading its investors by falsely claiming all
`
`infringement claims against IBM regarding the copied code have been waived.
`
`3.
`
`IBM and Red Hat have engaged in this well-worn, anticompetitive conduct in order
`
`to corner the market for operating system software that companies rely on to use servers. Servers
`
`are computer hardware designed for various functions, such as data storage or email. Server
`
`operating systems are the software that actually enable companies to use the server hardware to
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`store data, have corporate email, print documents, and many other functions.
`
`4.
`
`Xinuos, IBM, and Red Hat compete by selling to companies their own server
`
`operating system software. IBM’s server operating systems, however, depend on code that IBM
`
`stole from Xinuos and, until that theft, IBM’s products were becoming less attractive and were
`
`losing market share. After IBM stole the code from Xinuos, IBM and Red Hat agreed that Red
`
`Hat would take control of the low end of the market, comprised of small and medium sized
`
`business, and IBM would take control of the high end of the market, comprised of the largest
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`companies with the most complex operating system deployments. Having made this agreement
`
`and carried it out, both Red Hat and IBM have engaged in further anticompetitive conduct to help
`
`the other corner their respective market sectors.
`
`5.
`
`IBM’s motive is straightforward: before it stole Xinuos’ software and conspired
`
`with Red Hat, its server operating software was becoming less competitive, and IBM was losing
`
`market share. This gravely threatened not only IBM’s server operating system business, but also
`
`its lucrative business of selling the underlying servers themselves as well as related software and
`
`services. Red Hat’s motive is equally clear: in return for ceding the high-end server operating
`
`system market, it received IBM’s agreement to stay out of the low-end market, as well as its
`
`financial, reputational and technological help to dominate that low-end market.
`
`6.
`
`On top of all this, IBM has materially misled its investors, falsely representing in
`
`its securities filings that a third-party owns all of the Unix and UnixWare copyrights, and that this
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`third-party has waived any infringement claim against IBM. IBM mischaracterizes in its securities
`
`filings a prior court ruling that found old Unix and UnixWare code, created before September 19,
`
`1995, belonged to the third-party. IBM’s filings make it sound like the third-party was found to
`
`own all Unix and UnixWare code. These statements are demonstrably false. In fact, with regard
`
`to Xinuos’ code created after September 19, 1995, and which IBM stole, Xinuos owns that code,
`
`has never entered into a license agreement with IBM, and has never waived its infringement claims
`
`against IBM for stealing that code.
`
`7.
`
`IBM’s and Red Hat’s unlawful conduct continues to inflict substantial monetary
`
`and other harm on Xinuos, has enabled each to charge prices far higher than a competitive market
`
`would bear, and has strangled innovation to the point where consumers feel locked into IBM’s and
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`Red Hat’s server operating systems. Xinuos brings this action to hold IBM and Red Hat
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`accountable.
`
`
`
`NATURE OF THE ACTION
`
`8.
`
`The modern economy relies on computers. Every company in the modern economy
`
`of any size utilizes servers to meet its computing needs. Major server hardware manufacturers
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`include IBM, Dell, HPE, Inspur (in a joint venture with IBM), Lenovo (acquired assets from IBM),
`
`and Huawei. For much of the history of enterprise computing, servers have been installed “on
`
`premises”—i.e. at a physical location associated with a particular company or data center. But,
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`over time, the concept of “cloud computing” has emerged, including the IBM Cloud, where servers
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`are managed in a more centralized manner and allocated to business customers.
`
`9.
`
`Servers, like all computers, need operating systems to function. Server operating
`
`systems allow the computer hardware to “run” software applications, enabling the communication
`
`between software and hardware.
`
`10.
`
`Once there were many developers of corporate server operating systems but
`
`because of abusive practices discussed herein IBM-owned operating systems are now dominant in
`
`the relevant market.
`
`11.
`
`Operating systems are written by software developers in computer code languages.
`
`A significant percentage of server operating systems are based on Unix programming paradigms
`
`and architectures, or related Linux programming paradigms and architectures (hereinafter,
`
`collectively “Unix/Linux operating systems”). Unix/Linux operating systems are reasonable
`
`substitutes and, if supported, can run on most servers made by the major manufacturers.
`
`12.
`
`Xinuos develops and sells operating systems called UnixWare and OpenServer.
`
`Xinuos operating systems are competitive in the marketplace and prior to the infringement of
`
`Xinuos’ code, Xinuos’ Unix based operating systems were the most widely used operating systems
`
`worldwide in the Unix/Linux server operating system market. Xinuos’ operating systems are
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`Unix-based server operating systems, with versions based both on Xinuos’ proprietary Unix code
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`as well as the “open source” Unix variant called “FreeBSD.”
`
`13.
`
`Open source generally refers to software that anyone can inspect, modify, and
`
`enhance, and that is not controlled by a small handful of powerful companies. FreeBSD, upon
`
`which Xinuos’ OpenServer 10 product is based, is a free and open-source variant of the Unix
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`operating system descended from the Berkeley Software Distribution (“BSD”), which was based
`
`on Research Unix.
`
`14.
`
`IBM sells the Unix-based server operating system called “AIX for Power,” which
`
`as detailed herein copies Xinuos’ proprietary software code to facilitate powerful features
`
`including the ability to compile and run Linux applications. IBM also sells the z/OS mainframe,
`
`and i midrange server operating systems, both of which include implementations and/or runtime
`
`environments of the AIX operating system.
`
`15.
`
`Red Hat, and now IBM by virtue of their merger, sells a Linux-based operating
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`system called “Red Hat Enterprise Linux” (“RHEL”).
`
`16.
`
`“Linux” is a name for operating systems derived from the “Linux kernel,” originally
`
`written by Linus Torvalds. Pursuant to Torvalds’s vision, like FreeBSD, Linux is also “open
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`source.”
`
`17.
`
`Xinuos has attempted to sustain, innovate, and compete in the area of Unix-based
`
`server operating systems, including building its own server operating system based on the open
`
`source FreeBSD project. By contrast, as in many high technology industries, IBM has found it
`
`easier to acquire, or copy in the case of Xinuos, the technology of others (by any means available)
`
`and/or buy rivals than to compete.
`
`18.
`
`IBM’s alignment with Red Hat, their abusive and illegal practices detailed herein,
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`and their formal merger threaten, as commentators have put it, to herald “the end of open source.”
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`19.
`
`Already Defendants have reneged on the promise of open source by jointly exerting
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`undue corporate control over the direction of Linux development and attempting to destroy the
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`competing FreeBSD open source project, have raised prices to supra-competitive levels, and have
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`effectively shut down innovation in the Unix/Linux operating systems market.
`
`20.
`
`Xinuos and other rivals are now locked out of this market, even when their products
`
`are competitive and could be of substantial value to many customers.
`
`21.
`
`Xinuos brings this case to enforce the intellectual property and competition laws,
`
`to ensure a level playing field, and to protect consumer welfare.
`
` THE PARTIES
`
`22.
`
`Xinuos is a corporation organized and existing under the laws of the U.S. Virgin
`
`Islands and having its principal place of business in St. Thomas, U.S. Virgin Islands. Xinuos owns
`
`the copyrights asserted in this action.
`
`23.
`
`IBM is a corporation organized and existing under the laws of the State of New
`
`York and having its principal place of business in Armonk, New York.
`
`24.
`
`Red Hat is a corporation organized and existing under the laws of the State of
`
`Delaware and having its principal place of business in Raleigh, North Carolina. Since late 2019,
`
`Red Hat has been a wholly owned subsidiary of IBM.
`
`
`
`JURISDICTION AND VENUE
`
`25.
`
`This Court has federal subject matter jurisdiction under at least 28 U.S.C. § 1331
`
`(federal question), as this action arises under the Copyright Act, 17 U.S.C. § 101 et seq, and the
`
`federal antitrust laws, 15 U.S.C. § 1 et seq.
`
`26.
`
`The Court has supplemental subject matter jurisdiction of the U.S. Virgin Islands
`
`claims under 28 U.S.C. § 1367, as these claims form part of the same case or controversy as the
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`federal claim.
`
`27.
`
`This Court also has diversity jurisdiction under 28 U.S.C. § 1332, as there is
`
`complete diversity between Plaintiff and Defendants and the amount in controversy substantially
`
`exceeds $75,000.
`
`28.
`
`Venue is proper under at least 28 U.S.C. § 1400(a) because Defendants and/or their
`
`agents reside or may be found in the U.S. Virgin Islands.
`
`29.
`
`Venue is also proper under 28 U.S.C. §§ 1391(b). A substantial part of the events
`
`or omissions giving rise to the claims occurred in the U.S. Virgin Islands, and a substantial part of
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`property that is the subject of the action is situated in the U.S. Virgin Islands. In addition, IBM
`
`and Red Hat are subject to personal jurisdiction in this district.
`
`30.
`
`IBM and Red Hat maintain property in the U.S. Virgin Islands, engage in conduct
`
`availing themselves of the privilege of conducting business in the U.S. Virgin Islands and engage
`
`in systematic and continuous contact with the U.S. Virgin Islands.
`
`31.
`
`IBM’s and Red Hat’s contacts with the U.S. Virgin Islands give rise to Xinuos’
`
`claims. IBM and Red Hat utilize instrumentalities located in the U.S. Virgin Islands to carry out
`
`the acts alleged herein, have affirmatively directed actions underlying the claims herein at the U.S.
`
`Virgin Islands, have engaged in copyright infringement and anticompetitive and unfair business
`
`conduct in the U.S. Virgin Islands, and have caused injury to Xinuos and to competition in the
`
`U.S. Virgin Islands. The exercise of personal jurisdiction over IBM and Red Hat is reasonable.
`
`32.
`
`For example, IBM has directed marketing of and/or has sold its AIX for Power,
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`z/OS mainframe, and i midrange server operating systems and Red Hat has directed marketing of
`
`and/or sold its RHEL operating system, to U.S. Virgin Islands entities, including but not limited
`
`to multiple agencies of the U.S. Virgin Islands government, and commercial institutions. IBM has
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`also directed marketing of and/or sold its z/OS mainframe operating system and the infringing
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`“Unix System Services” environment and its i midrange operating system and the infringing
`
`“PASE” environment to the U.S. Virgin Islands. All of these operating systems are at issue in the
`
`Complaint.
`
`33.
`
`Such use of infringing operating systems in the U.S. Virgin Islands includes AIX
`
`for Power. IBM has directed and provided updates to AIX for Power customers in the U.S. Virgin
`
`Islands. Use of AIX for Power in the U.S. Virgin Islands has included use of functionality enabled
`
`by the infringing code, including but not limited to the AIX for Power print subsystem.
`
`34.
`
`IBM also regularly directs its sales activities and sells other products into the U.S.
`
`Virgin Islands, for example the IBM Content Management System and Maximo systems. IBM
`
`specifically identifies the U.S. Virgin Islands as a sales channel and directs its activities to that
`
`channel. The government of the U.S. Virgin Islands has purchased in the past and has projected
`
`future purchases of, and support for, IBM products for all of the last three years. IBM has also
`
`entered into an $18 million loan agreement with the government of the U.S. Virgin Islands.
`
`35.
`
`IBM and Red Hat have directed the unfair and anticompetitive business activities
`
`alleged herein at competing operating system provider, Xinuos, based in the U.S. Virgin Islands,
`
`and have therefore directed their activities underlying this complaint at the U.S. Virgin Islands.
`
`
`
`RELEVANT MARKET
`
`36.
`
`The relevant market is the Unix/Linux paid server operating system market. In this
`
`market, Red Hat offers RHEL and charges for annual subscriptions that include technical support,
`
`updates, security, and intellectual property protection. IBM offers proprietary operating systems
`
`AIX, z/OS and IBM i, which are based on or which include Unix code, and for important
`
`functionality copies Xinuos’ code. Xinuos is also a competitor in this market, and offers the
`
`UnixWare 7, OpenServer 5, OpenServer 6, and OpenServer 10 operating systems.
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`37.
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`Customers that run corporate computer environments largely invest in a consistent
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`operating system across the environment, as the decision involves associated investment in
`
`applications, middleware, hardware, and services. Accordingly, enterprise customers deciding to
`
`switch to a new operating system family must make very significant investments in the new
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`operating system and related software applications.
`
`38.
`
`This market is worldwide. Paid server operating systems based on Unix and Linux
`
`paradigms and architectures are functionally the same from country to country, can be easily and
`
`inexpensively distributed around the world, and frequently are.
`
`39.
`
`Corporate users of Unix/Linux paid server operating systems, building and
`
`maintaining IT infrastructure, understand these paid server operating system products as
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`reasonable potential substitutes for each other. The technical and historical product similarities
`
`and the overlapping community of developers has created widespread industry recognition that
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`Unix and Linux operating systems encompass a unique product market.
`
`40.
`
`Operating systems that are built on more dissimilar paradigms and architectures
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`lack ready compatibility and are, thus, unlikely to be ready substitutes for Unix/Linux server
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`operating systems. The Unix and Linux architectural and programming paradigms are
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`substantially similar such that developers and users in both environments can more efficiently
`
`address technical problems in either, and can more efficiently migrate applications written for one
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`environment to another.
`
`41.
`
`Other operating system environments are so dissimilar that the migration of
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`applications and update of operating system functions cannot occur seamlessly. For this reason,
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`most corporate users are much more willing to migrate between Unix/Linux operating systems and
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`much less willing to expend the cost and time to migrate a Unix/Linux operating system
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`environment to other environments. Finally, free server operating systems are also not adequate
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`substitutes, as they are mainly used in testing, development efforts or minor applications, and not
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`in production and, most importantly, lack the business-critical support and maintenance many
`
`corporate clients require and demand.
`
`
`
`FACTUAL BACKGROUND
`Xinuos Develops and Sells Highly Valuable Server Operating Systems.
`A.
`42.
`
`Xinuos develops and licenses the UnixWare and OpenServer operating systems to
`
`business customers. For example, a number of large enterprises, including retailers, technology
`
`services companies, banks and financial services firms, as well as small and medium sized
`
`businesses, have relied on Xinuos server operating systems for their corporate computing needs,
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`such as inventory, human resources, billing and many other applications.
`
`43.
`
`Xinuos owns the code and has valid copyrights for the code behind UnixWare and
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`OpenServer. In particular, Xinuos owns the valuable copyrighted UnixWare-related code asserted
`
`in this matter, all created after September 19, 1995 (“the Code”). The Register of Copyrights has
`
`issued certificates of registration for the Code. See Registration No. TX0005787679 (UnixWare
`
`7.1.3); Registration No. TXu002214732 (Gemini 64); Registration No. TXu002214620 (Project
`
`Monterey). These copyright registrations are attached to this Complaint at Exhibit A through C.
`
`44.
`
`At its peak, Xinuos’ Unix-based operating systems were the most widely used
`
`operating systems worldwide in the Unix/Linux server operating system market.
`
`45.
`
`Xinuos’ UnixWare 7 and OpenServer 5 and 6 operating systems were popular
`
`because they were stable, reliable, and easy to manage. Unlike other operating systems, UnixWare
`
`and OpenServer could be efficiently deployed across thousands of hardware devices running at the
`
`same time without a concern for malfunction or failure. As this ensured a well running computing
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`environment for enterprise customers, UnixWare and OpenServer were not just highly popular,
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`but also understood by large enterprise customers, small and medium sized businesses and
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`developers alike as highly valuable.
`
`46.
`
`UnixWare 7’s success prompted an ambitious related project called Gemini 64 or
`
`Project Gemini, and a subsequent related project called Project Monterey. The Code in these
`
`projects enables applications originally created for 32-bit processor architectures to continue to
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`function and run on modern and higher-performing 64-bit processor architectures. The Code also
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`facilitates compatibility between operating systems in the Unix/Linux operating system market.
`
`An operating system with “cross-architecture” and “cross-compatibility” features is extremely
`
`valuable because it allows customers to use their existing applications even after migrating to the
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`updated and more efficient hardware with 64-bit processors. Such features save customers time
`
`and money and protect client bases from moving away to competitors.
`
`47.
`
`The Code was also designed to provide an array of modern enterprise-grade
`
`functionalities. For example, the Code implements functionalities such as modern print systems,
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`peripheral support, virtual filesystems, and debugging support, all of which enables much more
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`sophisticated and complex application support for the enterprise.
`
`48.
`
`The Code was developed to enable highly scaled enterprise implementations and
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`drive the buildout of a vast operating system ecosystem.
`
`B.
`49.
`
`IBM Faces a Crisis and Pivots to a Service Centric Business Model.
`
`At the time Xinuos’ UnixWare and OpenServer products were at their peak, IBM
`
`was attempting to complete its transformation to a service-driven organization that also provided
`
`strategic outsourcing. However, this transition was difficult because IBM derived most of its
`
`income from its highly-profitable proprietary high-end server hardware and its related software
`
`and services business.
`
`50.
`
`IBM’s server operating systems were not growing in popularity or perceived as
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`valuable as other server operating systems in the Unix/Linux server operating system market. New
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`Linux entrants to the market, particularly Red Hat, were beginning to attract attention and also
`
`constituted an emerging threat to IBM’s operating system ecosystems.
`
`51.
`
`This was troublesome because one of IBM’s main profit-drivers was at the time
`
`(and remains) its higher-end server hardware business. For example, analysts estimated that IBM’s
`
`mainframes enjoyed gross margins in excess of 50%. On top of these initial margins, IBM had
`
`built the server ecosystems for several of world’s largest companies and was able to continue to
`
`profit from those earlier sales through significant consulting, software sales, service support, and
`
`maintenance fees, which were estimated to often exceed the cost of the servers themselves.
`
`Moreover, these consulting, service, and maintenance revenues were mostly recurring in nature
`
`and their predictability was highly valued by IBM stakeholders.
`
`52.
`
`In the short term, IBM could confidently expect a consistent revenue stream from
`
`its server business. In the longer term, however, if IBM’s server operating system products, which
`
`include not just AIX for Power, but also z/OS mainframe, and i midrange server operating systems,
`
`failed to improve, IBM’s server business as a whole would be at risk.
`
`53.
`
`If IBM’s operating system capabilities did not meet customers’ needs and failed to
`
`provide necessary functionality for complex enterprise applications, customers would begin
`
`moving away from IBM’s server ecosystem. They would instead turn to competing operating
`
`system and server hardware. IBM would lose the lucrative service and maintenance business, as
`
`well as sales of servers, operating systems and associated applications.
`
`54.
`
`IBM needed to quickly find a way to substantially improve its operating system
`
`technology.
`
`C.
`55.
`
`IBM Steals the Code.
`
`Rather than innovating itself, IBM sought access to the Code. IBM and Xinuos’
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`predecessor agreed to engage in a joint venture that they called Project Monterey. Project
`
`Monterey was designed to result in a completely new operating system product leveraging what
`
`was already under development for UnixWare 7: an operating system for modern 64-bit hardware
`
`architectures that would allow applications originally created for 32-bit architectures to continue
`
`to function, and to include modern features for complex enterprise applications.
`
`56.
`
`57.
`
`Through Project Monterey, IBM gained confidential access to the Code.
`
`Project Monterey was then terminated by IBM without IBM gaining any rights to
`
`the Code under the applicable agreement. Indeed, IBM specifically asked Xinuos’ predecessor if
`
`it could use the Code in AIX, z/OS and IBM i, and the request was denied.
`
`D.
`58.
`
`IBM Secretly Copies the Code into its Own Server Operating Systems.
`
`Despite not having acquired any rights in the Code, IBM used the stolen Code, and
`
`incorporated it into core components of its AIX, z/OS mainframe, and i midrange server operating
`
`systems.
`
`59.
`
`The infringement made IBM’s server software significantly more powerful and
`
`useful for enterprise customers. In doing so, the infringement provided crucial protection for
`
`IBM’s valuable high-end server business and enabled IBM to grow its own operating system
`
`ecosystem, server business and related services business.
`
`60.
`
`The stolen Code has been copied without permission into at least six different
`
`updates of AIX (AIX 5L 5.0, 5.1, 5.2, v.6.1, v.7.1, and v.7.2). For example, an IBM report well
`
`after termination of Project Monterey confirmed that the Xinuos “code is now embedded within
`
`AIX.” The stolen Code has also been copied without permission into an AIX environment that
`
`runs within the z/OS mainframe operating system (called “Unix System Services”). And the stolen
`
`Code has been copied without permission into an AIX environment that runs within the i midrange
`
`operating system (called “PASE”). Indeed, on information and belief, few if any of IBM’s server
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`operating system products do not incorporate the Code.
`
`61.
`
`The stolen Code has substantially improved IBM’s server operating system
`
`functionality in at least seven important ways including but not limited to the following:
`
`62.
`
`The stolen Code enables 32-bit applications to run in 64-bit environments (“cross-
`
`architecture” functionality). This is valuable to IBM and its customers because it allows existing
`
`enterprise customers to upgrade their hardware without having to pay for newly written
`
`applications.
`
`63.
`
`The stolen Code makes it possible for Linux applications to compile and run on and
`
`easily port to Unix operating systems (“cross-platform” functionality). Most notably, the Code
`
`has made it possible to compile and run RHEL applications on AIX through what IBM has called
`
`“Linux Affinity” packages and Linux-related “Expansion Packs.” This functionality is valuable
`
`to IBM and its customers because it allows existing customers to use a larger variety of applications
`
`that potentially better fit their computing needs.
`
`64.
`
`The stolen Code allows for users to print documents (printing functionality). IBM
`
`has admitted that its print subsystem code “was introduced into AIX as part of the Monterey
`
`project” and that its print subsystem code is based on the “UnixWare 7 print subsystem.” This
`
`functionality is valuable to IBM and its customers because printing is an essential requirement for
`
`any enterprise server customer.
`
`65.
`
`The stolen Code introduces multi-path input/out features into IBM’s server
`
`software (“Multi-Path I/O” or “MPIO” functionality). MPIO functionality is valuable to IBM and
`
`its customers because it supports complex enterprise applications by enhancing the ability of the
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`operating system to communicate with connected devices, providing redundancy, failure detection
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`capabilities and improved availability of those devices.
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`14
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`Case: 3:21-cv-00031 Document #: 1 Filed: 03/31/21 Page 15 of 57
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`66.
`
`The stolen Code makes it possible for the server operating system to support
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`replacement of PCI devices and network boards without disrupting the operation of the server
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`(“PCI Hotplug” functionality). This functionality is valuable to IBM and its customers because it
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`enables devices to be changed or upgraded, without interrupting the operation of applications
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`running on the operating system.
`
`67.
`
`The stolen Code introduces an important monitoring analysis and debugging tool
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`into the software called “truss” (truss functionality). Truss makes it possible for users to trace all
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`system calls made and signals received by a command on an existing process. This functionality
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`is valuable to IBM and its customers because it enables debugging application errors and
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`determining how programs function, all critical functionalities for any customer deploying or
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`developing applications on the operating system. Moreover, truss functionality is essential if a
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`user wants to develop a Linux-compatible environment.
`
`68.
`
`The stolen Code introduces innovations to the “/proc file system” into the IBM
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`software (/proc functionality). The /proc file system is an innovative “pseudo file system” that
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`maps processes and kernel data structures to corresponding files. This functionality is valuable to
`
`IBM and its customers because it enables easier access to and use of information about the system
`
`and running processes, which is critical for any customer deploying or developing applications on
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`the operating system.
`
`69.
`
`IBM also copied Xinuos code that brought AIX implementations and runtime
`
`environments up to current Unix standards. These examples of how the Code has been
`
`impermissibly copied into IBM’s AIX, z/OS mainframe, and i midrange server operating systems
`
`are non-limiting and illustrative. Indeed, the extent of known copying is so great that Xinuos
`
`believes the theft and copying is likely much greater, further penetrating essential operating system
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`15
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`Case: 3:21-cv-00031 Document #: 1 Filed: 03/31/21 Page 16 of 57
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`functions.
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`70.
`
`IBM’s infringement has been profound and ongoing, and the infringing code is the
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`technological basis for all the valuable server operating system features described above. If the
`
`Code were removed, IBM’s server software would have significantly reduced cross-architecture
`
`and cross-platform functionality, and it would not be able to support essential corporate computing
`
`needs. In short, if the Code were removed, IBM’s server software would be significantly less
`
`valuable; and for some enterprise customers, it would be completely useless.
`
`71.
`
`IBM has taken extraordinary steps to hide its infringement from Xinuos. For years,
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`IBM has fraudulently concealed its infringement from regulatory authorities, from industry
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`analysts, experts, and influencers, and from public and private stakeholders. IBM has misleadingly
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`communicated through media and corporate statements that to the extent there used to be any doubt
`
`about Code ownership, that this doubt has been resolved and that Xinuos has no interest in the
`
`software.
`
`72.
`
`For example, IBM has made demonstrably and materially misleading statements in
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`securities filings about its ownership interest in the Code. In every annual report filed with the
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`SEC since 2008, IBM has represented that a third-party owns all of the UNIX and UnixWare
`
`copyrights, and that this third-party has waived any infringement claim against IBM. These self-
`
`serving representations are demonstrably false and misleading to investors and potential asset
`
`purchasers.
`
`73.
`
`Xinuos only became aware of the Code’s theft and infringement in March 2019.
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`At that time, Xinuos’ management was engaged in a review of the company’s intellectual property
`
`posture, and discovered certain IBM product documentation that revealed IBM had copied code.
`
`E.
`
`IBM And Red Hat Align to Destroy Competitors, Dominate the Market, and
`Poison the Soil for Competition.
`
`16
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`Case: 3:21-cv-00031 Document #: 1 Filed: 03/31/21 Page 17 of 57
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`74.
`
`Once IBM upgraded its server operating system software with the stolen Code,
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`IBM’s valuable server hardware, related software, and services business became less vulnerable
`
`to competition.
`
`75.
`
`But not invulnerable. Established and growing competitors in the Unix/Linux
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`operating systems market remained and innovation continued, including by Xinuos and others.
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`Most notably, Linux – and particularly Red Hat’s version of Linux, RHEL – was gaining
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`popularity and could still chip away at IBM’s strong grip on high-end server clients. Over time,
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`RHEL would continue to pose a threat to IBM’s server ecosystem and services business. Similarly,
`
`Xinuos too continued to advance its Unix-based operating systems, posing a threat to IBM’s server
`
`ecosystem and services business. In particular, Xinuos’ introduction of OpenServer 10, a 64-bit
`
`enterprise operating system based on the FreeBSD Unix open source architectures, posed a direct
`
`threat to IBM’s market power. Unless IBM were able to fo