Court Throws Out Lawsuit From Chinese Power Systems Partner Against Big Blue

November 14, 2022 Timothy Prickett Morgan

It is not often that we get any insight into the geopolitical workings of the Power Systems business that is central to this publication and to all of you who work on the IBM i platform. Often, the only way we learn anything is when two parties sue each other in court. Such is the case with the lawsuit filed against Big Blue back in September 2021 by Beijing Neu Cloud Oriental System Technology. The lawsuit, as it turns out, was tossed out of court last week.

China has presented as many challenges as it has opportunities for all IT vendors, from semiconductor makers all the way up to system builders, and IBM, which does it all with its Power Systems line, has bent itself into pretzel shapes to try to maintain. This all stems from China’s stated desire to foment indigenous technologies and to restrict sales of systems based on technology developed outside of China as much as possible.

To a certain extent, the OpenPower Consortium that IBM formed with Google, Nvidia, Mellanox Technologies, and Tyan back in 2013 was designed to not only foster adoption of Power processors by hyperscalers and cloud builders like Google and Rackspace Hosting, which created their own Power8 and Power9 servers, but also to make the Power chip ISA and Power8 and Power9 processor designs licensable and malleable by Chinese companies that very likely wanted to add trapdoor security functions to the chip to appease the Chinese government. (No one talks about this much, of course.) And the opening up of the ISA was meant to make it an even easier sell to adopt homegrown Power processors from the likes of Suzhou PowerCore, which created a Power8 chip for the Chinese market.

If there are more Power CPU licenses and implementers, we don’t know about them but IBM also doesn’t make a lot of noise on that front. Just like AMD does not like to talk about its Tianjin Haiguang Advanced Technology Investment Co Ltd joint venture with several Chinese organizations, including the Chinese Academy of Sciences that was the source of the seed money for server makers Lenovo (which acquired IBM’s System x server business in 2014 when all of this was going down). Tianjin Haiguang created a variant of the first-generation AMD “Naples” Epyc 7001 processor with custom encryption meeting the specs of the Chinese government. So far as we know, Tianjin Haiguang has not had access to later Epyc CPU intellectual property, but China is rumored to have create an exascale-class supercomputer based on AMD CPU technology.

IBM used to run factories in China that made its own System x and Power Systems servers, but the jig was up starting in 2010 or so, and IBM shifted to an alternate plan of using resellers to push servers and helping to foment an indigenous Power CPU ecosystem in China. Hewlett-Packard Enterprise did the same server partnership deal through an existing H3C partnership (formed in 2003) between Chinese IT supplier Huawei Technology and 3Com, a network equipment provider that HPE acquired in 2009, and since that time, is has focused its manufacturing back in Houston, Texas, except for the Asia/Pacific market that it serves out of the H3C partnership.

Anyway, Neu Cloud was a joint venture set up in 2014 between IBM and Beijing TeamSun technology. According to the original lawsuit, which was reported by Reuters last September, Neu Cloud was to sell Power Systems iron in China. TeamSun had been a reseller since 2010, and the joint venture had TeamSun having 70 percent of the company and IBM only having 30 percent. In the summer of 2014, TeamSun caught wind of a reseller deal developing between Inspur, which is a Chinese company and which is now the third largest server maker in the world behind Dell and HPE, and IBM. In early 2015, Neu Cloud inked an OpenPower reseller agreement with IBM, with a sales target of $19 million for that year. This deal was extended out through the end of 2020, but after that happened, in September 2017, IBM and Inspur created a joint venture called Inspur Power and IBM tried to switch the OEM agreement to be between Neu Cloud and Inspur Power and Neu Cloud rather than between Neu Cloud and IBM China.

Given that IBM was pretty much barred by politics from selling directly in China, this makes sense to us. The, according to the lawsuit, IBM told Neu Cloud that Inspur Power was the only dealer of Power iron in China, and companies like Neu Cloud would be downstream from them. Neu Cloud was miffed about this and sued Big Blue for giving Inspur data relating to Power Systems customers in China that it says was proprietary to IBM and Neu Cloud.

Neu Cloud demanded a jury trial in IBM’s home court (literally and figuratively) in the United States District Court for the Southern District of New York, and last week Judge Alvin Hellerstein issued a summary judgment that Big Blue had requested, throwing the case out of court for a slew or reasons, including time-bound statute of limitations, jurisdiction issues, and the fact that IBM had rights to the information it gave to Inspur and has not violated any provisions to protect trade secrets. Neu Cloud was arguing that the US District Court should exercise “personal jurisdiction” over IBM China, and the judge was having not of that, as you can read in his decision.

We bring this case and its ruling up for several reasons. One, it relates to Power Systems. And two, it reminds us that all kinds of wheels and deals are getting done around the world in the IT racket to get around all kinds of political barriers. We see this all the time in the supercomputing business, for instance. And three, it is a damned shame that IBM didn’t have an easier and more direct route to sell Power Systems into China. This overall Power Systems business might have been stronger than it is.

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