JDA Software’s i2 Unit Smacked with $246 Million Judgment

June 21, 2010 Timothy Prickett Morgan

JDA Software didn’t try to acquire supply chain software specialist i2 Technologies once, but twice–first in August 2008 for $346 million, an attempt that failed, and again in November 2009 for $396 million. Whoever did the due diligence as part of the merger and reckoned the effect of a lawsuit between the Dillard’s department store chain and i2 did not reckon on the jury in the District Court of the State of Texas for the County of Dallas, which came to the conclusion that i2 had not met its software license agreements and awarded $246 million in damages.

Yeah, you heard that number right. And considering that JDA didn’t even close the i2 deal until January 28 of this year, it seems particularly harsh in a cosmic sense.

According to the statement put out by JDA last week, the Dallas jury awarded $8 million in actual damages to Dillard’s to cover the cost of two i2 supply chain programs that the retailer acquired in 2000. The jury then awarded Dillard’s another $238 million in what JDA characterized as “alleged consequential, special or punitive damages.” JDA was aghast at the ruling, saying that the jury awarded the damages to Dillard’s even though the company formally accepted the i2 programs and used them for several years before filing a lawsuit and continues to use one of the programs to this day. Moreover, the software at issue has been used by other “national and global customers” of i2 for several years, according to JDA, so it is a bit baffled as to why the Little Rock, Arkansas, retailer is being awarded such high damages.

I’ve looked back through the most recent 10-K and 10-Q filings for Dillard’s and can’t find any reference to the JDA-i2 lawsuit in the legal proceedings section of the reports to the Securities and Exchange Commission. There is a reference in the 2000 annual report saying that the company is installing i2 software “to track historical customer demand” to better match supply to demand in its stores. None of its filings mention JDA. So whatever went wrong, the two companies are keeping it to themselves.

In early 2001, i2 and footwear giant Nike tangled over an implementation of i2’s supply chain software that Nike contended caused too much of some products and too little of others to its customers, and hence hurt Nike’s bottom line. At the time, i2 told Computerworld that Nike was undergoing a very complex, $400 million ERP installation and i2’s products represented about 10 percent of that. The Nike installation required lots of customization and was “unusually challenging.” A few weeks later, i2 company president, Greg Brady, said in an interview in InformationWeek that whatever Nike’s problems were, it wasn’t because of i2’s software. In this case, the courts were kept out of it.

As you might imagine, JDA’s lawyers are very quickly working on an appeal of the verdict. “We believe this verdict is unjustified given the nature of this commercial dispute,” said Hamish Brewer, JDA’s chief executive officer in a statement announcing the Texas verdict in the suit. “We will pursue every avenue available to overturn the verdict, and are confident that justice will ultimately prevail. In the meantime, we will continue to focus on providing our customers with world-class services and products.”

All of this points out that something we brought up a few weeks ago: Companies are not as keen to roll with the punches when software projects don’t pan out as planned, and there is a growing concern that ISVs will be held accountable and liable for functional flaws and security vulnerabilities in their code. (See Lawsuit Raises Fear of Greater Liability Exposure for ISVs.)

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