IBM vs. GlobalFoundries: The Breach of Contract

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Table of Contents

Executive Summary
Introduction
Discussion
Conclusion and Recommendations
References

Executive Summary

In the case of a contract breach, the two parties end up IBM is an American multinational corporation that focuses on technology whose main headquarter is located in New York. GlobalFoundries, on the other hand, is a multinational company that emphasizes semiconductor manufacturing and design which is also located in New York City. The breach of contract occurred between these two corporations when GlobalFoundries failed to provide IBM with the promised high-performance microchips. With the breach of a contract where companies fail to fulfill the agreed promises, one of the parties ends up suing the other for compensation. In this case, IBM sued GlobalFoundries as they failed to deliver their end of the agreement. Therefore, this report will represent the breach of contract between the two multinational companies showing the process and the consequences that result from contract breach.

Introduction

Varying individuals and companies get into different contracts to gain a mutual advantage as each party has what the other wants. For instance, a company may require services or products from a supplier, and through a contract, the supplier agrees to provide the company with the services and products in exchange for payment. This represents the aspect of mutual advantage between the two parties. A breach of a contract can occur in both oral and written contracts due to different factors, including delay in payment and failure of a party to perform as mentioned in the agreed contract.

Discussion

In 2021, IBM filed a lawsuit against GlobalFoundries as it sold them a production plant worth $1.5billion for the breach of their previous agreement. The GlobalFoundries had earlier promised to produce high-quality microchips but instead provided low-quality microchips. The major source for breach of contract between these two multinational corporations was the failure of the supplier to produce what they had agreed in the contract. IBM filed the lawsuit in the New York State Court, and it stated that it had sold the Essex Junction microchip plant and paid them a lot of money to produce the microchips, which are an essential element in the business.

In categorization based on the types of contract, this breach would fit as a major breach of contract. It involves the supplier substituting the small-sized high-performance microchips as stated in the initial contract with the large microchips that were large and lesser quality performance compared to what was in the contract. Among the impacts of breach of contract include heavy financial losses seen in the case of IBM is believed to have lost a total of $1.5 billion to GlobalFoundries delivering undesirable products that were not as per the stated contract (Jensen, et al., 2020). Legal harassment and arrest also impact the breach of products, which happened to GlobalFoundries, which IBM sued. It is hard for investors and customers to continue trusting in a farm that has been accused of delivering substandard products. After the scandal, the reputation and name of GlobalFoundries remained at stake, considering that they stopped the production of some products.

When getting into varying contracts, remedies serve the different interests, including the expectation interest, reliance interest, and restitution interests. IBM expected the final products to be provided and produced by GlobalFoundries to be small and of quality performance which was not the case when the final product was released. Secondly, IBM also had the reliance interest when joining a contract with GlobalFoundries. Being a technological corporation, IBM heavily relies on technological supplies by outside corporations to provide devices such as microchips (Brine, 2018). Restitution interest refers to restoring the benefits that were conferred on the promise. In the case of the two corporations, IBM is the promise while GlobalFoundries is the promisor. By taking the case to court, IBM expects to restitute a large amount of money they invested, hoping for better products but receiving bad.

While filing, in their statement, they wanted GlobalFoundries to return the money they had paid together with the damages caused for the lack of compliance with the requirements as per the contract. IBM claimed that GlobalFoundries had misused their funds yet never produced the stated products. However, the spokesperson to GlobalFoundries, Laurie Kelly, on the 11^th of June, stated that the allegations by IBM were good for nothing, and she was confident that the court would be on their side as they had done nothing wrong. Considering that both corporations are multinational and both have headquarters in New York, the disagreement created a fuss such that the press wanted to be involved. Still, IBM declined the request for the Burlington Free Press interview.

The Dubai-based GlobalFoundries company, in a statement stated by IBM, was accused of assuring that they would fulfill the agreement made in their contract. Still, they instead walked away from IBM, and the entire time IBM relied on the company. The breach of contract is quite clear, considering that despite knowing that IBM is heavily reliant on them, they produced substandard products and were not up to the agreed metrics and specifics (Lazonick & Hopkins, 2021). The Essex Junction plant is located approximately 7 miles from Burlington and is considered an effective essay in the economy of the numerous States. Based on the development and growth of IBM, GlobalFoundries refused to create microchips of a smaller. In their explanation, GlobalFoundries had produced larger chips that they anticipated IBM would settle for as a substitute for the previously ordered products. It is very incorrect for companies, especially supplying companies, to agree on a product or service and give out a substitute one instead of the one previously named. This shows a lack of honor and respect for their work hence a breach of contract.

After a little period, GlobalFoundries closed all the high-performance technology production, including that of the microchips, based on IBM’s ongoing allegations in court. In their statement, IBM claimed that the GlobalFoundries provided false information based on the assurance that they would have developed microchips of high performance but instead ended up deceiving them (Associated Press, 2021). In the summer of 2018, all the communication between the two corporations came to a halt due to the ongoing conflicts and court cases due to the breach of contract.

Conclusion and Recommendations

Summing up, a breach of contract is seen to have a negative on the breaching party such that their brand image is damaged and, therefore, their future customers and investments are lost. In the case of IBM and GlobalFoundries, the contract was clear for the GlobalFoundries to produce small high-performance microchips, which they did not, therefore, lead to a breach of the contract. It is important for large corporations, especially multinational corporations, to be truthful and honor their contracts as agreed, as a breach of contract mostly brings out more negative than positive.

There are several remedies that the two corporations could have settled for instead of going to court, such as the termination of the contract, dispute resolution, renegotiating the terms of the contract, and specific performance. As GlobalFoundries are at the wrong for breaching the contract, they are supposed to be at the forefront of correcting the errors that occurred. Considering that the corporation was in the wrong for providing substantial goods, it is right that they try and find ways of dispute resolution, considering that a large sum of money was involved in the contract breach (Mittlaender & Buskens, 2019). Compensatory damages are among the ways of disputing the breach, but GlobalFoundries was not ready for that, and that is why they were taken to court.

In this situation, the move to go to court was a great idea considering that corporations tend to take advantage of such opportunities to gain personally while not fully compensating the other parties in agreement. Recession, which is a remedy to contract breach, may not work in this case, considering that the non-breaching party, IBM, also faced losses due to the contract. The cancellation of the contract would mean that they went through more losses which should not be the case as those liable for the losses should pay up. The lack of communication between the two corporations is a clear sign of the magnitude of the conflict between the two companies. As a result, it is important for all individual parties and organizations getting into new contracts to ensure that they uphold their end of the bargain to avoid such instances of contract breach, which complicates things even more.

References

Associated Press. (2021). IBM sues company for $1.5B over Alleged Breach of Contract. U.S. News.

Brine, E. G. (2018). Trusted and assured microelectronics: Technological challenges, bureaucratic conundrums, and foundational dilemmas facing technology in national security.

Jensen, N. M., Johnston, N. P., Lee, C. Y., & Sahin, H. (2020). Crisis and contract breach: The domestic and international determinants of expropriation. The Review of International Organizations. Web.

Lazonick, W., & Hopkins, M. (2021). Why the chips are down: Stock buybacks and subsidies in the US semiconductor industry. Institute for New Economic Thinking Working Paper Series. Web.

Mittlaender, S., & Buskens, V. (2019). Retaliation, remedies, and contracts. American Law and Economics Review, 21(2). Web.

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IBM vs. GlobalFoundries: The Breach of Contract

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