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IBM, CORP. v. MEDLANTIC HEALTHCARE GROUP

March 16, 1989

INTERNATIONAL BUSINESS MACHINES, CORP., Plaintiff,
v.
MEDLANTIC HEALTHCARE GROUP, Defendant



The opinion of the court was delivered by: RICHEY

 The parties have filed cross motions for summary judgment in this contract action, which arises out of the sale of a large business computer. Because the Court finds an absence of genuine issues of material fact, and because the Court finds that the plaintiff is entitled to judgment as a matter of law, the Court grants the plaintiff's motion and denies that of the defendant.

 FACTS

 The plaintiff, International Business Machines ("IBM") requires little introduction. IBM is a massive, multinational corporation which distributes, among other things, large business computers. The defendant, Medlantic Healthcare Group ("Medlantic") is the non-profit parent corporation of several health care organizations located in the metropolitan Washington, D.C. area. *fn1"

 In early 1986, Medlantic decided to expand its facilities beyond those available at its then location on the campus of the Washington Hospital Center in downtown Washington. Specifically, by 1986 Medlantic had become concerned with the inadequacies of the data processing facility at the Washington Hospital Center, and sought a larger location which would allow for the use of more sophisticated equipment. To this end, in December of 1986 Medlantic approved the relocation of its data processing facilities to a location in Silver Spring, Maryland (the "Data Center").

 1. The Computer Order

 In November of 1986, anticipating the move to the Data Center, and the purchase of at least one mainframe computer in connection with the move, Medlantic placed an order with IBM for a 3090-180 central processing unit (a "CPU") and peripheral equipment. *fn2" Medlantic made the order pursuant to an "Agreement for Purchase of IBM Machines" that had been executed by Medlantic's subsidiary, Washington Hospital Center, in 1984 (the "1984 Agreement"). *fn3" On the same day that Medlantic ordered the 3090-180 CPU, Washington Hospital Center entered into an amendment of the 1984 Agreement that provided for a 25% educational discount on the purchase of the 3090-180 CPU.

 Approximately two months later, on January 26, 1987, IBM began to market the 3090-18E CPU, an enhanced version of the 3090-180 CPU that Medlantic had ordered. Shortly thereafter, Medlantic's order was upgraded to an order for the 3090-18E CPU at no additional cost.

 During this period, from December of 1986 to approximately March of 1987, Medlantic also undertook discussions with computer distributors other than IBM. Medlantic was able to do so, notwithstanding its outstanding order with IBM, by virtue of IBM's sales method.

 The purchase of a major IBM computer implicates two separate agreements. The first agreement memorializes the relationship between IBM and the purchaser through execution of an "Agreement for Purchase of IBM Machines" (an "Agreement for Purchase"). *fn4" The Agreement for Purchase is a standard, master agreement which establishes the general terms and procedures by which IBM computers may be acquired. It relates to no specific product, but instead sets forth general terms applicable to a broad class of IBM products. It contains no price provisions, and does not set forth any discounts which might apply to a purchase. The Agreement for Purchase places a purchaser under no obligation to actually purchase an IBM product. However, an order placed pursuant to an Agreement for Purchase enjoys priority as against orders not placed under an Agreement for Purchase. *fn5"

 Although an Agreement for Purchase contains no precise pricing information as to a specific purchase, it does contain a general "Price Protection Provision." As will be shown, under the circumstances of this case Medlantic attaches some significance to the Price Protection Provision. It provides as follows:

 
The Purchase Price for each on-order Machine shall be IBM's generally available single unit purchase price and shall be subject to all price increases, except that increases effective during the three-month period immediately prior to the date of Machine shipment shall not apply if the Customer's order was received by IBM prior to the date of announcement of the price increase.

 As the language makes clear, the Price Protection Provision is intended to serve as insurance for the purchaser against increases in a product's "generally available" price during the three months preceding delivery.

 The second relevant document in IBM's sales procedure is the Supplement to Agreement for Purchase (a "Supplement"). A Supplement, which is delivered shortly after a product is delivered, specifies the precise product to be purchased, the price to be paid and any applicable discounts. The Supplement is a product-specific document which outlines the precise terms upon which IBM is willing to sell. According to IBM, the Supplement constitutes the actual offer to sell a computer. As outlined in the Agreement to Purchase, the Supplement can be accepted either by permitting installation of the product or by payment of the purchase price specified in the Supplement. If the product is accepted, or if payment for the product is made, IBM contends that the Supplement merges with the previously executed Agreement to Purchase to form a unitary contract.

 The Agreement to Purchase contains an integration and merger clause, which provides as follows:

 
THIS AGREEMENT AND ANY OTHER APPLICABLE IBM AGREEMENTS, AMENDMENTS, SUPPLEMENTS, EXHIBITS AND CERTIFICATIONS, INCLUDING THOSE EFFECTIVE IN THE FUTURE, REFERENCING THIS AGREEMENT OR EXPRESSLY MADE A PART HEREOF, WILL BE THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES, SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR ...

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