Tesco is taking Broadcom to court – here’s why

British supermarket chain Tesco is suing Broadcom for £100 million over VMware licensing contracts, claiming a failure to maintain support for software could disrupt the supply of groceries in the UK.

The case follows Broadcom's $61 billion acquisition of VMware in 2022 and the subsequent licensing changes which sparked a backlash among customers.

In court filings, Tesco claims that the changes to licenses raised prices by 237%, according to a report on Law360, and accused Broadcom of refusing to negotiate terms or packages on the threat of pulling services that the grocery giant relies upon.

The filing alleges that Broadcom is taking advantage of its market dominance to raise prices.

Neither Tesco nor Broadcom had replied to a request for comment from ITPro at the time of publishing. The case has also pulled in the technology reseller Computacenter.

VMware and Broadcom

When Broadcom bought VMware, the deal faced scrutiny from competition authorities. But after the deal was approved, the concerns didn't fade away.

Broadcom shook up VMware's product lineup and licensing structure, cutting perpetual licenses, products, and introducing changes to its partner program and pricing tiers.

Cloud Infrastructure Services Providers in Europe (CISPE) has called for the acquisition to be annulled, following a report that showed prices were up by 1,500% in some cases.

The changes to VMware in the post-Broadcom world are at the heart of Tesco's lawsuit — and also sparked separate complaints from Samsung and AT&T in the US.

What's behind the Tesco lawsuit?

According to court filings, Tesco had a perpetual license with VMware and in 2021 signed a further subscription-based license with the option to renew via reseller Computacenter, with support until 2030.

After Broadcom cut perpetual licenses and simplified its software packages, Tesco said the firm would not renew its existing subscription and was shutting down products still used by the groceries giant.

Separate reports from The Register noted that Tesco claims Broadcom is refusing to continue supporting the software until the retailer signs on to another deal.

In place of the previous deal, Broadcom offered a package that is £15m more than before — and includes a charge for software that Tesco believes it already has a perpetual license for. Tesco said it was being asked to pay 237% more for "superfluous and duplicative" licenses.

When Tesco disagreed with the new pricing structure, Broadcom responded with a "coercive 'take it or leave it' approach," according to a report in Law360, which Tesco argues is possible because of its market dominance.

"The threatened pricing simply allows Broadcom to realize material financial benefits which it would not be able to achieve under conditions of normal and sufficiently effective competition in the absence of its dominant position," the filing reads.

The software is used by Tesco for tills and logistics, and are "essential for the operations and resilience of Tesco's business and its ability to supply grocers to consumers across the UK and and Republic of Ireland," the retailer said in the filing, as reported by The Register.

"VMware Virtualization Software underpins the servers and data systems that enable Tesco’s stores and operations to function, hosting approximately 40,000 server workloads and connecting to, by way of illustration, tills in Tesco stores," the filing adds.

Tesco called its demand for £100m in compensation conservative and said it could rise significantly, though we'll have to wait until the High Court decides the case before seeing if the court agrees.

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