(Reuters) - A federal appeals court on Tuesday overturned a judgment requiring IBM to pay rival BMC Software $1.6 billion, after a judge found IBM improperly replaced BMC's mainframe software at AT&T with its own.

The 5th U.S. Circuit Court of Appeals in New Orleans said a lower court judge's determination concerning liability was in error.

BMC is a Houston-based company that develops and licenses proprietary mainframe software products.

(Reporting by Jonathan Stempel in New York; Editing by Chris Reese)