Market for used servers, storage threatened by Sun silence, complaint alleges

Angry that Sun won't give unauthorized resellers in the E.U. the distribution history for used equipment, U.S.-based industry group lodges complaint with U.K. trade officials.

Only weeks after enraging many of its U.S.-based resellers by offering cut-price equipment directly to customers, Sun Microsystems Inc. is being accused of unfair trade practices for restricting the ability of European resellers to buy or sell used Sun equipment.

The UK Office of Fair Trading (OFT) is currently considering a complaint charging that Sun's refusal to give resellers information on the history of a piece of equipment unless the reseller is an authorized member of Sun's partner program.

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Without so-called provenance information unauthorized resellers have trouble selling used equipment without risking lawsuits for violating Sun copyrights, illegally restricting their ability to do business, the complaint alleges. Provenance information includes data on when and where used machines were legitimately sold, whether the machines were released by Sun or an authorized reseller, and where the machines can be resold without violating Sun's trademarks.

The complaint was filed with the OFT – a quasi-judicial government agency responsible for vetting fair-trade procedures in the U.K. – and was filed against Sun's UK operation in late April by the industry advocacy group Association of Service and Computer Dealers International (ASCDI), in Delray Beach, Fla.

Authorized resellers are able to get provenance information directly from Sun, according to Bob Boyle, the ASCDI's chief lawyer, while unauthorized resellers trading Sun machines in the secondary market are not.

"Sun's decision to withhold information on provenance to unauthorized resellers says we don't want you infringing on their trademark. But they won't give us the information to determine whether a given product infringes or does not infringe," Boyle said. "We want to support and we want to protect Sun's trademark; we don't want to be sued for infringement."

Sun declined to comment through a spokesperson, but it did issue a statement denying it had acted in an anti-competitive manner or that it was conducting itself in a way that would show abuse of any dominant market position.

Effect on authorized and unauthorized resellers

"It appears, however, that the basis of ASCDI's complaint is that by taking perfectly legitimate steps to enforce its registered trademark rights and by declining to make commercially-sensitive sales information publicly available, Sun has in some way breached the UK Competition Act 1998," said Sun's statement issued a few days after the ASCDI complaint was filed.

"Sun categorically denies that it is in any way acting in an anti-competitive manner or that its actions amount in any sense to an abuse of any dominant market position. In the event that the OFT decides that the complaint by the ASCDI is worthy of further investigation Sun will of course co-operate fully with the inquiry."

Illuminata Inc. analyst John Webster said that if Sun is not providing provenance, as the complaint suggests, then Sun is sending a strong signal that unauthorized resellers of its used products should get with the program.

"What Sun is saying is: 'We are not going to give provenance willy-nilly to anybody.' If you want to be an authorized reseller here's the plan. Sign up," Webster said.

Webster predicted that if the OFT does nothing or comes down on the side of Sun, it will shore up Sun's authorized resellers and may even raise the prices of Sun products they resell.

"If you are an authorized reseller and you can provide provenance [information] then you can resell and the supply of available machines actually gets smaller if you take those machines that don't have provenance off the market," Webster said.

Last year the market for used server hardware – sold by independent dealers in Europe -- was worth $110 million according to Netherlands-based analysts AME Research.

One beneficiary of this market is Livingston, N.J. – based CIT Group Inc. where Mark Hekimian, senior sales manager for the company's Sun Microsystems division, is anxiously awaiting the decision, which will affect hundreds of thousands of dollars worth of business for his company.

CIT leases and sells Sun used equipment to the broker market in the UK, as well as other countries in the EU, but Hekimian wonders how much longer he'll be able to do business there.

"This is hurting a lot of people in the UK who trade Sun equipment," Hekimian said. "The independent reseller that would buy from my company may now not want to buy Sun equipment for fear of an infringement lawsuit," Hekimian added.

Looming in Hekimian's mind is the case of Amtec Computer Corp., a company that was found guilty of illegally selling 10 Sun servers that originated from Israel and were intended for that market.

However, the servers were sold into the EU grey market and changed hands twice before Amtec bought them from a Danish company. Because the servers had been purchased in Israel and not in the EU, Amtec admitted that it had infringed Sun's trademarks and paid an out-of-court settlement of £450,000.

According to Boyle, since the Amtec case Sun has made an issue of provenance, unlike IBM and HP, two manufacturers that provide this information to unauthorized resellers trading their products. Boyle said he'd like to see the secondary market for Sun products continue, and hopes the OFT decision won't jeopardize the survival of the secondary market.

"I'd like to see us preserve the secondary market for Sun equipment because it keeps our members in business, it keeps choice available for Sun users and that's a good thing," Boyle said.

Let us know what you think about this story; email: Nicole Lewis, Senior News Writer.

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