Infra-Comm attacks Cisco's channel contracts in court

Value-added resller Infra-Comm claims Cisco channel contracts are unfair and unbalanced.

Infra-Comm Corp. -- the value-added reseller (VAR) suing Cisco Systems on claims that it poached a customer and later unfairly dumped the partner from the channel -- filed a brief in court Friday morning calling the basic terms of Cisco's Indirect Channel Partner Agreement (ICPA) "unreasonable and oppressive."

If Infra-Comm wins, it could open the legal door for partners to demand that channel contracts from Cisco and other major vendors allow further negotiation, that manufacturers be unable to terminate partnerships at will and that those manufacturers be held liable for damages incurred by partners who are unfairly let go.

Infra-Comm and Cisco have been in Superior Court of Orange County for two weeks battling out the lawsuit filed by the VAR in January 2007. The suit alleges that Cisco violated a deal registration agreement that Infra-Comm filed to ensure discount pricing for a $3 million IP telephony customer.

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Infra-Comm said Cisco handed off the client to AT&T Business for the same pricing structure, violating the agreement. Infra-Comm also claims that Cisco unjustly cut it loose from its channel program after the solution provider filed suit, even though Infra-Comm was still making sales.

Cisco denies claims that it violated terms of either the deal registration agreement or the ICPA. According to reports, Chris Schlereth, operations director of west channels for Cisco, acknowledged in court that the vendor gave the same pricing to AT&T, but ultimately, the deal didn't violate the registration agreement. Sources close to the company told SearchITChannel.com that the unnamed customer chose to go with the larger solution provider on its own and that deal registration ensures pricing exclusivity, but doesn't force a customer to remain with the original partner that filed it.

A Cisco attorney said in court that Infra-Comm didn't have the resources to maintain such a large client, and Schlereth said during testimony that he had thought it would be difficult for a partner suing Cisco to do good business with the company, according to reports.

The brief filed Friday seeks to prove that the ICPA (the common channel agreement for most partners) is unfair -- or "unconscionable" -- because Cisco can terminate it "for convenience" either within 30 days after signing or any time after that by giving a month's notice, destroying a partner's business.

In an opposing brief, Cisco said that contract termination rules are equal since a partner can terminate a contract at any given time as well.

But Infra-Comm says the stakes are not the same for each party, since Cisco controls 70% of the networking market and ending a channel relationship limits partners from accessing the goods necessary to do business. Infra-Comm claims that "loss of its reseller status, based upon Cisco's 'convenience' termination, forced it to close two offices, lay off most of its workers, and lose 90% of its $5 million annual business."

Cisco maintains that partners can always sell product from competing companies.

"Infra-Comm has not proven that it had no reasonable market alternatives to the 2007 ICPA," the brief states. "Infra-Comm can and has sold other companies' products and its own services. Moreover, the rapidly changing information technology industry is rife with competition."

Infra-Comm also attacks the ICPA contract for stating that Cisco is immune to damages and liability for a partner's lost business after a deal is terminated.

But Cisco's brief says Infra-Comm owners Luke and Lisa Hosinski had been in business for 10 years and were fully capable of reading the contract before signing it. It also blasts Infra-Comm for seeking to alter the contract retroactively.

"Although Infra-Comm acknowledges the termination provision in the contract giving Cisco the express right to so terminate, it nonetheless demands that this court take the extraordinary step to rewrite the parties' contract and to impose upon Cisco a nonexistent obligation to continue the contractual reseller relationship ad finitum unless 'cause' is established," Cisco's brief reads. The brief goes on to say that Infra-Comm shouldn't be able to "force Cisco into an unfair, commercially unreasonable and unbargained-for relationship."

Infra-Comm also claims that Cisco cut it off while it still had Opportunity Incentive Program (OIP) deals pending, even more proof that its business was destroyed and the contract was unfair. But Cisco said OIPs are contingent on the partner still being part of the channel program.

Finally, Infra-Comm claims that the ICPA is unfair because it is not open for negotiation. The contract states that partners must accept all terms. But Cisco countered that Infra-Comm never attempted to negotiate the contract.

Ultimately, language used in the brief makes it clear that Infra-Comm took the filing as an opportunity to show the judge and the court just how much influence the ultimate verdict will have on Cisco's community of more than 30,000 resellers -- who have a vested interest in the fairness of Cisco's channel contracts.

"In short, a finding that allows Cisco to terminate any reseller that brings a lawsuit and/or to foreclose damages will effectively close the courts to other resellers. This court's message needs to be clear and unequivocal: our courts will not give Cisco the power to force reseller capitulation," the brief said.

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