Judge rules Cisco violated channel agreements in Infra-Comm lawsuit

The jury in the Infra-Comm-Cisco lawsuit has awarded Infra-Comm nearly $6.4 million and ruled that Cisco breached channel contracts.

Former Cisco Systems partner Infra-Comm won its lawsuit against the networking giant on Monday.

A Superior Court of Orange County (Calif.) jury decided unanimously to award nearly $6.4 million in damages to Infra-Comm, the value-added reseller (VAR) that sued Cisco for poaching a registered customer and then kicking the partner out of its channel program. The judge ultimately found that Cisco breached both deal registration and channel membership contracts.

Infra-Comm owner Luke Hosinski said he wants to see the case result in change for the channel. The $6.4 million awarded to Infra-Comm in the lawsuit is the equivalent of a "$240 parking ticket for someone who has $1 million," he said after Monday's verdict.

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"For all VARs that deal with manufacturers, I think the door is open a crack," Hosinski said. "Systems integrators that have engineers and [have] made an investment into a manufacturer should expect something in return that says, 'We're not going to squash you.'"

The jury went into deliberations late Friday afternoon, after nearly a month of testimony, and emerged with the unanimous verdict Monday, after less than three hours.

Infra-Comm first filed its suit in January 2007, accusing Cisco of violating a deal registration agreement by handing off a $3 million IP telephony customer to another partner, AT&T, at the same pricing structure outlined in the registered deal.

Cisco removed Infra-Comm from its channel program after Infra-Comm filed suit, even though the solution provider had millions of dollars worth of deals still in the works. Infra-Comm, which had been a Cisco partner since 1999, said it lost 90% of its $5-million-per-year business, because it could no longer sell Cisco products to its customers, which all had Cisco networks.

Cisco had filed a countersuit, accusing Infra-Comm of violating a Cisco Remote Operating Services contract and unlawfully continuing to use Cisco's name to do business after their relationship ended. The jury found that Infra-Comm did not breach the contract, but that it shouldn't have used Cisco's name after its channel membership was terminated. The jury did not award any damages to Cisco.

The jury's decision in the Infra-Comm lawsuit opens the legal door for partners to battle a few central elements of Cisco's channel agreement. During the trial, Judge Gregory H. Lewis ruled in favor of an Infra-Comm brief that called Cisco's non-negotiable Indirect Channel Partner Agreement (ICPA) contract "unconscionable" because it lets Cisco terminate partners without cause. Lewis also said it is unfair that the contract protects Cisco from damages resulting from failed vendor-channel partner relationships. He wrote that Cisco had "unfair bargaining power" over VARs and that the vendor should only terminate partner relationships with cause.

Cisco released a written statement saying it disagrees with the verdict.

"Cisco acted in this matter with the best interest of the end-user customer in mind," the statement said. "Ultimately, the end-user customer decided which solution provider to work with when deploying their Cisco solution. While we respect the jury's verdict, we disagree with it and are considering all options including an appeal. As always, we remain committed to the success of our channel partners and are proud of our award-winning channel programs."

Cisco has 60 to 90 days to file an appeal.

Solution providers everywhere had eagerly awaited the verdict, and the vast majority of VARs have said throughout the case that similar problems exist with many major vendors. Still, they said, most VARs don't complain for fear of being kicked out of the channel, as Infra-Comm was.

"I hope that Cisco and others get called and told they have to give us all about twenty grand. They'll have to say, 'Sorry we buggered up the channel here,'" quipped Gary Berzack, chief technology officer and chief operating officer of New York City-based Cisco partner eTribeca.

In seriousness, Berzack said he doesn't believe the top powers at Cisco intend to violate deal registration, but he said there is pressure on lower management to get deals done sometimes, regardless of deal registration.

Hosinski, who has paid for attorneys on his own thus far, said the court battle was costly and he didn't expect it to go on for so long.

"I had expected Cisco to make this right," he said. "They felt that deal registration wasn't important. The only thing that was important was getting this sale."

At the beginning of the case, Hosinski said he and his attorneys proposed a settlement of $250,000 and 2% of the business lost, but Cisco left a voicemail refusing the offer.

Hosinski said he is "having existential thoughts" and is ready to move on from the VAR business. He plans to eventually hand over what's left of Infra-Comm to the two engineers that remained when things fell apart. Those engineers still provide services to the unnamed customer that went to AT&T for infrastructure. Infra-Comm had at one time sold the company more than $650,000 of Cisco voice-ready routers.

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