Solution providers that want to do business with vendors
typically have to sign a contract binding them to certain rules and
regulations. In return, they receive special pricing and benefits from the
vendor. While not always a true partnership, it’s the basic principle of the
channel that works well … sometimes.
A groundbreaking lawsuit last year brought—and won—against Cisco Systems by
solution provider Infra-Comm alleging breach of contract may level the playing
field between vendors and their partners. In the wake of the lawsuit, many
vendors are recrafting their partner agreements and terms of service—mostly in
their favor—to guard against a repeat of what happened between Cisco and
Infra-Comm.
Infra-Comm, a San Juan Capistrano, Calif., reseller, filed suit against
Cisco last year alleging the networking vendor violated its contract with
Infra-Comm by passing a lead to AT&T and bypassing Infra-Comm. Such actions
were in violation of both Cisco’s partner agreement and its deal registration
program, the suit alleged.
Cisco has long been accused of using heavy-handed tactics, such as ganging
up on solution providers that don’t lead with their products. The Infra-Comm
lawsuit, however, was the first high-profile challenge of Cisco’s partner
management practices.
The judge and jury agreed, and awarded Infra-Comm $6.4 million in damages.
Cisco settled with Infra-Comm for $5.5 million and agreed not to appeal the
original decision.
Judge Gregory Lewis, who presided over the trial, noted that three clauses
in Cisco’s partner agreement were unconscionable, or unfair to one of the
parties in the contract. Those clauses were the damage limitation listed in the
contract, the non-negotiable term of the contract imposed by Cisco, and Cisco’s
right to terminate the contract without cause.
Such a ruling could have an enormous impact on how contracts are written
moving forward, to the detriment of solution providers, said Tiffani Bova, vice
president of research for Indirect Channel Programs and Sales Strategies at
Gartner.
“That decision probably will not benefit the relationship between channel
chiefs and their internal legal departments,” she said. “Having been a past
channel chief, I can tell you that negotiating between the spirit of a
relationship and a partnership agreement with the legal department is a
challenge. This ruling will make it more difficult, and that will roll
downhill.”
Cisco, for its part, also believes the suit won’t impact the rules of
engagement for channel partners of any company.
“We do not believe this ruling has broader implications on agreements with
channel partners for Cisco or the broader industry. By their very nature,
breach-of-contract cases are fact-based and specific. This case involved
one contract and one reseller,” the company said in a statement. “As a
channel-centric company we are always looking for ways to strengthen our
partner relationships. We are continually adjusting our channel programs and
initiatives based on partner feedback, and we will continue to do so moving
forward. With more than 80 percent of our business going through the channel we
have never been more committed to our partners.”
Nevertheless, sources say several vendors are reviewing their standard
partner agreements in the wake of the Cisco judgment to ensure contracts do not
expose the vendor to undue liability or risk exposure. As one vendor told
Channel Insider, “No one wants a repeat of what happened to Cisco, and our
contracts are heavily weighted in our favor.”
Steve Tepedino, president and CEO of
Channel Savvy, a channel-focused management consulting firm in Scottsdale,
Ariz., said partners shouldn’t have to take
their vendors to court to get fair treatment.
“Vendors, VARs and distributors all have a vested interest in making the
channel work. This route to market is interdependent, and everyone’s
goals matter,” he said. “It’s a sad day for our entire industry when contract
disputes go to the court system for resolution. Communication, partnership and
respect need to live within our own channel ecosystem.”
Evan Leonard, president and co-founder of Chips Computer Consulting, of Syosset,
N.Y., believes vendors, for the most part,
play fair with their solution provider partners.
“I know there have been times when stipulations in the contract haven’t been
fair, but we’ve worked with vendors to come up with language to satisfy both
parties,” he said. “The smaller vendors that are working on the SMB level are
more flexible on the terms of the agreement, commissions, etc., but when we’re
dealing with bigger vendors it’s not as easy to work with them.
“Usually we sign the contract, put it away and never reference it again,” he
said.
Leonard added that contracts normally aren’t the source of channel conflict.
“The only time we perceive an issue is if they change their reseller model
midstream, and the change isn’t good for the channel. Then absolutely that is
grounds to renegotiate our contract,” he said.
Channel News and Analysis 
