Avaya tried to monopolize maintenance, jury says in $60M verdict
A third-party provider sued, saying it was locked out of servicing Avaya equipment
By Stephen Lawson | Published: 20:47, 31 March 2014
A federal jury in New Jersey has handed a setback to Avaya, ruling that it illegally tried to quash competition for service on its enterprise communications equipment.
Avaya violated antitrust law when it attempted to stop Continuant, an IT support company in Washington state, from providing post-warranty support on Avaya phone systems and predictive dialers, the jury said in a verdict issued on Friday.
But jurors rejected a majority of Continuant's claims and awarded the company US$20 million in damages, far below the range it had recommended, of roughly $130 million to $140 million. Because the case involves a violation of the Sherman Antitrust Act, any award is automatically trebled, in this case to $60 million, said attorney Anthony La Rocco of K&L Gates, which represented Continuant.
Now that the jury has reached a verdict, Continuant will also ask the court for injunctive relief to prevent Avaya from monopolizing the market, La Rocco said.
"Our main objective in filing our counterclaim nearly eight years ago was to have the right to compete on a level playing field. Now we can," Continuant Co-founder and Chief Sales Officer Bruce Shelby said in a press release.
Avaya said it anticipates post-trial motions and an appeal. It said the verdict doesn't affect Avaya's existing contracts with its customers or partners.
The verdict in the U.S. District Court in Camden, New Jersey, came after a court battle more than seven years long in which the tables were turned on Avaya, one of the world's largest suppliers of enterprise voice equipment. In 2006, it sued Telecom Labs (TLI), which sold maintenance services for Avaya PBXes (private branch exchanges), saying that the company used illegal means to access its clients' equipment to work on it. Telecom Labs, later renamed Continuant, countersued with claims that Avaya tried to set up an illegal monopoly on maintenance of its gear.
All of Avaya's claims eventually were dropped or dismissed, so all that remained were the antitrust accusations against Avaya.
The court fight was just the latest example of the often fractious relationships between IT vendors and independent companies that maintain and service their products. IBM has faced several lawsuits and government actions since the 1950s stemming from concerns about the company monopolizing hardware and software. Minicomputer makers Data General and Prime Computer dealt with similar issues, and Kodak has faced concerns around maintenance for its copiers. Recent years have seen giants including Cisco Systems and Oracle take strong legal action against companies that they said used illegal means to provide tech support to users.
Similar disputes have embroiled the auto service industry, where independent shops have fought to be able to compete against car dealers.
Avaya started letting authorized resellers provide maintenance services around 2000. Today, the company has about 11,000 authorized business partners around the world and just over 400 of them are certified to provide maintenance. TLI became one of those maintenance partners in 2003, but Avaya ended its contract after a few months because of a dispute over noncompete terms, according to court documents.
TLI kept providing maintenance for Avaya users, but to do so it had to work around restrictions on access to the software commands it needed to service its customers' equipment. The restrictions included rules on using Avaya's ODMCs (on-demand maintenance commands). TLI said those constraints and other actions were illegal attempts by Avaya to create a monopoly on maintenance of its products.
Enterprises may turn to independent IT support companies as a cheaper alternative to the vendor or its authorized channel partners, sometimes to extend the life of a piece of equipment after its warranty or prepaid support contract expires. Missing out on potential ongoing revenue is just one reason manufacturers may object to this. Another is that if customers have problems after getting service from an unauthorized support company, they may blame the vendor and hurt its reputation, said Frost & Sullivan analyst Rob Arnold.
For enterprises, there are risks to stepping outside the vendor and its partners for support, Arnold said. The third-party service may be less expensive for a reason. "If there's a deal, you have to evaluate what's in that price," he said.
Ever since IBM opened up the market for support of its mainframes, the hardware maintenance market has been mostly open to competition, said Brooks Hilliard, a consultant and expert witness who has testified in IT support cases. But as more of the value in enterprise IT products ends up in software, things have gotten more legally complicated, he said.
IT vendors try various legal means to control who can work on their gear, including using copyrights on software or manuals, said Edward Naughton, an intellectual property (IP) attorney at Brown Rudnick LLP. But courts have tried to strike a balance between their claims and the benefits of customer choice, he said.
IP laws may give owners a monopoly, but it's always a limited one, he said.
"Where do you draw the boundary between the monopoly that we give to encourage the development of IP, and the desire to have free competition?" Naughton said.
The case isn't likely to break new ground in the law surrounding third-party maintenance, Naughton and Hilliard said.
"It's come up a lot of times before, and all of these industries have managed to survive," Naughton said.