Is Your Reseller Contract 'Unconscionable?'

In the jury trial of a lawsuit between Cisco and one of its partners, the judge declared Cisco's partner agreement was legally "unconscionable." That's legalese for oppressive, overreaching, one-sided and unfair.

Now, the trial isn't over. It was set to go to jury as of this writing. But the judge's ruling could have a far-reaching impact on how the channel does business with vendors regardless of what the jury decides.

First, a little background. As our own senior editor Joseph F. Kovar has reported, Infra-Comm, a San Juan Capistrano, Calif.-based solution provider, alleges in its suit that San Jose, Calif.-based Cisco Systems breached its Indirect Channel Partner Agreement (ICPA) and the terms of its deal-registration program by passing a potential large deal to AT&T. Infra-Comm also charges that Cisco refused to renew its partner agreement because Infra-Comm made a stink about Cisco handing the deal over to AT&T.

So, in a nutshell, your typical David vs. Goliath. It isn't an unusual situation. A small solution provider hooks a big fish the vendor thinks he can't land. The vendor hands the rod over to a bigger solution provider to reel it in. It happens. It has never sounded fair to me. It has never seemed right. But it has always seemed legal in the "Hey, buddy, you should have read the contract you signed" kind of way.

That's where Judge Gregory Lewis comes in. Lewis ruled that several parts of Cisco's ICPA are unconscionable in part because Infra-Comm did not have the ability to negotiate the terms of the agreement during the renewal process. "The provisions are clearly one-sided and severely limit plaintiff's recovery," the judge stated. Essentially, the judge said that a long-term Cisco partner that has made an investment in partnering with the company should not be subject to the same termination clause as a new partner. Because Cisco could terminate the agreement with a company that relied on it for 90 percent of its business and because Infra-Comm could not negotiate the renewal of its partner agreement with Cisco each year, it is one-sided, the judge said.

Because of that very vulnerability, I have always championed multiple vendor relationships to avoid the situation that Infra-Comm found itself in. But if the courts, and the jury, find in favor of Infra-Comm, we could be looking at a whole new partner landscape.

Are partner agreements fair or not?