Cisco Channels Director Questioned In Deal Registration Trial

In a trial between Cisco and one of its former solution providers this week, a Cisco channels director admitted that although Cisco had a special pricing arrangement accepted through registration with the solution provider, Cisco offered the deal and the same pricing to another company.

Chris Schlereth, operations director of West Channels for Cisco, said the deal, an IP telephony sale to the Irvine Company, originally developed by the solution provider in question, Infra-Comm, was eventually handled by AT&T in such a way that it did not breach any contracts between Cisco and Infra-Comm.

Infra-Comm, a San Juan Capistrano, Calif.-based solution provider, alleges Cisco breached its Indirect Channel Partner Agreement (ICPA) and the terms of its deal registration program by passing a potentially large deal with the Irvine Company, a property development company, to AT&T.

Networking and IP telephony vendor Cisco, in return, is accusing Infra-Comm of harming Cisco's business and misusing its brand name.

Schlereth spent three days on the witness stand this week at the trial in Superior Court of Orange County in Santa Ana, Calif. The trial started September 30, and is expected to last for about 15 days.

Part of Infra-Comm's lawsuit against Cisco alleges that Infra-Comm identified the Irvine Company deal and registered it, expecting to close it with Cisco's help and receive an extra discount from Cisco under Cisco's Opportunity Incentive Program (OIP).

Infra-Comm received registration for the deal on Jan. 12, 2006. The registration was valid until July 11, 2006, and Infra-Comm said it was informed by Cisco on June 5 that an extension to the registration would be taken care of.

Brian Daucher, a lawyer representing Infra-Comm, asked Schlereth whether Cisco offered the same special pricing to AT&T that it offered Infra-Comm for the deal. "I believe that to be correct," Schlereth said.

When cross-examined by Renee Lawson, a lawyer representing Cisco, Schlereth said that he became aware in the Spring of 2006 through conversations with his team that AT&T became involved in the deal. He said he became involved in order to offer advice because of the OIP in place with Infra-Comm.

Schlereth also said that Cisco extended a DSA, or Dealer Service Agreement, which he called an extra discount, to Cisco for the Irvine Company's IP telephony project. A DSA is a price deviation offered by Cisco in certain cases, and is one of multiple ways Cisco can implement price discounts to customers, according to a channel source.

Schlereth also said that, when he learned that Cisco took the deal in question to AT&T, he went to his managers to ask whether Cisco could offer compensation to Infra-Comm. However, he said, he was not surprised when they said no, and that he had not seen any case where Cisco offered a partner compensation for not closing a deal.

Next: Conflict Over Indirect Chanel Partner Agreement

Infra-Comm is also alleging that Cisco improperly breached its Indirect Channel Partner Agreement (ICPA) with the solution provider within days of Infra-Comm's renewing the agreement on May 29, 2007.

A day after Infra-Comm accepted the terms of the ICPA on-line by clicking on the "Accept" button and then receiving an automated notice that the renewal was received, Cisco told Infra-Comm that the renewal was invalid.

Daucher questioned Schlereth about Cisco's expectations that channel partners will be successful, but Schlereth answered that Cisco has no such expectations because it is up to the partner to be successful.

Daucher presented a number of Cisco documents including channel promotional material which refers to the potential for success for solution providers who sign on as a Cisco channel partner and who invest in training and certifications.

For instance, he asked Schlereth whether Cisco expects a partner who invests in the program to get successful over a number of years.

Schlereth responded that there could be partners who choose to invest and fail miserably, or who invest and become successful quickly.

Ideally, Schlereth said, partners will be successful selling products and services. But, he said, if the partner is poorly run, "I find it hard to expect a return if they're not selling...It's the partners' responsibility to be successful."

Daucher later asked if Schlereth, who oversees over 3,000 solution providers, whether he thinks those partners can expect to wake up one day and find out they were kicked out of the Cisco channel program without justification.

Schlereth said no. "But with justification, we may get to that point," he said.

Daucher said that among the terms and conditions of the ICPA is the point that solution providers, "should receive an email shortly confirming your renewal as a Cisco Registered Partner."

Schlereth told Daucher that he was not aware that Cisco reviewed the renewal before he wrote to Infra-Comm that the ICPA with the solution provider would not be renewed. He said Cisco has people in operations that handle this. "But I'm not sure of the actions in between acceptance and the email," he said.

According to the ICPA, parts of which were presented as evidence, Cisco can terminate the agreement with the solution provider within 30 days of its being signed "for convenience with no notice." After that 30-day period, Cisco or the solution provider who signed the ICPA can terminate it "for convenience, for any reason or no reason" with a 30-day notice.

On June 14, 2007, Schlereth wrote to Infra-Comm in an email that, to the extent that Infra-Comm believes the ICPA was renewed, "I am writing to inform you that Cisco is exercising its right to terminate the ICPA with Infra-Comm." He wrote that this could be done within 30 days of the renewal "without cause."

Schlereth said that he did not look at a report from his channel team showing that Infra-Comm had registered seven deals since Infra-Comm's lawsuit was filed on January 18, 2007, including one deal worth over $400,000, and said that termination is often difficult.

Under cross-examination, Schlereth said that he had a goal to salvage the relationship with Infra-Comm after Infra-Comm filed its lawsuit.

However, he wrote in one email that "doing business with Cisco and suing Cisco are simply inconsistent and mutually exclusive actions."

Schlereth said he wrote that because he found it hard to think about someone doing business with Cisco who at the same time was suing Cisco because of the level of trust and collaboration required to work with each other. He said he imagined sitting at a table with Infra-Comm and a customer, and the customer asking about the nature of their relationship and having to say the two are doing business and that Infra-Comm is suing Cisco.