VARs Applaud Ruling Against Cisco On Reseller Contract

Infra-Comm, a San Juan Capistrano, Calif.-based solution, alleges Cisco breached its Indirect Channel Partner Agreement (ICPA) and the terms of its deal registration program by passing a potential 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.

Judge Gregory H. Lewis, who is presiding over the trial being held in the California Superior Court in Santa Ana, Calif., on Tuesday ruled that sections of Cisco's ICPA related to terms of the agreement, termination, and damage limitations are unconscionable in part because Infra-Comm did not have the ability to negotiate the terms of the agreement during the renewal process.

"Unconscionable" is used in contract law to refer to a contract or parts of a contract which are unfair to one party in the contract. For instance, it could refer to one party taking advantage of its bargaining position over another party.

Many solution providers commenting on the ChannelWeb report about the ruling said that Cisco's ICPA tends to benefit the vendor much more than the VAR.

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One former solution provider with the handle, "What's with the nickname?" said the attorneys and the judge in the case really understood the issues.

"Anyone with half a brain who actually reads the Cisco ICPA knows that it is totally UNILATERAL to Cisco's benefit - NOT the VAR," the solution provider said. "There are two parts to any agreement; letter and spirit. There was always poor spirit in the Cisco/VAR relationship."

Another solution provider, who talked to ChannelWeb under condition of anonymity, said that Cisco's tough stance on the agreement was disconcerting.

"You can't trust Cisco," the solution provider said. "The difference between Cisco and other vendors is, others take agreements according to the spirit. Cisco says, no changes. What Infra-Comm is going through is happening around here all the time."

The fact that Judge Lewis ruled against Cisco in part because of the inability of solution providers to renegotiate parts of the ICPA when renewing their contracts also was not lost on VARs.

One solution provider, who responded to the ChannelWeb report under the moniker "britvar," said that the inability to renegotiate can set the wrong tone for the relationship and leave partners frustrated at the take-it-or-leave-it attitude, especially with larger vendors.

"The Judge in this case is absolutely correct to point out that vars that demonstrate success and loyalty over several years, should be treated differently from the new vars, and he nicely underlines the cynicism towards the channel that surely exists at Cisco," britvar wrote.

Solution providers also had suggestions for Cisco and how to improve its channel relationships.

"A public admittance of the 'problem' in the contract, and a committment (sic) to review it in the light of the Judge's comments, would have gone a long way I suspect," britvar wrote. "It is also not surprising to see this happening, as Partner Account Managers in large vendors rarely seem to understand that when a lead, or business is assigned, and then taken away, or reassigned, it can do a great deal of damage to the relationship."

Other solution providers said the issues with Cisco' ICPA are actually quite widespread through the industry.

One solution provider, who called himself "Daniel Duffy," wrote that while Cisco does a lot of things right, its reseller agreement has always felt very imbalanced and unrealistic.

"Nice to see the judge call a spade. . . a spade," Daniel Duffy wrote. "Now we'll have to see if all of the other 800 lb. gorillas in our industry start rethinking their partner agreements."

One solution provider, "SMSConsult," wrote that this must be a widespread issue. "What about Microsoft, Symantec, HP, IBM etc?," SMSConsult wrote. "Are their reseller agreements any better or worse?"

Another solution provider, "ICP," responded that they probably are not. "I look forward to future rulings that continue holding manufacturers accountable for there (sic) inappropriate and unprofessional conduct when engaging with their partners."

However, "Open Channel," who described himself or herself as a channel director, warned solution providers to be careful what they wish for.

One reason large vendors keep their agreements "one-way" is to make sure they treat all resellers equally, Open Channel wrote.

"By negotiating each agreement individually some resellers will get a better deal," Open Channel wrote. "I guess if you're the reseller with the better deal, you will be happy. I work on the other side of the fence and I prefer to have tools that allow/require me to keep things even. . . . Over the years I've seen good negotiators get the margin -- without significant investment. In the end, a smarter person than me told me that the best reseller agreement is the one that nobody knows where it is or what it says because the relationship is strong and beneficial to both parties."

One solution provider, "Classicshar," agreed with Open Channel that there are potential pitfalls in individually negotiating reseller agreements.

"Personally, I would opt to reduce the ease of application to further restrict and assess applicants; then have a more involved ongoing review of performance, results, etc.," Classicshar wrote. "No vendor should be tied to 'sales or service providers' who do not meet the client needs, regardless of the reasons. And, unfortunately, the end provider will rarely acknowledge he may be wrong for a potential client."

"SecurityPro," a self-described CEO of a security solution provider, disagreed with Open Channel because vendors should be expected to treat their good partners differently from others.

"Virtually every large deal gets special pricing or terms," SecurityPro wrote. "It is not unreasonable to have a contract that has special terms or conditions based on the merits of each party. That is what partners do, not registered agents to sell a commodity."

SecurityPro wrote that one should never sign a contract which allows termination without cause.

"I never considered a contract that had a terminate without cause provision as a "partner contract" - it was a bid agreement. I only have partner contracts for our company," SecurityPro wrote.

Another solution provider, "MSPGURU," wrote that one-sided contracts have become all-too common, and that solution providers have to protect themselves, especially when their smaller vendor gets acquired by a larger company.

"We found that one good way to avoid this is to have a clause that says, 'If you are acquired, our agreement will remain as it was prior to acquisition and that in the case of a demand for inequitable terms, a drop in service or any other reason that does not make sense for us, we can transfer any and all accounts without penalty and that they do not have the right to go direct or introduce another VAR into our accounts,'" MSPGURU wrote. "This has helped protect us in a few situations in the past year