Avaya Not So Guilty

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Ten years ago Avaya filed a lawsuit against a partner named Telecom Labs in Washington state. Avaya felt that Telecom Labs (later renamed to Continuant) was performing unauthorized maintenance services on Avaya equipment. Telecom Labs countersued that Avaya’s approach to maintenance was monopolistic. In 2014 the verdict was determined. Most of the claims were thrown out, but the court concluded Avaya was in violation of the Sherman Antitrust Act and was ordered to pay $60 million.Avaya logo

Or not.

Last month the U.S. Court of Appeals for the Third Circuit in New Jersey threw out that verdict. Judge Kent A. Jordan determined the lower court made a mistake. “In the middle of trial, the district court erroneously granted judgment as a matter of law against one side, tainting the entire trial and the ultimate verdict” Jordan said. “We will therefore vacate the judgment of the district court and remand with instructions for further proceedings.”  (From NJ Law Journal)

This has to be good news for Avaya which has significant upcoming payments related to its maturing debt. It’s also likely good news for many other OEMs. The issue of authorized maintenance is not unique to Avaya or even telecom. All OEMs face challenges in balancing their own costs and profits, the cost to end customers, and channel roles and opportunities. This has become particularly complex as more and more hardware turns into software. Dealers have always done well with hardware maintenance and parts, but software is inherently the responsibility of its creator. Maintenance revenue, especially on hardware,  can be very lucrative (at least until something goes wrong) and that’s putting pressure on dealers of all kinds (telecom equipment, cars, industrial equipment, etc.).

I’m no legal eagle, but appeals typically first require the judgement be put into an escrow account. That means means $60 million just got released back to Avaya. “Further proceedings” could mean a new trial, but that seems unlikely to me. That $60 million isn’t going to sit around for long.

Dave Michels