Avaya Not So Guilty

October 10, 2016 by Dave Michels

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.

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.

By Dave Michels

Dave is an independent analyst and founder of TalkingPointz which is focused on enterprise communications. In addition to this (free and paid) content on TalkingPointz, he contributes to industry sites, can be found at major industry events, and provides advisory services to vendors and financial analysts.

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Discussion

J.R. Simmons October 13, 2016

Dave,

Interesting, but a couple of key clarification points:

The appeals court vacated the ruling, but they did not reverse the decision – thus, they did not say Avaya was “not guilty” – just that the trial result was influenced by the mid-trial summary judgement ruling on some of the issues. We don’t know if TLI/Continuant is willing to pursue another trial.

Also, I understand that the original judge on the case (since passed away) only required Avaya to put $7.5 million in escrow. After the jury’s decision, he did not require the full $60 M to be put in escrow. In addition, the replacement judge determined attorneys’ fees would be an additional $60 M. However, the judge had not yet agreed to a request by the plaintiff to escrow the full amount.

Therefore, Avaya may avoid paying up to $120M, but this ruling did not free up a big wad of cash.

J.R. Simmons

Reply