Jury Finds Cisco Broke VAR Agreement, Awards $6 Million

The jury found that Cisco violated its reseller agreement and deal registration agreement with the solution provider, Infra-Comm, by cutting it out of a registered deal in favor of another VAR, which significantly harmed Infra-Comm's business.

The verdict was reached on Monday after less than three hours of deliberations by the 12-person jury. Closing arguments in the trial were presented Friday afternoon.

Infra-Comm, a San Juan Capistrano, Calif.-based solution provider, alleged 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, accused Infra-Comm of harming Cisco's business and misusing its brand name.

Brian Daucher, attorney for Infra-Comm, said the jury awarded $6,381,446 to Infra-Comm. "It's every penny we asked for," he said.

The jury also rejected Cisco's contention that Infra-Comm broke its contract with Cisco in relation to payments related to Cisco Remote Operating Services (CROS), Daucher said.

The jury did find that Infra-Comm violated its reseller agreement with Cisco by using the Cisco trademark in its own Internet domain names, Daucher said. "It's technically a violation," he said. "But the jury awarded no damages. There was no impact on the verdict."

Daucher said the verdict was unanimous. "The jurors fully understood the case," he said. "I was very impressed with the things that they said."

Luke Hosinski, president of Infra-Comm, lauded the verdict. "The jury heard the arguments, understood them, and was unanimous," he said. "I feel 100-percent affirmed in the case."

Hosinski said he has yet to understand why the lawsuits went so far.

"It doesn't make any sense to me," he said. "The deal registration is very clear. . . . You are in business, you do the best you can. We thought we were on the precipice of this deal, working hand-in-hand with all those Cisco people. Then it became my wildest nightmare."

Cisco exhibited a lot of hubris, defined as insolence or arrogance from pride, in the case, Hosinski said.

"They ended up with so much hubris that they ended up taking their reseller agreement out for a joy ride and ended up back in the garage missing four clauses," he said.

Those "four clauses" refer to the ruling by Judge Gregory Lewis last Wednesday that a number of clauses in Cisco's Indirect Channel Partner Agreement (ICPA), also known as its reseller agreement, are "unconscionable."

They include clauses related to the term, termination and damage limitations in the ICPA.

"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.

"I think the door for all partners is open a crack," Hosinski said. "They gotta send a letter to their manufacturers saying, 'I don't want termination without cause.' They need to go on record on that.

Daucher said at the time that while Judge Lewis made it clear that his ruling only impacts the trial between Cisco and Infra-Comm, any reseller can rely on the opinion as a precedent.

Daucher on Monday said he had a hint of what the jury was thinking before the verdict was read.

"The jury said, 'We understand we can't award punitive damages. But can we award more than the amount requested, if we feel something was missing?'" he said. "The judge answered that the could do it, but the jury decided not to. That's OK. It's better for us when this goes to appeal."

That might happen.

Kristin Carvell, a Cisco spokesperson, said in an emailed statement: "Cisco acted in this matter with the best interest of the end-user customer in mind. Ultimately, the end-user customer decided which solution provider to work with when deploying their Cisco solution. While we respect the jury's verdict, we disagree with it and are considering all options including an appeal.

"As always, we remain committed to the success of our channel partners and are proud of our award-winning channel programs."

Assuming Cisco appeals the case, Daucher said the process could take about 15 months in total.