HP Clamps Down On Special-Bid Pricing Abuses

During its third fiscal quarter ended July 31, HP said it deauthorized between 20 partners to 30 partners because of special-pricing abuses and gray market activity. Furthermore, HP said it is stopping millions of dollars worth of fraudulent claims each quarter.

HP has put in place a number of tools to uncover special-pricing abuses and gray market activity, said Phyllis Massey, manager of brand protection at HP, in an interview with CRN.

"HP has made a strong commitment to mitigate the problem, and we are definitely seeing the results of that," she said. "We continue to improve our processes internally and monitor activities to ensure partners are living by their contractual agreements. Partners want us to be diligent. When a partner commits fraud, it creates an unlevel playing field for other partners trying to compete in the marketplace."

As part of its gray market enforcement, HP is doing reseller audits and verifying customers who are slated to receive special pricing under HP's special-bid Big Deal program. "We audit Big Deals and make sure the sales rep drills down and does the work to verify the customer," she said.

Massey stressed that the "root cause" of the gray market activity is not the Big Deal pricing program, but rather resellers who are not abiding by contractual terms and conditions.

"It is very important to us that resellers get that discount because it is needed in the marketplace," she said. "The problem is when you have a reseller that brings a customer that is not legitimate in order to get the discount and then ships the products to a broker."

As a last resort, HP is also taking legal action. This week, the company filed a suit in Tennessee to recover more than $8.6 million in pricing discounts for computer equipment that HP alleges were fraudulently claimed by Capital City Micro of Tennessee. Capital City Micro could not be reached for comment.

The HP complaint stems from alleged pricing abuses that took place in 2001 and 2002. HP said it terminated its relationship with Capital City Micro after the merger with Compaq Computer was completed two years ago.

HP's complaint alleges that Capital City Micro and its president, Martin Meeks, told HP it had opportunities to sell HP and Compaq products to beverage wholesaler P and E Distributing that required significant discounts from HP to win the business.

HP's complaint further alleges that Capital City Micro did not resell the products to P and E Distributing, as represented, but instead sold to companies and/or persons to whom Capital City Micro had no authorization to sell. P and E Distributing and its president, David Welker, are also named as defendants in the complaint for their role in the transactions.

Massey would not comment on whether more lawsuits will be filed. HP has filed four lawsuits this year related to gray market activity, including two in the United States, she said.

Massey said that HP takes legal action only as a last resort. "Our objective is to have enough awareness externally, and one of the ways you get that awareness is to show the [reseller] community you are willing to stand by the right the law gives you to protect your company and prevent illegal activity," she said.