Computer Trade Group Alleges Unfair Trading Practices at Sun

Published: April 26, 2007

by Timothy Prickett Morgan

This week, server maker Sun Microsystems was slapped with a complaint from a trade group representing worldwide dealers in used Sun equipment, the Association of Service and Computer Dealers International. The ASCDI filed its complaint with the United Kingdom's Office of Fair Trading against Sun Microsystems UK Limited, the company's British subsidiary, and in that filing it alleges that Sun is engaging in unfair trading practices that stifle the trading of secondhand Sun gear not only in the United Kingdom or across Europe, but around the world.

The ASDCI is the result of the merger of two different trade groups that have represented dealers and resellers in used mainframe, midrange, and Unix gear that were founded in 1981. Back in the heydays of the mainframe market in the 1980s and the early 1990s, when mainframes cost millions of dollars and there were myriad computer dealers and leasing companies in North America and Europe to provide the cash to acquire them, industry giants like Comdisco and El Camino Resources had billions of dollars in annual sales providing leasing services for corporate IT operations. These dealers and lessors often rivaled the leasing arms of the IT vendors themselves in scope of services and depth of assets. The ecosystem of resellers and dealers, who often sold both new and used kit, was vibrant and constituted a real market for machinery, by which is meant that the laws of supply and demand were at work on processing capacity. The Computer Dealers and Lessors Association and the forerunners of the ASCDI group were the two big organizations, but only the ASDCI was left standing after Comdisco, El Camino, and a whole generation of lessors either retired from the market or went bust as interest rates dropped, the price of systems and servers plummeted, and investment opportunities were better in other areas--the stock market, for instance, gave better returns in the late 1990s.

Even though the market for secondhand equipment may not be as vibrant today as it was in days gone by, that doesn't mean this is a small potatoes business. In its filing with the Office of Fair Trading, the ASCDI said that the market for used Sun servers and storage products will amount to about $1.4 billion in 2007 in Europe alone. And without Sun's interference, the ASCDI estimates that resellers should be able to capture about $533 million of that, with Sun presumably getting the rest itself. What ASCDI really fears is that other IT vendors may catch on to Sun's tactics, and similarly cut off dealers in used gear.

According to the complaint, the ASCDI's members are concerned by Sun's refusal to supply historical sales and distribution data to dealers, which is called provenance information in legal parlance. "Prior to 2006, like other computer equipment manufacturers, Sun had not interfered with the free trade of Sun products by independent resellers," explained a statement put out by the ASCDI regarding the complaint. "In 2006 however, Sun made the need for provenance information critical to the trade in its products in the UK, and elsewhere in the EU, under the guise of trademark protectionism. It began a policy of refusing to provide such information whenever requested by independent resellers. The ASCDI supports Sun's legitimate trademark rights, but without Sun's cooperation, Sun has made it impossible to know whether a given Sun product is or has been placed on the EEA market with Sun's consent." (EEA is short for the European Economic Area, and it describes the member countries of the European Union plus Iceland, Norway, and Liechtenstein.)

The trade body says that Hewlett-Packard, IBM, and Cisco Systems, just to name three big IT players who are keen on protecting their trademarks, readily offer the provenance information in Europe.

"Sun's policy effectively closes the secondary market trade in Sun products to anyone other than Sun. It is anti-competitive behavior plain and simple," said ASCDI's president, Joe Marion, in a statement accompanying the filing.

ASDCI says that Sun's practices are in violation of Chapter II of the United Kingdom's Competition Act of 1998. The organizations lawyers contend that the case law regarding secondhand markets prohibits Sun from putting up barriers for the resale of used equipment, and that the refusal to disclose provenance information--as well as alleged threats by Sun to sue resellers for causes not outlined in the statement--break this UK law. ASCDI says that Sun's practices have driven some dealers from the market, and have left others holding large inventories of used gear, which only depreciate in value over time. With new products coming out from Sun, and even more looming on the horizon, this latter item is one that weighs heavily on dealers, who want to move gear out of their warehouses and money into their bank accounts before the price floor drops in the wake of new products.

ASCDI is requesting that the Office of Fair Trade rule that Sun's refusal to provide the provenance information is a violation of UK law and that Sun be ordered to provide the information to dealers for free, in a timely fashion, and without disclosing information regarding the dealers which get the information to its direct sales force. The latter item keeps Sun from coming in and trying to steal deals, presumably. And that also seems to be pushing it a bit too far. If Sun has to give out information to dealers, it seems fair, for the sake of competition, that Sun also be allowed to give the same information to its sales force.

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