LAN Systems sues Alcatel over aged stock stoush

Distributor LAN Systems has outlined plans to take former official vendor partner Alcatel to court, alleging that Alcatel has been guilty of 'unfair business acts or practices' stemming from an initial scrap over US$1.19 million worth of aged stock.

A legal document, issued by lawyers at Wilson, Elser, Moskowitz, Edelman & Dicker in the US state of California on 31 March 2004, has revealed that Sydney-based LAN Systems is filing charges against Alcatel in the US District Court in that state.

In the document, attorneys for LAN Systems Martin K Deniston and Kym G Bullock alleged that Alcatel had broken the terms of a written contract it signed on 11 December 2002.

Further, LAN Systems alleged that Alcatel had violated California business and professions codes, and implied covenants of good faith and fair dealing relating to the duo's channel partnership in Australia.

Alcatel had been guilty of 'unfair business practices', they alleged.

The distributor was suing for damages exceeding the aged stock value of US$1,187,437, compensation for any profits Alcatel may have made from the alleged business breaches, and legal costs, the attorneys said in the document.

'Alcatel began interfering with LAN Systems' ability to transact business, which has impeded LAN Systems' ability to utilise the credit from the [aforementioned] aged stock,' the attorneys said.

The document said that LAN Systems started working with Alcatel mid-1998. At an unspecified time after that, a dispute arose over stock rotation rights relating to their contract.

The dispute surrounded stock distributed to various customers, including Queensland Health. In 2002, the pair agreed to resolve those differences in a settlement agreement, it said.

In the settlement, LAN Systems had agreed to return the aged stock to Alcatel in return for a credit for its value. LAN Systems was also required to buy US$4,802,337 of new stock from Alcatel within two years in order to get the credit, the document said.

LAN Systems claimed in the document to have returned the stock to Alcatel in January 2003. But thereafter, the attorneys alleged, Alcatel 'took actions' that prevented the distributor from placing orders for new stock, as had been agreed in the settlement.

'Alcatel purposefully undermined LAN Systems' market for the products by competing directly with LAN Systems and undercutting LAN Systems' accounts,' the attorneys alleged in the document.

The attorneys said that the University of Technology and Sydney integrator Integ Communications had both placed orders for Alcatel data products in June 2003.

However, shortly afterwards the University of Technology cancelled its order 'because Alcatel advised ... that they could not place any more orders with LAN Systems', they alleged.

'Alcatel also appointed three of LAN Systems' major customers, Lanlink, VoIP and Integ, as direct partners of Alcatel for purchases of data products.
 
Alcatel provided various incentives to LAN Systems' customers, such as discounts and rebates, that have enticed LAN Systems' customers to deal directly with Alcatel over LAN Systems,' they alleged.

The distributor's attorneys further alleged that Alcatel then began rejecting outstanding staff co-op purchase claims 'which reduced LAN Systems' ability to market the product' and ceased partnering LAN Systems in marketing activities.

'In addition to the aforementioned, Alcatel has released various public media statements indicating that LAN Systems was no longer an official Alcatel distributor and has made disparaging references to LAN Systems,' the attorneys said.

Alcatel was contacted for comment. However, a spokesperson for Alcatel Australia said that the telecommunications vendor was not prepared to speak out on any potential suit at this stage.

'Being a legal case, Alcatel is not in a position to say anything,' she said.

Wendy O'Keefe, GM at LAN Systems, said she could not comment on the matter at present either. LAN Systems' parent company Westcon Group was in pre-float and allowing very little in the way of public communication for the meantime, O'Keefe added.

Kerry Scotland, marketing director for system integrator and Alcatel reseller Integ Communications, said Integ had only ever done a 'minuscule' amount of business with LAN Systems. Integ had never gone through a distributor for the bulk of its business, she said.

'And that's in our agreement with Alcatel,' she said.

However, Integ did occasionally buy via LAN Systems for the odd small data equipment deal that needed to be turned around quickly, Scotland said.

'But I would also like to add that we think LAN Systems is a great company,' she said.

Integ also owns Lanlink. Mike Harte, head of Alcatel reseller VoIP, could not be reached for comment by press time.

Nick Verykios was MD of LAN Systems at the time it ceased to be an official distributor for Alcatel. Verykios has since left LAN Systems, but said his departure had nothing to do with the Alcatel stoush.

'When I left, all I knew was that there was something going on,' Verykios added.

LAN Systems' parent Westcon Group had not replied to further queries at press time.

The latest events follow initial revelations by CRN in August 2003 that another Alcatel distributor, VoIP subsidiary VExpress, was expecting to win voice and data resellers from competing vendors such as Avaya and Samsung as well as rival Alcatel distributor Lan Systems.

Rumours were rife in the channel late last year that Alcatel and LAN Systems had severed their formal partnership.

Further suggestions that the relationship between Alcatel and LAN Systems was stormy appeared in February, when the latter announced it had signed with Avaya.