TORONTO — 3Com Corp.’s fight to stamp out what it alleges is grey market activity by Canadian resellers has opened for a lengthy battle in an Ontario court.
In the first of back-to-back civil trials in Toronto, 3Com lawyer James Orr
said Monday he will try to prove reseller Zorin International and two of its officials gave written and oral misrepresentations to get deep discounts on 3Com networking equipment between December 1999 and April 2000.
The equipment, worth millions of dollars, was to be sold to a U.S. education software company and sent to China and Australia, Orr said. Instead, Orr said he will show it ended up back in the U.S.
3Com is demanding damages including more than $6 million it says it credited Tech Data Canada, which sold the equipment to Zorin under 3Com’s special “”meet the competition”” pricing program.
The defendants, however, have denied the allegations, saying they had no control over who the end users of the products would be. In addition, they are suing Tech Data, alleging it is liable for any damages they suffer. For its part, Tech Data lawyer told the court the distributor is being caught between a dispute between 3Com and the defendants.
Former 3Com Canada president Nick Tidd, who oversaw the deals, explained the deep discounts were only available either for special large volume sales or where there was intense competition. The deals took place in a tense atmosphere surrounding allegations of grey market activity, Tidd testified.
His predecessor, Dan Servos, had been dismissed for “”inappropriate selling actions”” that were going on in Canada that year. As a result, there was great pressure from 3Com headquarters to make sure any special discounts were properly documented, he said.
One of the vital pieces of information a reseller had to provide was the name and addresses of end users who were receiving specially discounted product, he said. After taking over as country manager, Tidd said he didn’t know much about Zorin other than being told that it and others were possible brokers in the grey market.
In early December 1999, 3Com sales staff told him that Zorin had come to them about a deal with a company called LearningStation.com, an educational application service provider, for installing networks in China and Australia. As part of the deal special discount pricing was asked for.
Tidd said he and others were concerned about the deal, because it involved equipment leaving Canada, making it difficult to verify. He told his staff they had to verify from Zorin who the end user was, which in the case of China was supposed to be the Ministry of Education. The special pricing was approved. However as the weeks went by, Tidd said, there were problems getting documents from Zorin verifying the equipment had gone to China. Even still, he testified, 3Com wanted to keep the deal alive.
“”Deals of this size don’t come along very often,”” he explained. “”We did not want to be overly pessimistic.”” Just to be certain, 3Com’s U.S. parent hired an investigator in China to try and verify the whereabouts of equipment. When asked by his lawyer why an investigator had been hired when part of the shipment had already been approved by 3Com, Tidd replied, “”Call it healthy paranoia.””
By Feb. 2, 2000, things were of such a concern that Tidd held a meeting with one of the Zorin officials, which he described as a “”very frank discussion on the validity of the business.”” But Tidd said the official told him, “”everything was in order.””
In his opening remark, Orr said an official from LearningStation.com will testify “”they had no such business with the Ministry of Education in China.””
The trial is scheduled to last two weeks. The second trial, set for three weeks, starting Feb. 23, alleges several Ontario companies lied to 3Com to get deep discounts.
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