The Impact of the Avaya Antitrust DecisionThe Impact of the Avaya Antitrust Decision

The decision could open the door to new options for enterprises looking for support to "sweat the assets" on legacy systems.

Eight years ago, Avaya sued Telecom Labs, Inc (TLI), an ex-business partner also operating under the name Continuant. TLI/Continuant countersued, to include antitrust violations under the Sherman Act.

Although there were several causes of action filed, the core issue was that Avaya sought to prevent TLI/Continuant, as an independent service provider, from providing post-warranty maintenance services to Avaya's PBX and predictive dialer customers.

Avaya's suit was partially dropped, and the rest was dismissed under a summary judgment issued January 7 of this year. A jury verdict in the U.S. District Court in New Jersey on March 27, 2014, brought an end to the court case after a trial that lasted over six months.

As with many civil lawsuits, both sides claimed the outcome includes good news. In the case of Avaya, spokeswoman Deb Kline said, "Today the jury rejected the majority of TLI/Continuant's antitrust claims. We are pleased they also rejected the vast majority of what TLI/Continuant sought in damages. Avaya anticipates post-trial motions and an appeal."

However, the TLI/Continuant side also counts it as a win. Because the ruling does include a finding that Avaya violated antitrust law, at a minimum it validates the independent service provider role Continuant is trying to fulfill. With an award of $20 million (which will triple under antitrust law to $60 million) plus attorney fees, it represents a financial victory for TLI/Continuant as well. With a total cost to Avaya that will approach $100 million, an appeal is the normal course of action. Although the appeal process delays any actual payout to Continuant, it shifts the burden of proof to Avaya, now that Continuant has a favorable ruling in hand.

So why does Avaya say it is pleased? Because the original damages claims, if trebled, would have totaled over $450 million plus attorney fees. Thus, a ruling that is less than 15% of the initial claim does seem like good news. This is a much softer hit to Avaya's books, although we are still talking real money.

But the bigger news is not the dollars; it is the affirmation of Continuant's business model. Once upon a time, independent service providers flourished as a post-warranty option for many customers. Some are still around, but those attempting to make a living servicing Avaya's products faced some difficult challenges.

Avaya's contracts with its customers went through several iterations where the goal was to prevent a customer from using an independent service provider for any work on an Avaya system. Not only did Avaya require a service contract for patches and Tier 3/4 support (which many manufacturers now require), they attempted to deny access to those contracted services and most software maintenance commands if the customer used an independent service provider. More recently, Avaya stopped denying access to the maintenance commands, which was a critical linchpin to some of the arguments put forth during the trial.

What this means to the average customer is mixed. Many organizations will continue to seek only "authorized" business partners for ongoing support. Although Avaya is a leader in the industry, the impact on other manufacturers may be limited (unless they attempt to enact the same policies that prompted the Continuant lawsuit). However, for those customers that have a stable system and need to "sweat the assets," independent service providers can offer substantial savings. This additional competition will hopefully permeate other sections of the post-warranty maintenance market, although it may take some time to detect broad impacts.

What it means to Avaya is more significant, since it has the largest installed base of legacy PBX systems that fit the "stable system" description above. An influx of third-party firms and growth by existing independent service providers will come mostly at Avaya's expense. The judgment also may drive Avaya to revise other service policies and may embolden other Avaya business partners to consider alternative service models. Finally, the award must be funded (likely to an escrow account) while the appeal process is worked, which is one more black cloud for Avaya to overcome.

J.R. Simmons is President and Principal Consultant at COMgroup, Inc., an independent consulting firm, and currently the Executive Vice President for the Society of Communications Technology Consultants (SCTC) International. Mr. Simmons served as an expert witness in the antitrust lawsuit and testified on behalf of TLI/Continuant.