No longer a grey area?

Oracle's recent landmark victory against M-Tech means traders caught importing IT kit into Europe effectively no longer have a legal defence. Doug Woodburn assesses the impact for the channel and end users

A recent UK Supreme Court ruling backing Oracle's right to be the first to bring its kit into the EU could have a devastating impact on a global second-user and surplus kit industry that, arguably, provides an invaluable service to the channel and end users.

In June, UK grey market trader M-Tech Data lost its three-year battle with Oracle over its importation and sale of 64 Sun disk drives without the vendor's consent.

Critics argue the landmark ruling could restrict international trade of Oracle kit and push up end-user prices.

But there are also fears it could spark a domino effect among other large vendors. Just two weeks later, Cisco sent a cease-and-desist letter to grey market trader KX Network Solutions, forcing the Hertfordshire-based outfit to enter voluntary liquidation with debts of £1.6m in September.

In a letter to creditors, KX said M-Tech's case confirmed a legal precedent that "both new and used products purchased from low-cost jurisdictions outside the EU and imported for resale within the EU are infringing the manufacturer's trademark".

Unsurprisingly, the ruling has caused consternation among the world's army of second-user and surplus kit dealers, who claim they can provide end users with identical kit at typically 10 to 60 per cent cheaper than authorised channels, and often at shorter notice.

Joseph Marion, president of non-profit body the Association of Computer Dealers International (ASCDI), which represents 400 traders of IT and telecoms kit globally, said the judgement was bound to have an effect on end-user pricing.

"We think the UK Supreme Court got the decision wrong," he told ChannelWeb.

"The effect is that nobody can import any trademarked products without the owner's permission. Oracle has become the only company in the UK that can resell products with an Oracle logo on it. Once you remove that competition, prices go up."

In 2010, M-Tech successfully argued in the Court of Appeals that Oracle's policy of withholding its serial numbers database from partners had made it impossible to tell the provenance of its kit, a defence rejected by the Supreme Court.

Marion said: "The real travesty is [the Supreme Court] did not even give M-Tech a chance to present its defence. [This case] was more about Oracle trying to control the market than protect its trademarks. If the manufacturer is using the letter of the law to control the market for antitrust reasons, it does not justify the [use] of the law."

Neb Altinis, secretary of the United Network Equipment Dealer Association (UNEDA), which represents 285 used networking equipment dealers globally, said he had expected the case to be referred to the European Court of Justice.

"We were waiting for the Supreme Court ruling to come down one way or the other and either validate what we have been doing for the past 50 years, or not. It was not the position we had hoped for, but the court has spoken and we have no choice but to abide by it," he added.

Altinis agreed that the ruling would inevitably have a trickle-down effect on UK consumer pricing, but expressed hope that it would ultimately improve the refurbished sector's image in the EU.

"It will help mature that sector, which has been around longer in the US than Europe, as equipment will be procured internally rather than externally," he said. "The great thing about our members is that, if you want to be in the secondary market, you need to adapt, and I expect that to happen."

Adapt to survive
Not all brokers are opposed to the new legal landscape, however, with Dave Parish, director of Itelligentsia, backing Cisco's apparent clampdown on parallel imports.

"I am quite happy about anything that restricts import into the UK of cheap Chinese stock," he said. "There is no reason why it should not be possible to run a profitable business that relies solely on trade of Cisco hardware that is sourced and sold in the EU."

Although KX's management insists that Cisco will broaden its grey market crackdown, Marion was not convinced.

"Cisco has been sending out that type of letter for years and I am not aware of any case where it has followed through," he said. "There are defences [KX] could have used, so it was strange it closed its doors just 30 days later."

Marion argued it was too early to tell whether other vendors would follow Oracle's lead.

"Most other OEMs realise it is an international market now and that restricting trade does not help anybody," he said. "Why is the residual value of IBM equipment so much greater than Oracle? It is because you can realise the resale value of IBM products anywhere in the world."

Cisco and Oracle were unable to comment.