Legal threats used to assert control over customers

Litigation, or the threat of it, appears as an increasingly used ploy in vendorland as suppliers strive for the upper hand in dealings with customers. And signs emerge that this ugly trend - the flipside of customers suing vendors - has reached Australian shores.

Freehills partner Lesley Sutton readily admits vendors are being more aggressive, asserting themselves and their legal rights.

While unwilling to label this shift a trend, simply because he was unaware of formal litigation proceedings locally, Sutton said vendors' attitudes have certainly changed in recent times and they are not as reluctant to sue if necessary.

"I haven't come across any law suits, but I have seen vendors being more aggressive and asserting their legal rights," he said.

"It is still more common for customers to sue vendors and in these cases it usually involves a project gone wrong or similar to what occurred with Sydney Water." (Sydney Water started legal proceedings against PricewaterhouseCoopers after a billing system blew out by more than $40 million.)

This shift has accompanied a boost in IT oriented legal work as result of a move to open source software and the renewal of outsourcing contracts.

"E-commerce work is also coming back, there's not as much as there was during the dotcom boom, but there certainly is more than there was 18 months ago," Sutton added.

Once a rarity to sue customers, a lawsuit filed in the US earlier this year by Nortel Networks proves this no longer holds true.

Nortel filed a suit against one of its customers Arbinet-thexchange alleging copyright infringement and misappropriation of trade secrets through the unauthorized use of Nortel's proprietary software.

The vendor also alleged in the lawsuit that Arbinet exceeded its permitted usage level under its "right to use" licence and hasn't met contractual obligations regarding the purchase of "certain switching systems", Nortel said in a statement.

The principal reason why vendors refrain from legal action, according to Minter Ellison Lawyers partner Ron Pila, is fear of getting a bad reputation among customers.

"It's not something you would want a reputation for doing," he added.

Mallesons Stephen Jacques partner Anthony Borgese said vendors are very protective of their customers and of their reputations which acts as a deterrent.

He said a more immediate problem for end users is their lack of contract management skills.

"More attention needs to be paid to contracts - it is one skill the industry lacks; it is a profession that needs more training," he said.

"These contracts are usually long term so organizations really do need good people with skills in managing contracts."

According to Gadens Lawyers special counsel Andrew Perry the Nortel lawsuit is certainly unique.

"I've never come across a suit for copyright infringement, it's usually when companies are trying to knock off software; most litigation cases in IT deal with non-payment," Perry said.

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More about ArbinetFreehillsMallesons Stephen JacquesMinter EllisonMinter EllisonNortel NetworksPricewaterhouseCoopersPricewaterhouseCoopersSydney Water

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