Opinion ID: 4076467
Heading Depth: 3
Heading Rank: 3

Heading: The Dispute between Avaya and TLI

Text: The two sides in this case present dramatically different stories of their dispute, which began in 2003.11 Avaya’s story is that it simply enforced long-standing policies against a disloyal former contractor that was breaching contractual duties and dishonestly undermining Avaya’s relationships with its customers. TLI’s version is that Avaya retroactively sprung an anticompetitive policy on its customers that prevented them from using ISPs, in order to 11 Most issues before us are raised by Avaya, against whom the District Court entered judgment as a matter of law and against which a verdict was rendered. Nonetheless, both sides have appealed a variety of issues, and we endeavor to recount the facts neutrally. 15 vindictively force out of business a competitor who could provide better maintenance service at a lower cost. From 1996 to 2003, TLI was an Avaya Business Partner and sold Avaya systems. Around 2000, Avaya launched a program to encourage Business Partners to offer maintenance services. TLI took the opportunity.12 It claims it “invested millions in building its maintenance capabilities,” while continuing to loyally sell Avaya PBX systems – reaching roughly five million dollars in sales in 2002. (Answering Br. at 5.) The relationship between Avaya and TLI soured that same year, over TLI’s efforts to compete for maintenance contracts with other Business Partners and with Avaya directly. Avaya had introduced a revised set of obligations for its Business Partners, the new program being set forth in what Avaya called the “Avaya One” agreement. The intent was to limit intra-brand competition and instead promote inter-brand competition by encouraging Business Partners to expand the total Avaya market rather than compete with each other. As TLI characterizes it, the Avaya One agreement was a malicious surprise sprung on the Business Partners who had invested in their maintenance business at Avaya’s encouragement and were now restricted in their ability to compete for customers to get a return on that investment. 12 Avaya had laid off many of its service technicians and engineers, and it offered to subsidize their salaries if Business Partners would employ them and begin to offer maintenance services. 16 The formal relationship between Avaya and TLI ended in 2003. TLI had refused to sign on to any agreement that would limit its ability to compete for maintenance clients. Instead, it negotiated a separate agreement with an Avaya agent, under which TLI was exempted from most of the rules against competing for existing maintenance business. When higher-ups at Avaya learned of this non-conforming deal, they invoked a termination provision of the contract in July 2003 that allowed them to end the deal on 60-days’ notice.13 The two sides’ accounts again diverge as to what happened next. According to TLI, Avaya jumped the gun on the 60- day notice period and began prematurely terminating TLI’s access to its clients’ systems, while notifying remaining Business Partners that they should poach TLI’s clients. TLI says that Avaya then went on the warpath to sweep away ISPs, and that ODMC and MSP access restrictions were created to prevent ISPs from competing in the maintenance 13 Formally, there were two Avaya One agreements in place, one between Avaya and TLI and one between Avaya and TeamTLI.com. For the TLI agreement, Avaya invoked the termination clause on July 31, 2003, so that it terminated on September 30. The TeamTLI.com agreement was finalized on July 24, Avaya served notice it was cancelling on September 24, and the termination was effective November 24. Because the agreement with TLI was the principal subject of Avaya’s breach of contract claims, and because the District Court analyzed the two contracts in tandem, for simplicity we do not address them separately because there is no substantive difference that we are aware of, and the difference in termination dates is irrelevant. 17 market. It claims that Avaya would keep customers in the dark about restrictions on ISP service until after the customers had already purchased an expensive system and were “locked in,” at which point Avaya would deliberately misconstrue the license contracts to assert that ISP maintenance was prohibited. TLI also accuses Avaya of other supposedly anticompetitive conduct, including shortening the PBX warranty period in an attempt to force customers to sign up for Avaya maintenance contracts and ending a program that allowed customers to gain MSP access without using an Avaya-authorized provider. TLI argues that it was the target of particularly hostile action by Avaya. First and foremost, TLI alleges that Avaya “sent threatening and misleading letters” to TLI’s “current and potential customers, discouraging them from doing business” with TLI based on a claim that “unauthorized access to the PDS/PBX system [was] a violation of federal and state laws,” a claim that TLI considers to be “without legal basis.” (Answering Br. at 9-10 (internal quotation and editorial marks omitted).) Throughout this litigation, TLI has styled those letters as sowing “fear, uncertainty, and doubt” among its customers, and it has dubbed that correspondence the “FUD letters” for short. Additionally, TLI accuses Avaya of “trespassing on [TLI’s] customers’ systems and disabling their access to critical maintenance software” (Answering Br. at 10), as well as punitively instituting this lawsuit against TLI. In Avaya’s much different narrative, TLI engaged in underhanded tactics to peel off Avaya customers in ways that violated both tort law and the contractual obligations of TLI and its customers. According to Avaya, that unlawful conduct began when TLI, then still a Business Partner, improperly developed a disloyal commercial strategy based 18 on poaching Avaya customers. After TLI was terminated as a Business Partner, it continued to provide maintenance by using improperly acquired login credentials – either DADMIN logins gleaned from co-opted Business Partners or logins from customers who had MSP license agreements. To gain those logins, TLI convinced complicit Avaya Business Partners deceptively to submit login credential requests for certain TLI customers. TLI would then disconnect PBX systems from phone lines to prevent Avaya from changing the login passwords or from deactivating MSPs. Avaya also argues that TLI hired two former Avaya technicians to assist in tortious activity, one to “crack” Avaya login passwords and one to circumvent security systems in the software. All told, Avaya suggests that TLI made $20-34 million in profit from PBX maintenance using unlawfully-acquired access. This lawsuit was initiated as part of Avaya’s efforts to halt TLI’s allegedly illicit conduct.