Tech Industry

HP files lawsuit over discounts

Computer maker sees to recover $8.6 million in pricing discounts granted to a hardware reseller in Tennessee.

Hewlett-Packard has filed suit against a former reselling partner for allegedly lying to the computer maker in order to garner discounts on products.

The lawsuit, filed in federal court in Tennessee, seeks to recover more than $8.6 million in pricing discounts that HP claims it and Compaq Computer granted over several years to reseller Capital City Micro of Murfreesboro, Tenn. The suit, announced Thursday, also seeks damages from the reseller for a range of charges, including civil conspiracy, common-law fraud and breach of contract.

In its claim, HP contends that Capital City Micro purchased large amounts of computer equipment at discounted prices under the premise that the products were being sold to a major customer, P&E Distributing, a regional beverage supplier based in Hopkinsville, Ken. It is a common industry practice for vendors to offer volume discounts to reselling partners in order to help them close sizable deals.

But HP asserts that rather than selling the discounted computer equipment to P&E Distributing, the reseller marketed the products to other customers without being given permission to do so.

In addition, HP alleges that when it merged with Compaq in 2002, it discovered that Capital City Micro had done the same thing with that company--naming P&E Distributing as a customer in order to receive volume discounts.

P&E Distributing and its president, David Welker, are also named as defendants in the complaint.

The phone number listed for Capital City Micro in Murfreesboro has been disconnected. P&E Distributing did not immediately return calls seeking comment on the lawsuit.

Palo Alto, Calif.-based HP cited the lawsuit as one of a number of efforts it is pursuing in order to discourage the so-called gray market, or the sale of products through unauthorized channels or in countries other than where they were intended for sale.

According to a KPMG study released last year, the gray market costs computer equipment makers some $5 billion a year.