HP files suit against 3 hardware resellers

Suits allege companies, HP staff illegally reconfigured HP 9000s as HP 3000s, adjusted user license counts for MPE/iX software to steal revenues from 3000 division

Hewlett-Packard stated for the record last month that the HP 3000 is more valuable than the HP 9000 — using the fact as bedrock in civil suits whose allegations include charges that two of the largest used-HP 3000 resellers illegally converted 9000s to 3000s for illicit profits with the help of two HP employees.

HP filed two lawsuits against three companies — including a pair of its biggest used-hardware brokers — and two former HP employees in March, alleging that the companies and HP managers engaged in activities including civil racketeering, copyright infringement, illegal conversion of systems and unfair competition in selling used HP 3000s.

The lawsuits ask the US District Court to freeze cash, profits gained, and bribes paid during any illegal activities. The suits demand jury trials against Hardwarehouse of Dallas, Texas; Abtech Systems of Carlsbad, Calif.; and Diablo Equipment Technology of Discovery Bay, Calif.

HP is seeking millions of dollars in civil remedies in a matter that’s still before a California grand jury. No criminal charges have been filed or indictments handed down yet against any defendants named in the HP suits. The activity has taken place since 1996, HP alleges — a charge that questions the legality of system licenses transferred to untold numbers of 3000 customers who bought systems through Hardwarehouse and Abtech.

HP requested in its suit that Abtech recall systems it sold to customers and others, those which HP alleges were illegally converted and configured using proprietary HP software. The separate suit against Hardwarehouse demanded no such recall. Abtech, one of the largest sources of used HP 9000 and 3000 systems, sells in excess of $40 million a year in competition with Hewlett Packard. The company remained open for business as of presstime. The company also operates a third-party service business, which competes with HP and requires HP 3000 CPU boards to provide timely support services.

Hardwarehouse, a company large enough to pay for a Platinum Sponsorship of the Interex HP World Conference last year, is accused in the HP suit of bribing two HP employees, now fired. Hardwarehouse routinely mailed scheduling diaries to customers and prospects last year which included extensive HP contact information for service and support, ordering and literature delivery. While Hardwarehouse was mailing the scheduler full of HP contact information, the HP suit alleges the company was paying more than $100,000 in bribes to the pair of HP employees to ensure it could buy used HP 3000s from HP at an artificially low price. The scheduler states, “At Hardwarehouse we pride ourselves in providing effective solutions at the best price available anywhere.”

HP 3000 general manager Harry Sterling said the alleged actions of the brokers have cost HP millions of dollars. He said HP was pressing the suits to “protect our customers and the many legitimate used-equipment resellers.”

In naming the three companies it is trying to make a case against with its civil suit, HP has exonerated dozens of other used-equipment resellers who have fallen under suspicion while HP would not name which companies it was acting against.

The HP suits said the thefts were made possible by a doctored version of HP software authorized for use only by HP and its licensed resellers. “We are determined to proceed aggressively against anyone who has illegally obtained and used HP proprietary programs,” Sterling said.

In the General Allegations sections of both lawsuits, HP states that its HP 3000 systems have more value than HP 9000s, even though the systems use the same hardware. This difference lies in the MPE/iX operating system. “The HP 3000 servers have substantially more features and functions than the HP 9000 servers, and are accordingly more valuable and sold for a higher price,” the lawsuits state.

Allegations of bribes at HP

The 63 pages of HP’s complaints allege that Hardwarehouse and Abtech have been selling HP 9000 systems as illegally reconfigured HP 3000 servers, depriving HP of revenue for HP 3000 upgrades, MPE/iX operating systems, and databases on used servers the companies sold, as well as illegally increasing the user-license count for systems. HP claims in the suits its damages are in the millions of dollars. On top of any actual damages it may be able to prove, HP’s lawsuits seek $10 million in punitive damages for each of the seven parties named in the suits.

Two of those parties are former HP managers. HP named two of its own employees in the suits, a couple who have been fired from HP’s Equipment Management and Remarketing Division (EMRD) and the Corporate Development Organization (CDO). Deborah Balon is named in the suit as a former EMRD manager who HP claims generated phony license transfer authorizations — the proof of purchase documents HP requires for an official license of an HP 3000.

Balon was responsible for selling used HP 3000s which HP took in trade when customers upgraded systems. HP’s policies require an auction to take place on the equipment. But the HP lawsuit charges Balon with “selling economically desirable and valuable used HP equipment exclusively to Hardwarehouse at artificially low prices.”

Also named in the suit is former HP employee Marc Loriau, a French national who worked in CDO. HP described Loriau in its suit as a man which HP “alleges is the fiance of Defendent Balon.” In one part of the complaint, HP alleges that Loriau was responsible for negotiations with Hardwarehouse “in which he described the frequency and amount of bribes he and Balon would expect to receive in exchange for Balon’s continued cooperation in the fraudulent schemes.”

The bribes that HP alleges Hardwarehouse paid to the pair included trips to Paris, Tahiti, Italy, Hawaii, Aspen, Lake Tahoe, Catalina Island and Napa Valley. The lawsuit also alleges that $1,500 weekly in cash bribes, an oriental rug, a home alarm system, a fur coat, and a diamond tennis bracelet were part of the payments to the couple.

Officials at the companies being sued had little comment for the record. “We [have been] in discussions with HP since March 10 attempting to resolve matters,” said Rob Rhine, Abtech’s VP of Operations. “I can’t discuss it further at this time.” Abtech’s president Bob Russell, and its engineering manager Steve Boas, are named as defendants in one HP suit.

“I would love to tell you about this,” said Richard Adamson, co-owner of Hardwarehouse with his brother John Adamson. “But until we’re done with this, the attorneys won’t let me talk to you about it.” Both the Adamsons are named in one HP suit, along with Loriau, Balon and Derrick Eisenbeis, who HP alleges is the controlling shareholder of Diablo Technology. HP claims in its suit that Eisenbeis assisted Hardwarehouse in changing HP system personalities from 9000 to 3000 as well as increasing user-license counts illegally. HP also claims Eisenbeis sold a modified copy of SS_CONFIG, an HP proprietary software program, to Hardwarehouse in order to further the theft of license revenues.

Waving the SS_CONFIG wand

The lawsuits filed in US District Court in Sacramento, Calif. charge the three companies with using SS_CONFIG to change smaller HP Unix servers to HP 3000s. HP suits further charge the companies with theft of the IMAGE/SQL and Allbase/SQL databases, as well as MPE/iX licenses. HP is accusing the brokers of copyright infringement, fraud and misappropriation of trade secrets.

HP claims in its suits that the SS_CONFIG used by Hardwarehouse, Diablo Technology and Abtech Systems was “from other persons, presently unknown,” and that the companies “knew…such third parties had acquired the trade secrets by improper means.”

HP 3000s are identified by the HPCPUNAME variable on the system. HP says the only way anyone can change HPCPUNAME is through SS_CONFIG, software that only HP and its authorized resellers are allowed to use. Board upgrades are also performed using the software, to modify the MODELSTR variable. SS_CONFIG is also the tool that can modify the HPSUSAN number, a unique ID for every HP 3000. Serial numbers are stamped on the outside of an HP 3000, and SS_CONFIG uses the number in conjunction with MODELSTR to assign an HPSUSAN number to the machine.

If an HP 3000 CPU board fails, for example, HP Customer Engineers can recreate the HPSUSAN number using SS_CONFIG. HP provides the formula that SS_CONFIG uses to its software channel partners, so the partners can formulate HPSUSAN numbers based on HP 3000 serial numbers. Those HPSUSAN numbers are then used to lock copies of software to specific HP 3000 systems.

Sterling said that HP is “determined to proceed aggressively against anyone who has illegally obtained and used HP proprietary programs.”

HP has not published or distributed its hardware licensing policies for HP 3000 systems, and members of the used-hardware broker community say the policies have been shrouded for years.

In its suits, HP will be working to prove that SS_CONFIG is a program that’s been closely guarded and protected in the 12 years it has been vital to HP 3000 licensing. However, third-party firm Immediate Recovery Solutions (IRS), listed on a Web page as located at 41841 Albrae Street in Fremont, Calif., sells software which advertises capabilities similar to SS_CONFIG. IRS sells SSEDIT on an Internet Web site, software which it says “will allow you to change the Software ID, Software Capability and Model Strings.” The page on the Web site (www.irs4hp.com) advertises the software as “a utility for third-party maintenance providers and hardware resellers.”

A second program from IRS, SSRECOVER, is advertised as letting “third party maintenance providers “store and restore critical CPU board personality information on HP 3000 Series 900, HP 3000 Series 800 and HP 9000 Series 700 computer systems.”

Members of the HP used-hardware community who didn’t want to be identified for this article said a reverse-engineered version of SS_CONFIG has been in circulation among the community for years.

“This SS_CONFIG tape is available for sale at a common computer store,” said one dealer. “The SS_CONFIG information is embedded in every single Unix license. It’s the same stuff [as the HP 3000 program]. I’ve been told this, but I’ve never seen it. There is a well-known broker who told me. I talked to the owner of this organization, who told me that if you have a crack programmer, in 15 minutes they can get to that [information]. How proprietary is this information, really?”

Advisory on buying systems

HP will be asking its customers who learn they have undocumented license limits for MPE/iX to pay upgrades to their user level.

“There will be some customers who have in good faith bought a system from these companies,” said HP press spokesman Michael Fournell. “If they want to have an upgrade or license that allows more than their [official] current users [count], they would have to come to HP. HP will say ‘According to our records yours is only an 8-user license,’ for example. They will have to pay a licensing fee to bring it up to where they are.”

At presstime, an HP manager in the 3000 division was preparing a document outlining HP’s policies and procedures surrounding used equipment licensing. The document will be one of the first ever published surrounding the policies, according to managers in the used hardware market. Kathleen Pierson, CSY’s Channel Strategy and Programs Manager, said the document sets out licensing rules for a Software License Transfer Authorization.

A single person in HP handles all such authorizations, Pierson said. “She is in charge of the process, and as needed we can add people to assist her,” she said. The HP packet of information outlines what kind of documentation HP 3000 owners must provide to earn a Software License Transfer Authorization.

“We recognize people will be asking questions, so we’re trying to clarify everything we can think of in advance,” Pierson said. “HP recognizes there is a place and purpose for legitimate brokers. Tarring them all with a big brush is not something we intend to do. We want to make things very clear, and make it easy to understand what the policies are.”