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April 2004

HP sues to recover MPE fees

$31 million claim reduced by two-thirds in settled insurance suit

The HP 3000 will make more than $1 million for HP this year, even though the company is walking away from the business. The company agreed to settle for $1.4 million in lost licensing revenues related to 194 systems sold by Hardware House, in an echo from the civil and criminal trial actions started five years ago this spring.

The settlement is about five percent of what HP hoped to collect from a lawsuit that already had a June trial date. In a suit filed in 2002, HP wanted its insurance company to pay on a $31 million insurance claim, a policy that would cover the vendor for 3000 software license fees that it never received in the Hardware House sales.

Last month Los Angeles legal firm Anderson, McPharlin & Conners went to the 3000 mailing lists and newsgroups to beat the community’s bushes to discover prices for used HP 3000s sold between 1994 and 1998. The legal firm represented Factory Mutual, which refused to pay on an HP fidelity insurance claim. The policy covered the actions of HP’s employee Deborah Balon, who was convicted of selling used HP 3000s improperly to Hardware House during the 1990s. HP wanted to collect on the fidelity insurance it held on Balon’s operations.

Fidelity balked at the claim because the company believes HP’s figure of more than $30 million in MPE software value for the systems was inflated. HP hasn’t been able to produce price lists for software on the remarketed servers that Balon sold to Hardware House. The legal firm’s paralegal Laurie Moss said HP wanted to calculate the full software price on every server that Balon handled.

“We know nobody paid full list price for these servers,” Moss said. “If we can get a remarketed systems price list, we can dispute that.”

The attorneys had a June court date in the US District court in San Jose, but the legal firm had to complete its discovery on the software’s value by March 31. Within a week of the deadline, the legal firm told HP’s lawyers that it had a document that showing how HP discounted 3000-MPE prices for systems HP sold directly on the used market. Less than a week later, a settlement conference reduced HP’s damages to $11.4 million. The insurer levied that policy’s $10 million deductible and paid, “happily,” Moss said.

During the legal firm’s discovery search, Moss said many 3000 community members that were contacted wanted to help.

“You wouldn’t believe how many people have said ‘I sure do wish I could help you in this,’ “ Moss said. The law firm’s attorney Lisa Coplin deposed John Adamson, former owner of Hardware House, in the case, as well as Balon. HP settled within a week of those depositions.

“We were afraid that some of the hardware brokers wouldn’t want to come up against HP,” Coplin said. “Norco said, ‘We’ll give you everything we have.’ “

Moss said HP was doing its best to get the software’s value above its $10 million deductible in the fidelity policy, insurance a company carries to protect itself against loss through employee misconduct.


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