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Apple Resellers Reject New Contracts

Oct 27, 2002
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Cleveland, Ohio
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Source: ThinkSecret.com

A significant number of Apple Authorized Resellers were deauthorized this week, objecting to the company's new contracts for dealers.

One reseller estimated that about 50 resellers haven't signed the contract, representing over $300 Million in revenue for Apple. These dealers reportedly include Buy.com, Fry's Electronics, MicroCenter, Elite Computer in Cupertino, Macadam in San Francisco, and a number of independent dealers and service centers. Additionally, Dell and Target, which sell Apple's iPod, are also said to have been deauthorized. Many of these dealers submitted contract changes and modifications to Apple, which the company rejected.

The due date for signing the new contract was March 25, with the old agreement in effect until the 31st. While it's possible that some of these resellers we named could have signed at the last minute, one insider said it's very unlikely. The deauthorized resellers can still sell their current inventory of Apple products, but cannot order new units from Apple or from distributors like Ingram Micro.

Think Secret has obtained a copy of the new contract, which some resellers see as an effort to decrease Apple's liabilities, largely in response to the multi-million dollar lawsuit filed in February, where dealers accused Apple of breach of contract, unfair competition, fraud, false advertising, and violation of the Racketeer Influenced and Corrupt Organization (RICO) act. The lawsuit has grown since February, with about ten dealers now named as plaintiffs.

Specifically, a new section of the contract limits Apple's liability to $100,000 or less, depending on the amount of a dealer's purchases from Apple. A new dispute process is also laid out, governed by Apple. After a complaining party provides written notice of dispute, there are sixty days for senior management members to resolve the issue. If it's still unresolved, then both parties must participate in a non-binding mediation process. If the mediation process cannot resolve the matter in sixty days, then litigation may commence.

But the contract states that dealers have no right to a jury trial, which some resellers see as ridiculous: "Each party ... irrevocably waives all right of trial by jury in any action, proceeding or counterclaim."

The contract also applies the new liability and dispute terms to any past agreements that dealers may have made with Apple. The contract specifically says that such agreements fall under the new, superseding provisions. "They're trying to reduce all of their liability for the past years," one dealer commented.

Another section of the new contract deals with "Records, Inspections, and Reporting," and defines a variety of information that resellers must provide to Apple upon request, including sales and inventory reports, and says that Apple may inspect dealer locations and facilities at any time during business hours. But most interestingly, the contract says that this clause will stay active for five years after the contract has expired or been terminated. Up to five years after the termination date, Apple can continue to request records, financial statements, or accounts -- including a dealer's customer lists.

Any lest there be any dispute over Apple's retail stores: "Reseller acknowledges that Apple can sell products directly to any person ..." including a reseller's own customers.

In Apple's SEC filings, the company acknowledges that what happened this week has a material affect on the its financial condition, saying that Apple could be "adversely affected ... if resellers within consumer channels were to cease distribution of the company's products."



This is all pretty much becoming standard in US companies` terms of business - and the denial of recourse to the courts; not surprising given the rampant urge to litigate and the use of juries in civil cases. It would be interesting to see the complainants` terms of business with their customers......


yeah...but that's a lot less money for apple..and a lot less people buying apples...this isn't smart for them...they need to rethink this contract....we want apple to spread and expand...not stay the same...or get smaller....I don't think apple has enough of a sale base yet to work as standardized US company....they never have before...oh well...I have a mac...and I don't need a retailer to get one...but somebody does....and that's about $300,000 less for apple


Well, if some of the retailers are accusing Apple of RICO violations, the gloves are already off.

THis could simply be posturing as the contract comes to an end. They may all kiss and make up at 11:59PM on 3/31.

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