Sales Management

The folks at Non-Linear Systems in Solano Beach, CA, are somewhat less philosophical. They aren't happy about mail order houses like Computer World International in San Diego, who have offered the Kaypro II for $1,595. Unfortunately, says Promotions coordinator Henry Hester, federal provisions against price fixing prevent them from doing much about it. But at least Kaypro doesn't exacerbate the problem by giving dealers incentives to contribute to the grey market. Its first price break is at 1,000 units."
(Computer Merchandising, June 1983)

An out-of-court settlement between Kaypro Corp. and the California attorney general has set a precedent that could have far-reaching implications for computer hardware and software firms to control "gray market" price-cutting activities in California and other states with strong antitrust laws.

In the $19,500 settlement quietly entered in a San Diego court in early March, Kaypro agreed to desist from certain treatment of its authorized dealers that the office of attorney general John Van de Kamp said California antitrust laws. Kaypro had been accused of threatening to remove dealers from its authorized dealer list if they engaged in heavy discounting of products, sold by mail order at a discount, or sold products to authorized dealers who sold products to unauthorized dealers who sold at discount.

Companies trying to limit the gray market of unauthorized dealers who sell at a deep discount commonly take such steps, in part because discounting threatens the profit of authorized dealers are required to follow vendor rules for providing full product support, to the benefit of the buyer.

According to the state of California, attempting to control discounting might be considered price-fixing under certain circumstances. The legal settlement is believed to be first of its kind in the personal computer industry.

Kaypro's corporate attorney, Sandford Ettinger, denies that the firm did anything illegal. "We signed a simple stipulation, which implies no fault," he says. "We agreed on certain standards of conduct."

The standards of conduct to which Kaypro consented, contained in a six-page final judgement filed with the state court in San Diego, include agreeing not to establish or enforce the prices charged by its retail dealers. Kaypro also cannot prohibit mail-order sales and transshipping (selling) to non-Kaypro dealers based on price alone. According to prosecuting state deputy attorney general Wayne Liao, Kaypro can prohibit mail-order sales and product shipment to non-Kay pro dealers if it does so in a "uniform" manner not based on price.

Full-service Kaypro dealers in California and Oregon seem unaware of the settlement despite Kaypro's having sent out a brief letter explaining it. In the letter to Kaypro's 148 California dealers, Ettinger wrote, "any attempt to direct, set, or coercively influence your selection of resale prices is unauthorized by Kaypro and is in fact contrary to Kaypro policies." Nonetheless, two current Kaypro dealers contacted in California were unaware of any problem. One former Kaypro dealer who had abandoned the Kaypro line because of slackening demand agrees that discounters generally damage other dealers "trying to do a good job," and that full-service dealers can no longer afford to offer support.

Kelly Anderson, owner of Kelly Data of Aloha, Oregon, says mail-order houses and discounters "often give users a raw deal" because most users need training. Kaypro policies are meant to encourage and protect the full-service dealer who needs the extra margins to pay technical and training staff. He suspects the case arose among California dealers because of a heavy tradition of discounting in California that originated with the practice of selling computers out of garages at tremendous discounts.
(InfoWorld June 17, 1985)