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| HP confirmed law enforcement
investigation of used hardware brokers HP’s Corporate Public Relations office confirmed that Hewlett-Packard is cooperating with law enforcement agencies to investigate illegal activity in the HP used hardware markets in the United States. HP press representative Ann McGrath chose her replies carefully on January 8 in answering questions about an investigation “involving losses in the tens of millions of dollars to HP,” investigations which revolve around the used hardware transactions. “We’ve been working with law enforcement officials on this for nine months to a year,” she said. Rumors about brokers transforming small HP 9000s to larger HP 3000s — such as illegally changing hardware codes to change an cheap HP 9000 Series 817 to a more costly HP 3000 Series 957, for example — could not be confirmed at presstime. Such transactions involving HP 3000 and HP 9000 hardware — as well as illegal MPE/iX software license upgrades — are rumored to be at the heart of the affair, but confirmations were hard to come by in early January. FBI offices which were contacted in California and Dallas, Texas refused to comment on any ongoing investigations — which is the standard reply any FBI public affairs officer gives any request, regardless of the investigation’s status. But McGrath did confirm that HP has cooperated with an investigation that was being presented to a Sacramento grand jury as we went to press. She added that it “wouldn’t be appropriate for me to talk about who exactly the law enforcement people are who may be looking into this.” The hardware broker matter is before a Sacramento grand jury because some allegations of the activities were discovered in one of HP’s sites in Roseville, Calif. HP’s own Factory Remanufactured Division (FRD) operates in Roseville, an operation that accepts traded-in HP 3000 hardware and then brokers it back out into the HP 3000 marketplace. FRD routinely sells 3000 systems to hardware brokers, as well as to HP customers directly. Hardware brokers are legion in the HP 3000 marketplace, in part because the systems are so reliable and backward compatible that even 10-year-old 3000s still retain some salable value. Used HP 9000s, however, have far less value, making them prime candidates for the kind of system-swiping that’s being rumored. Some of the top HP 3000 customers in the country make it a practice to purchase used 3000s from brokers, as the customers’ purchasing agents shop for the lowest possible price. Making the necessary changes to codes in HP hardware to do such an illegal swap would require possessing HP-proprietary software programs, a resource available to few outside of HP itself. If the system- and license-swiping is taking place — and no contacted official at HP would confirm that it was, as of presstime — the scope of such activities would appear to require the HP-proprietary SSCONFIG software, which must be run from a laptop and an HP 3000 system at once to change the system’s capabilities. Since the investigation was ongoing and the grand jury was still considering the evidence, information from HP about its used hardware license policies has been clamped down tighter than a bulldog’s jaw on a rump roast. Queries to the HP 3000 division (CSY) general manager, its MPE licensing manager and public relations manager about the matter were immediately referred to the HP Corporate office, and a scheduled interview with CSY about HP 3000 operating system license policy got cancelled in mid-December. A CSY official was quoted in a published report during November that the division has been routinely approving customer MPE/iX licenses on brokered hardware to help bring customers into compliance — when a customer was sold a 256-user license from a broker, for example, but was actually left holding an 8-user license. The difference in price runs into the tens of thousands of dollars for such a transaction, the equivalent of boosting a new Lexus. The published report angered legitimate companies in the HP 3000 channel, since the published comments made CSY appear to be looking the other way at such illegal sales — in the name of taking care of customers who had bought the HP 3000s from unscrupulous brokers. In truth, CSY and HP were taking just the opposite tack on the illegal software licenses. HP and law enforcement took the matter before a Sacramento grand jury on December 15. HP’s McGrath said selling used HP hardware was still legal. But when asked if HP was trying to shut down the HP “grey market” of used hardware brokers, she replied: “We are working with law enforcement authorities who are taking a look at and investigating some stuff involving used equipment brokers.” Apple, IBM and Sun have worked rigorously to close off their grey markets, which can keep legitimate HP channel partners from making hardware sales. When a broker offers hardware at 65 percent of HP’s quoted price — a routine claim on the 3000 newsgroup — legitimate channel partners who could match such prices only by selling below cost can’t compete. Lost revenue from such sales can help a channel partner dedicated to supplying innovation and solutions for the HP 3000 marketplace. Recognizing the millions in lost revenue, HP is changing its policy about brokered hardware. “We believe that what is going on is serious enough in terms of monetary loss, that HP has lost substantial amounts of money as a result of the activities of some of these brokers,” McGrath said, “and that’s why the company is cooperating with authorities in this. In terms of what those losses are, that will come out more as the investigation proceeds.” McGrath could not say if HP was repurchasing some brokers’ inventory to help them get out of the HP marketplace. “I’m not close enough to know if that’s true or not,” she said. HP also wouldn’t confirm if the standard broker claims of “guaranteed to qualify for HP support” could still be enforced. “It’s too early to reply to that,” McGrath said, saying that HP doesn’t even want to comment on its current business policies regarding customer support for brokered hardware. McGrath said that HP will send an engineer to fix a piece of malfunctioning HP equipment, regardless of its origin. But whether any more brokered equipment could qualify for a regular HP support contract was unclear in January. HP’s FRD Web site included a notice in January that broker claims of supportability were only claims, and that only HP could guarantee a system would qualify for support. “If you buy the equipment from HP, we’re going to back it up and support it. If you buy it from a used equipment broker, it takes it a step out of where we are, and it makes it tougher,” McGrath said. “We’re in a position where we can’t be confirming or denying much of anything yet. We will have more to say about this, but it’s just awkward timing right now.”
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