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De Beers Wins a Legal Victory
March 1, 2007

De Beers today won the much-talked-about court case, "Jayam v. Diamond Trading Company," a case which, as Chaim Even-Zohar noted, had the potential of declaring the whole Supplier of Choice system legally invalid.  (Where is Chaim's memo this week, by the way?*)

I have just read the judge's ruling, and I have a few thoughts. First of all, as Chaim writes on another occassion, some three and a half years after SoC launched, "not a single client understands" the SoC computer selection system. I certainly don't either, and having read 30 or so pages summarizing it, I am more confused than ever. Which is not good for a system that was in theory designed to be "transparent."  And the "capping" mechanism which is at the heart of this lawsuit certainly doesn't make things easier to understand.

How confusing is SoC? The judge notes that there was a "minor mystery" involving a discrepancy between one of Jayam's submitted allocations to De Beers - one was $9.95 million, the other was $10.9 million.  However, because of the scoring system, the judge notes that Jayam would have received less with the $10.9 million application than with the $9.95 million one. Okay ....

Wading through this all does make one feel sorry for the DTC in a way -- here they are, trying to divvy up a small pie to a large list of applicants, and devise a logical, legally compliant system that takes into account everything it can. I don't know if the mind-numbingly complex process they came up with was the best they could do, but so be it. The new selection process, with its emphasis on the more subjective criteria of "excellence," may muddy the waters even further. (I should add that the real problem with SoC1, not mentioned in this suit, was its over-emphasis on marketing and "efficient" selling. The DTC seems to have somewhat reversed itself on that.)

The suit was based on the argument that "capping" the allocations based on prior sights fell outside the announced SoC criteria. The judge, however, felt the capping mechanism was "not unreasonable," and argues there is no evidence Jayam would have done better without it. "The obvious starting point for the system was the status quo," he writes. He said new language would have been needed to state the DTC was "completely uninfluenced by [sightholders'] previous purchasing history."

He closes by writing of Jayam's chief executive, Mahendra Mehta: "In his oral evidence, Mr.  Mehta made it clear that he mistrusts  DTC and regards their professions of good faith as laughable. He gave his evidence clearly, courteously and with good humour; but I was unable to avoid the impression that he has become obsessed with his quarrel with the DTC, and allowed it to warp his better judgement."

Not what someone wants to hear from a judge. Jayam says it will appeal.

*UPDATE - Here is Chaim's memo, with his thoughts on the ruling.

Posted by Rob Bates on March 1, 2007 | Comments (0)