Revlon Business Halted After Software Repossessed By Phone

SAN JOSE, Calif. - A small software firm, embroiled in a contract dispute with Revlon Inc., brought the cosmetics giant to its knees last week with a midnight phone call.

Because Revlon, the nation's largest manufacturer of mass-market cosmetics with annual sales of $3 billion, had stopped payment for an inventory software package to Logisticon Inc., the Silicon Valley company used a phone link and computer access codes to ``repossess'' the software.

The resulting chaos shut down two of Revlon's national distribution centers for three days, according to a lawsuit Revlon filed this week in Santa Clara County Superior Court. Hundreds of workers were sent home.

``We didn't have any remedies left as a small company,'' said Donald Gallagher, president of Logisticon Inc., a Santa Clara firm with annual sales of less than $20 million.

Revlon hired Logisticon last year to develop inventory control software for huge warehouses in Phoenix and Edison, N.J. But, according to Revlon, the software never worked properly. On Oct. 9, Revlon notified Logisticon that it wanted to cancel its $1.2 million contract and would withhold further payments until software bugs were ironed out.

Logisticon then decided to pull the plug. During the early morning hours of Oct. 16, Logisticon disabled all its software in Revlon computers.

``During this period, Revlon could not process inventory or sales orders and was unable to identify and distribute products to the marketplace,'' the suit says. ``Revlon's daily sales from its Edison and Phoenix distribution facilities, which are normally millions of dollars, were brought to a standstill.''

In a letter sent by fax to Revlon a few hours after the shutdown, Gallagher said he was ``forced into using the only leverage available'' because Revlon was refusing to pay for software it had been using for several months.

``When and if an agreement is reached on the outstanding payments, the (software) systems can be restored in a few hours,'' Gallagher said in the letter.

Revlon, best known for such brand names as Flex shampoo, Charlie perfume, Max Factor makeup and Mitchum antiperspirant, is seeking unspecified damages for the three-day shutdown.

``When it became obvious that the unsuccessful relationship between Revlon and Logisticon had to end, Logisticon and Gallagher used their familiarity with Revlon's computer system to commit . . . extortionate acts,'' the suit says, referring to Gallagher's fax letter.

Revlon wasn't able to resume operations until Logisticon - under some pressure, Gallagher said Tuesday - restored its software on Oct. 19.

``This is the first time we've had anything like this occur,'' Gallagher said.

He described the midnight termination as a ``repossession'' of Logisticon software and denied allegations that his company destroyed any Revlon data in the process.

``The substance of this dispute is that a giant corporation, Revlon, wrongfully is utilizing software prepared by a very small company, Logisticon, and refusing to pay amounts which are rightfully owed,'' Logisticon says in a memo filed Monday in Superior Court.

James Conroy, a spokesman at Revlon headquarters in New York, said the shutdown would not cause any shortage of Revlon products on store shelves. The company has two other distribution centers, in Jacksonville, Fla., and Oxford, N.C.

Lawyers for the two companies appeared Monday before Superior Court Judge Ronald Whyte in San Jose only a few hours after the suit was filed.

A hearing has been set for Nov. 15, and the two sides will now have to settle their differences.