RCMP charge Markham reseller for selling fake Cisco gear

A Markham, Ont.-based hardware reseller has been charged by the RCMP for allegedly selling large quantities of counterfeit Cisco Systems (NASDAQ: CSCO) networking equipment.

Last February, the RCMP Greater Toronto Area Federal Enforcement Section searched Network IT offices, seizing approximately 1,600 counterfeit parts, worth an estimated $2 million. The company faces two counts of fraud over $5000, one count of passing off, and one count possession of property obtained by crime.

According to Network IT‘s Web site, it has been in operation since 2001 and has been a “leading reseller of refurbished and used Cisco networking hardware.” The company sells a wide variety of used Cisco routers, switches, cables, memory boards and security appliances.

RCMP officials said its initial investigations began in 2006 after Cisco tipped off the enforcement agency to Network IT’s potential distribution of counterfeit materials. John Noh, a spokesperson for Cisco’s brand protection team, said that because counterfeiting affects the entire IT industry, he hopes law enforcement agencies will continue to be proactive in combating counterfeit hardware.

“We’re very pleased with the support we received from the RCMP in this case,” Noh said. “This is a very good example of the success that we can achieve when we cooperate and collaborate with agencies in cracking down on this illegal activity.”

According to Noh, the Network IT case demonstrates the prevalence of counterfeit computer hardware in today’s reseller market. And because the line between used “grey market” Cisco hardware and counterfeit “black market” equipment has become blurred in recent years, he said, prospective customers would be best served to only purchase from authorized Cisco vendors.

“Most hardware companies have a published list of authorized vendors and they encourage customers to only buy these partners,” Ram Manchi, president of the Alliance for Gray Market and Counterfeit Abatement (AGMA), said. “If customers choose to buy outside the channel they run the risk of getting a product that isn’t genuine.”

But despite warnings from both Cisco and the AGMA, many in the used hardware community stress that not all resellers outside of the channel are bad news. Colin Williams, owner of Montara, Calif.-based Coastside Networking, said companies who want to avoid getting duped by counterfeit resellers should be weary of unrealistically large discounts.

“It’s like walking down the street and being offered a Rolex watch for $100. It’s very tempting, but it’s probably fake,” Williams said. “As an end-user, you typically get a 15 to 20 per cent off the list price. If you’re a big time corporate company, you might get a 30 to 35 per cent discount. But if a dealer is offering a small company a huge discount like that, it’s an automatic red flag.”

Another warning sign, according to Williams, are resellers that engage in aggressive and unsolicited e-mails and phone calls.

“They’re contacting you, you’re not contacting them, so that’s a huge red flag,” Williams said. “Basically these fake dealers are trying to take advantage of your desire to get a bargain. And while every business recognizes the need to try and cut costs, you can’t do it by buying counterfeit equipment.”

And what adds to the problem, he said, is the increasing sophistication of the “knock-off” hardware. The only thing separating a real Cisco router and duplicate might be some very minor physical imperfections or a missing stamp on a router card that the counterfeiter may have accidentally overlooked.

“The quality of counterfeiting has certainly gone up in recent years as they’re really getting very good at this,” Williams said. “It’s not just the hardware itself, but even the boxes, the labeling and the holograms on the packaging are being accurately duplicated. So, it’s a constant education process for the dealers and we have to share information amongst ourselves.”

One of the organizations Coastside Networking belongs to is the United Network Dealers Association (UNEDA) – an alliance of over 300 used network equipment resellers. UNEDA said that with its many members work as the “eyes on the street” to help keep law enforcement agencies aware of counterfeit networking gear.

John Stafford, vice-president at UNEDA, said that his organization uses its experience with current and past-generation network equipment to continually educate its members and customers on the telltale signs of illegitimate equipment.

“Our members abide by a strict code of ethics to protect our customers from the menace of counterfeiters,” John Stafford, vice-president at UNEDA, said. “We react quickly to expel any UNEDA member that is discovered selling stolen or counterfeit gear. We also work closely with various law enforcement agencies to identify and prosecute counterfeiters.”

In fact, Stafford said, Network IT was formally removed as a member of the UNEDA on March 12, 2007.

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