Raiders of the Lost Router

Posted on March 3, 2008
Filed Under China Business, Intellectual Property |

China Tech News reports:

The results have been announced of an ongoing international enforcement initiative between the United States and Canada that targets the illegal distribution of counterfeit network hardware manufactured in China.

This ongoing initiative has resulted in more than 400 seizures of counterfeit Cisco network hardware and labels with an estimated retail value of more than US$76 million.

…The initiative targets the illegal importation and sale of counterfeit network hardware, in particular network routers, switches, network cards and modules manufactured by Cisco. By intercepting the counterfeit hardware at ports of entry and dismantling illegal supply chains in the U.S., the operation has achieved significant successes in protecting the public from the risk of network infrastructure failures associated with these counterfeits.

The effort is quaintly named “Operation Cisco Raider”. The FBI touts it as a success against another form of intellectual property crime. It’s questionable whether or not the public was really saved from any kind of disaster, but PR flacks are no strangers to hyperbole.

The FBI’s press release gave three examples of the counterfeiters, with two of them selling via EBay. This is a big business:

The problem of trafficking in counterfeit computer components is a global problem, as reflected by last week’s announcement by the European Union (EU) and U.S. officials of the first EU-U.S. customs joint operation resulting in the seizure of more than 360,000 counterfeit computer parts and integrated circuits. The joint initiative between the European Commission Tax and Customs Directorate and CBP took place during a three-week period in November and December of 2007. A probe in five countries uncovered a pattern of trade in counterfeit networking equipment and integrated circuits passed off as products from 40 of the world’s largest European, U.S., Japanese, and Korean technology companies. Most arrived via air shipment from China, but some were also shipped from Taiwan and Hong Kong.

U.S. law enforcement authorities continue to work with China’s Ministry of Public Security (MPS) to combat the manufacture and export of counterfeit network hardware from China. This ongoing work is being facilitated by the IP Criminal Enforcement Working Group of the U.S.-China Joint Liaison Group for law enforcement, which is co-chaired by the Criminal Division of the U.S. Department of Justice and the MPS.

Cisco is an OEM (original equipment manufacturer) company that uses EMS (electronic manufacturing services) companies to make components and assemble products. Like most other technology OEMs, a lot of their purchased production is based in China. Cisco has a deep relationship with Taiwan’s EMS leader Foxconn.

Although the both the article and the press release used the word “counterfeit”, it’s not clear if the products were counterfeit. It’s easy enough to fake the physical enclosure for the device. Packaging and labels can be copied or bought. But the actual hardware and software that constitute these devices is a little more complicated. Cisco devices all have Cisco’s firmware to interface with the chips and the operating system to configure the chips’ functionality. Those bits of software are the result of years of development and are specifically designed to interface with relatively specific hardware.

When it comes to actually deploying the device (unless it was the lowest of the low-tech) it would be immediately apparent if the operating system weren’t Cisco’s. Assuming the sellers of the devices actually kept the money from the sales (and their seller rating on EBay), the devices must have been Cisco’s or built for Cisco or built to Cisco specifications.

And this is what’s really interesting about this story: at least some of what was being sold had to be either gray market Cisco equipment or stock from an EMS supplier (or supplier of suppliers).

For example (and not to imply any connection to counterfeiting or to Operation Cisco Raider), the sales directory Alibaba has all sorts of suppliers of Cisco networking gear. Most of them list themselves as manufacturers or trading companies with less than 100 employees selling to markets all across the world (almost all list North America). There are plenty of photos of Cisco gear, labeled and/or boxed, with Cisco product SKUs. Maybe they’re authorized and licensed distributors of Cisco gear internationally, but maybe they’re not.

Whoever the suppliers of the “counterfeit” Cisco gear are, I don’t believe they’re soldering chips to boards in the back room and packaging it as Cisco. They’re sourcing it used or from another supplier and reselling it. The products may or may not have gone through Cisco’s quality assurance checks, but the guts of the devices are probably the same as what’s sold elsewhere.

The “counterfeit” routers are a threat to Cisco’s sales and distribution channels, not to their intellectual property.

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