Feds Seize $78M of Bogus Chinese Cisco Gear

Ian Lamont writes "The IDG News Service is reporting that US and Canadian authorities have made more than 400 seizures of counterfeit Cisco hardware from China in an ongoing investigation that started in 2005. The most recent seizure was last Friday in Toronto, where the RCMP charged two people and a company with distributing large quantities of counterfeit network components to companies in the US through the Internet. The RCMP seized approximately 1,600 pieces of counterfeit network hardware with an estimated value of $2 million, says the report. According to another source, bogus Cisco gear from China typically includes network modules, WAN interface cards, gigabit interface converters, and less expensive routers."

Not really counterfeit

I rather doubt that much of this equipment is truly "counterfeit", at least in the usual sense of a cloned design such as the iClone. Rather, what happens is that the contract manufacturer will buy extra parts and make more units than Cisco actually ordered, and then those units go out the back door after hours. They might have illegitimate serial numbers or might be missing the authenticity stickers on some internal chips, but they are otherwise identical.

It's a very difficult problem to manage unless you have trusted people overseeing the entire manufacturing operation. The amount of gross margin in Cisco gear makes this activity extremely profitable.

Re:Not really counterfeit

Yeah that confused me too.. it's apparently perfectly good equipment, but they're not licensed to use the Cisco name. And of course they stole the design (I don't mean in an IP sense, I mean that I suspect that there was actual theivery involved in obtaining it).

Re:Not really counterfeit

Or it could be a '3rd shift' operation. Same factory, same 'workers' but what they do after the 1st and 2nd "authentic" shifts are finished is swap out all 'good' electronics for cheap replacements.

Say Cisco specified a 1 ohm SMT resistor that has a .09% failure rate and costs $1/per (yes, it's just an example). When the '3rd shift' comes on board, they swap those out for 1 ohm resistors with a 5% failure rate but that only cost $.50/per. So it may even be the same assembly line but the components are much cheaper and not to Cisco specification, which is why Cisco doesn't stamp them as 'authorized'. And also why they may fail down the line long after the seller has disappeared.

Why make *anything* in China, then?

The attractiveness of low cost manufacturing in China seems to be inevitably offset by some other negative, whether it be the creation of instant competitors once the contract manufacturer figures out how to reach their customers' customers, or ersatz ingredients (melamine in dog food last year for instance). Remind me again, why is free trade with China such a great deal for the developed world?

Re:Why make *anything* in China, then?

Hate to blow a hole in your argument, but it's about labour availability, not about labour price. I am sure there might be 100000 competent and unemployed developers and 500000 unemployed blue collar workers in US, but if Cisco would want to build a factory in [insert random US location here] he won't find the 2000 employees needed to get things started.

The cause of offshoring/outsourcing is not labour cost, but labour mobility: the price of labour in electronics is very low, around 5%, but you cannot do without people. Giving better salaries is not a solution. It was tried during the IT bubble but it did not work: the companies got more expensive workers but not in greater numbers, since all competed over the same number of workers, and due to the limitations on immigration the game was a zero sum game. This problem is much more grave in EU than in US (imagine needing a Green Card in order to leave California and find work in Florida) so factories are moved not only to China or Eastern Europe, but even to US.

Of course in the long run it gets you into trouble, but in order to have a "long run", the companies that moved their operations in other countries attempted to have a "short run" first: they would be already dead without the ability to expand.

Re:Not really counterfeit

> The amount of gross margin in Cisco gear makes this activity extremely profitable.

It isn't just that. In any other tech industry you would see 'legit' clones, i.e. ones that were sold AS clones, with someone else's name on it. But you can't do that with Cisco gear. If you put any non-cisco stuff in one it voids the service contract. No service contract no bug fixes. Unpatched gear is an accident waiting to happen.

Personally I'm happy as hell. We don't have much Cisco gear and I didn't buy it (donated) but it has been enough of a PITA that I absolutely HATE Cisco. When I had to scrounge up some extra ports I certainly hope I managed to get the knockoffs and avoid giving those rat bastards one cent more than absoluteley required. Had to put the unit back under a service contract before I could get a IOS with device drivers. Tell me, who still charges for (basically) device drivers and security fixes?

Adn their hardware is so pathetic. Open one up sometimes and check out just how little is inside one. Ponder just how little they are paying those Chinese contract manufacturers for the hardware they then jackup to such stupid prices. And don't tell me it is the software either, they used to just be running BSD with the serial numbers filed off and with the volume they do they can afford some software devels. As for support it ain't in the price of the product, they sell that as a extra and for all intents and purposes only to those who have also paid em a crapload to get their people certified.

By being able to milk hardware, software and support they probably make Gates & Balmer jealous.

Re:Not really counterfeit

have you checked the cisco price list for a standard power cable? do it sometimes, you'll get a kick :)

(hint: it's around 80$. same cable that comes with every power supply)

Re:Not really counterfeit

i found it for $40, but still pretty expensive... http://www.cdw.com/shop/products/default.aspx?EDC=105365 [cdw.com]

Re:

So how is that not counterfeit? By definition counterfeiting is an imitation that is made with the intent to deceptively represent its content or origins. Isn't that precisely what happened here?

Re:Not really counterfeit

Sorney, MagnetBox? I know a Genuine Peniphonics when I see one.

Re:Not really counterfeit

According to the article, could be the same stuff:

What has happened is that many of the companies that do the outsourcing for Cisco now run an extra shift and sell the now counterfeit hardware out the back door. After all, they have the manufacturing capability, the expertise and the full blessing of Cisco.

It's not the same as 2nds, or cheap knock offs with fake labels. It would suck if you were getting duped, esp. if paying full Cisco prices, but for a very steep discount there are probably customers who would knowingly buy these even though it means forgoing warranty.

So, um...

when are they auctioning this stuff off..? I'd love to get me some pods together on the cheap.

Re:So, um...

No, its a waste, plain and simple. They don't tarnish Cisco's name because they're known to be counterfiet. If someone turned around and sold them, sure, that'd be bad. However I personally see no issue of using perfectly good hardware to train prospective students. The hardware is counterfiet, the IOS software on it would not be. It's a waste because it could be used. Throwing away something that can be used is the very definition of waste.

What's the Difference?

Other than the brand name on the boxes being fraudulent, what is the difference between this HW and the real Cisco products? If they're even close in quality, then catching these fraudsters will move Chinese manufacturers to market them under their own brands. Then they'll just be violating patents, not trademarks (and copyrights in the manuals). But then they'll be pressured to actually create their own better ways of doing it. Which is actual progress, even if not quite as profitable as the ripoff.

If Chinese counterfeits can get marketed under their own brands, we'll actually have some price competition. And maybe when some American companies get killed by their OEM factories like Japanese manufacturers did to cameras and consumer electronics in the 1970s-80s, we'll see some more caution in shipping all their tech expertise overseas to create their competitors. They might be more likely to consider the less immediate costs of outsourcing from a country where the law (usually) protects things like intellectual property, contracts, labor and the environment.

Or maybe every generation is doomed to watch America squander its hard-won tech leads for the sake of a few years of cheap manufacturing that then eats the parent for lunch.

yeah, right.

One of the operation's goals is to protect the public from network infrastructure failures associated with the counterfeits, the DOJ said.

As opposed to network infrastructure failure caused by ships dragging their anchors through the Mediterranean. Or Verizon techs installing crap on their toplevel DNS servers.
No, I think the goal is to protect the corporation. Not that I completely object to these actions, just that it's getting pretty tiresome to see the police always trotting out the public safety angle.

Was it just non-sanctioned boxes or IP theft?

It sounds like most of these Chinese counterfeiting cases have been manufacturers making exact copies of the items they were contracted to make, then selling them without the warranty, name, etc. for similar profit margins.

How much of this is the manufacturer just building more than what they were supposed to, and how much of it is actually theft of intellectual property? I remember reading that the Soviet Union would go the IP theft route...obtain a computer from another country and totally reverse-engineer it so they could use a similar design. My bet is that these manufacturers just want to make more money and not necessarily use the same quality parts. (If you're building 1000 routers, the difference between a $10 transciever and a $100 one is big, for example. How worried should we be that, say, the manufacturer has reverse-engineered IOS and put it into their own gear?

Either way, if my business was based on building clever hardware, I'd be worried about outsourcing the manufacturing to anyone, let alone a different country. However, there is absolutely no way to stop people from demanding cheaper goods. It's at the point where people are haggling over a few cents -- we're just addicted to low prices.

I'm generally not one of these protectionist, "keep America working" types, but I can't see a good way out of this situation. All the scenarios are bad:
- Go to war with China or cut off trade completely in some other fashion --> Huge price increases and emergency ramp-up of domestic production --> possibly a bad recession.
- Continue as-is --> More poisoned or cloned merchandise and IP theft --> eventually a very bad situation for us.
- Try to get China to comply with environmental and IP laws --> ???

Some gear doesnt work

Had actually received some of this gear unknowingly and while some of it does work...there were a few cases where that when a switch that would lose power the GBIC would not come back up in a 'no shut' state. Instead you had to console into the switch and issue a 'shut > no shut' on the interdace to get the port to come back. So while the technically do kind of work, it is not something I would recommend deploying in a mission critical switch/router.

Re:

I have a suspicion that a lot of this third party resale equipment is the stuff that failed QA the first time around, but only barely. There's probably some overproduction in there as well, but it does make buying one of these discount routers a risky pro

Makes one wonder ...

Feds Seize $78M of Bogus Chinese Cisco Gear

... as opposed to all the Legit Chinese Cisco Gear ...

Re:Makes one wonder ...

Actually I wonder if this was genuinely counterfeit, or was it "unlicenced" Ala Disney DVD factories that are only "open" 10 hours per day, but run 24 hours per day...

-nB

Just so you know

No wonder their economy is booming when they can make a killing of counterfeit hardware and bogus harry potter books!

"Hairy Pooter and the Sorcerer's Bone" is not actually a counterfeit Harry Potter book, it is something quite different.

Re:

The Chinese SOP

1. Copy foreign hardware/software
2. ???
3. Profit!

A generation ago: s/Chinese/Japanese/g;

A generation from now: s/Chinese/American/g;

Re:

That's the plan, man. As soon as a country starts getting wealthy and the workers aren't so desperate, take all the money and invest it in the next poverty stricken region. Wait until the first country gets poor and desperate again, then move back in. As l

Re:

It could have something to do with all of the campaign contributions that come from large organizations manufacturing goods and services. Of course it could be that the general populous likes products that are dangerous, poisonous, fake, bogus and fraudul

Re:This would be good for spying

This is currently a valid issue, not a "what if" scenario. Currently, atleast in the gov entities I work in, the gov is no longer purchasing IBM desktop and Laptops, well the Lenovo branded ones anyways. A while back, in some of the meetings I have attended, there was a particular briefing which discussed a particular component in a device, that apparently had no function. This was from a well known brand that manufactures it's products Taiwan.