Fakes: Can You Tell The Difference?

Harm Done
The fallout for companies like American Data and Aqua Systems that, knowingly or not, get tangled up in the black market can be significant. Vendor relationships can be damaged or lost, customer trust jeopardized, and huge revenues sacrificed, especially when lawsuits are involved. American Data expects to shell out at least $800,000 in legal fees. And that doesn't factor in the loss of future revenue resulting from severed ties with Cisco. The vendor cut off American Data's partner agreement because the solution provider purchased goods from outside authorized channels.

But playing by all of the rules doesn't necessarily protect VARs from the dangers of the black market. Counterfeit goods in the channel have an indirect impact by draining margin, snagging business opportunities and confusing the market. "If you're quoting an installation for a small organization, and someone undercuts your price with something unrealistic, it becomes unfeasible to have a legitimate channel," said Michael Beare, channel director of Microsoft's Genuine Software Initiative. "You can literally put a lawful channel out of business."

Shawn Larsen, president of Morris, Minn.-based Morris Electronics, lost a large order for software on price. "When I said there was no way anyone could sell Microsoft Office for $50, this particular entity said, 'It's about price, and if someone gets in trouble, it will be the one who sold it to us,'" he said. "I told him that's assuming [the supplier] is still in business." The customer in question was a government entity, no less. Another of Larsen's customers bought a large number of Adobe licenses off eBay, becoming suspicious only when the owner's manual arrived as a photocopy. In that case, the customer turned the supplier in to authorities, and the Web site got shut down and pulled from eBay.

James Yearnd doesn't resell hardware or software as part of his IT consultancy firm, but he comes across counterfeits in customer IT environments regularly. "I have had equipment returned to Cisco for trades and for repair on SMARTnet contracts turn out to be counterfeits," he said. "I have also purchased used Cisco equipment and had to return it for the same reason, [and] received bad Compaq memory with stickers that look exactly correct. Some look and work so much like the real thing that we cannot determine if it is legit or not. We need some fail-safe method to protect ourselves."

Next: Fighting Back