AGMA: Channel Abuse Expanding Into Digital IP

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As IT solutions become more complex, so do the issues of fraud and criminal behavior surrounding those products and services, according to the Alliance for Gray Market and Counterfeit Abatement (AGMA).

Founded by a consortium of tech vendors to fight gray market activity, AGMA has expanded through the years to battle counterfeit activity and warranty and service claim abuse by partners and customers. Now, the organization is adding a fourth pillar: digital intellectual property (IP), said Scott Olsen, an AGMA spokesperson and also vice president of global price and compensation management at APC by Schneider Electric.

"In digital format, information travels faster, easier. There is sensitive information that has been communicated out, sometimes by accident, sometimes maliciously," Olsen said. "We have to be proactive. There's no one big issue that we're responding to, but there's many small little issues that occur and we need to take this very seriously."

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As the IT channel has matured, gray market activity, counterfeit products, warranty abuse and digital IP misuse tend to overlap and become intertwined, Olsen said. If a vendor cracks down on gray market activity, abuse in one of the other areas tends to increase, he said.

"It's almost like balloon. If you push one side in, it shows elsewhere," Olsen said. "We just had one recent case where a gray market issue turned into a counterfeit issue with the same perpetrator responsible. We turned off his source supply of counterfeit [products] and then there was a bunch of gray market used to replace that commitment."

Last summer, AGMA research found that channel program abuse costs vendors $1.4 billion in profit each year.

Olsen points out that the theft or malicious use of digital IP extends beyond software piracy, but also includes vendors' proprietary information on partners, partner programs and end users and even product designs in digitized formats.

"You don't want those to get out. For the channel, think about a HIPAA analogy. We view trade secrets as critical information. We don't want that information exposed to other partners or competitors or leveraged against [vendors]," Olsen said.

Meanwhile, AGMA and its members have had several successes batting abuse in recent months, Olsen said.

Last December, the owner of Pioneer Breaker & Control Supply, based in Austin, Tex., and the online site Nick's sales, pleaded guilty to one count each of mail fraud and trafficking in counterfeit circuit breakers following an investigation by the U.S. Immigrationand Custom Enforcement's Homeland Security Investigations Directorate.

Schneider Electric had previously sued the owner, Tamas Toldy and Pioneer Breaker, in a civil action in 2007 alleging that his company had imported and sold counterfeit brand goods. The parties reached a settlement agreement in February 2010 to stop the flow of counterfeit goods, according to Schneider Electric.

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