Over 100 attendees gathered for Network World's live chat on counterfeit network gear -- how to detect it and protect yourself -- with guest Mike Sheldon, chief executive officer of Network Hardware Resale. NHR employs more than 200 people in the United States and Europe. Sheldon discussed methods for identifying fake gear, the refurbished hardware industry's efforts to educate users about counterfeits and Cisco's role in eradicating this growing problem.

Moderator-Julie: Welcome to today's chat. The news has been full of reports of counterfeit gear lately - particularly Cisco gear - and the potential harm it could cause. We want to welcome Mike Sheldon as our guest today. As you might imagine, the refurbished hardware industry has developed a lot of expertise at detecting fake gear.

Before we start, we want to note that Network Hardware Resale is not an authorized Cisco reseller nor is it affiliated with Cisco in any way. Mike has been an outspoken personality in the whole area of fighting counterfeits and has plenty of insight to share, but his opinions are his own. Prior to NHR, Mike worked for nine years in investment banking for UBS and Barclays Capital in New York. [Editor's note: Network World contacted Cisco and requested the company's response to many of the statements made in this transcript. Cisco has not responded.]

Mike_Sheldon: Hello everyone. Good to be here. Let's get started!

Moderator-Julie: As Mike types his answers to the first set of questions submitted by attendees, I'll post the answer a question submitted earlier via our "post a question" widget on Network World's Chat page. http://www.networkworld.com/chat/. Pre-submitted question: Are there also counterfeit cables being sold?

Mike_Sheldon: Not to my knowledge - but keep in mind there are a lot of generic cables being manufactured and sold, and they are functionally identical to the Cisco-branded cables, perfectly legitimate for Cisco customers to use, and also very inexpensive. Given that the main difference will be the presence or absence of the Cisco logo on the head of the cable, a counterfeit cable would certainly be possible to make, but I've not heard of them - hard to make a living selling $4 cables.

Tracer: It seems clear that counterfeits are mostly identified by failure of components. How else are counterfeits identified? I am interested to hear how Cisco and the hardware industry in general are addressing the counterfeiting problem. Other industries, like software, are using embedded digital signals/signatures; the pharmaceutical world thinks that it is addressing counterfeiting with mass serialization and RFIDs.

Mike_Sheldon: Cisco has evolved from simple serial number stickers many years ago to hologram stickers on many pieces of equipment today, as well as embedded Common Language Equipment Identification (CLEI) codes, IDPROMs, some of which are proprietary to Cisco, that must match data on the exterior of the unit itself. Some Cisco products reject components that do not have the correct internal codes.

gb: Where are most of the counterfeits coming from?

Mike_Sheldon: Almost all comes from Asia, China being the overwhelming culprit.

Concerned: There has been a lot of articles written about the FBI's Cisco Raider sting. Cisco Gold partners were caught selling counterfeits into government accounts. How can this happen? I thought only gray market companies sold counterfeit.

Mike_Sheldon: Just so everyone is one the same page, "Cisco Raider" is the FBI's name of an ongoing multi-agency counter-counterfeiting initiative. Yes, the main culprit in the FBI's quietly circulated PowerPoint was counterfeit sellers (many from eBay) selling to GSA-approved vendors who would then resell on to the government, and many of these GSA vendors were Cisco authorized partners. The channel community sells boxes, the secondary market sells individually used pieces of hardware. I think if you deal with a trustworthy channel partner, who buys from Cisco directly, you are totally covered - but good secondary market vendors are no more the source of counterfeits than Ingram or Comstor. It's the low-end bottom feeders that are the issue.

ConcernedUser: Why aren't you cooperating with Cisco? Cisco and other manufacturers say the only way to be sure of authenticity is to buy from their authorized channels. How do you respond to that? How can you guarantee the quality of second-hand equipment? I've heard that if I buy used I get no warranty or technical support?

Mike_Sheldon: We would love to cooperate with Cisco, but with few exceptions Cisco has refused our numerous overtures. In NHR's case specifically, Cisco has twice offered to help with one specific instance of suspected counterfeit hardware, but the terms under which it offered its help were unacceptable, and its offer did not include any education or explanation at all - just a simple yes it's authentic, or no it's counterfeit. We would also have been required to supply Cisco with complete information about every purchase from the same vendor over time.

I do want to reiterate an offer that NHR and the United Network Equipment Dealer Association (UNEDA) has made directly to Cisco and in print a number of times: We would welcome the opportunity to cooperate with Cisco and eradicate the counterfeit problem forever. We will sign an NDA, we will travel to you, we will meet at your convenience. Working together we can make the resale of counterfeit goods so difficult, and so unprofitable, that the purveyors of counterfeit hardware will be put out of business.

Also, the counterfeit resellers depend on cheap, public, widely viewed marketing to sell their products (like eBay). Get them off of eBay, Alibaba, and the like, and much of the problem goes away.

Regarding buying authorized, where do the authorized resellers get their equipment from? If it's shipped directly from Cisco that's certainly one way to be sure - but Cisco Raider showed that it's the source, not the reseller, that is the issue. Also, if a piece of solid-state hardware, designed to work for decades is $10,000 from an authorized seller and $2,500 from the secondary - and is guaranteed to be authentic - I think most companies would agree there are real reasons to look outside the channel.

The reasons for looking to the secondary market for equipment also go beyond price, and include end-of-life gear, emergency procurement needs (the secondary market can supply things in days - from Cisco it often takes weeks or months), better standard warranties, and significantly cheaper maintenance costs.

Warranty and support is another area of confusion regarding secondary market hardware. Cisco offers a variety of standard warranties on its hardware, but most are basic repair-and-replace at best, and do not include tech support.

Secondary market vendors have had to exceed this in order to compete, and most offer 90-day to 1-year or longer. (NHR offers 1-year advance replacement on everything we sell), as well as add-on tech support offering 24-hour support and next-day to 4-hour response at a cost that is a fraction of Cisco SmartNet.