No longer a grey area

What does Cisco's apparent grey crackdown mean for traders of second-hand and surplus kit, asks Doug Woodburn

By Doug Woodburn

Traders of second-hand and surplus kit - as well as the wider UK channel - are still chewing over the potentially earth-shaking implications of Oracle's landmark legal win over grey trader M-Tech.

The ruling effectively means that any trader caught selling stock in the European Economic Arena (EEA) that was not first marketed here, just as M-Tech was with Sun disk drives, no longer has a legal defence. A tough break for them given that - unlike say a DVD - it can be impossible to tell from which economic area the kit originates.

And we're now starting to see the fall-out from this legal precedent. Cisco's lawyers fired out a cease-and-desist letter to KX Networks Solutions in mid July, just two weeks after the M-Tech ruling, forcing the trader into voluntary liquidation this month with debts of £1.6m.

Though it's likely Cisco was seeking to make an example of a firm it sees a bad apple, CRN has heard rumours that KX is not the only firm to have received such an order from the vendor. And it is still unclear to what extent IBM, Dell and HP will move to stamp out such practices in their channels.

Although many UK brokers tell us they rarely source kit from outside the EEA (which comprises the EU, plus Norway, Iceland and Liechtenstein), many are concerned the ruling could lead to further bad debts in their community, which tends to be very closely interconnected. Some also expressed fears that it could ultimately push up end-user prices.

However, on the flip side, some welcomed the fact a clampdown on grey activity could help clean up the image of the second-user and surplus kit market within the EEA.

Cease and desist

In the cease-and-desist order, which ChannelWeb has seen, Cisco's lawyers listed the serial numbers of eight Cisco products KX had imported from distributors in either US, Canada or Hong Kong for resale in the EEA.

But the letter made it clear that Cisco believes KX's involvement in the practice is endemic, flagging up the fact that the firm had revealed on its own website that it sources half of its kit from outside the UK and EU.

Cisco's lawyers demanded that KX compensate its client for past infringements over the past six years, a period in which the firm turned over about £80m-90m, mainly in Cisco equipment, its founder Alastair Head told us. Shutting up shop was therefore the only option, Head said.

Head himself was sure the M-Tech ruling will turn out to be the start of a wider crackdown by Cisco and other vendors, given it created such a strong legal precedent. KX had no defence, he admitted.

"Buying equipment in the US and China and importing it into the EU infringes the manufacturer's copyright," he said. "There is no middle ground on it now - speak to any lawyer or QC and they will back that up."

The coming months will show whether Head is correct or, instead, Cisco and its peers turn a blind eye to those only dabbling in parallel importation.