Levelling the playing field

Cisco recently went public on a settlement it reached with a UK broker caught dabbling in the parallel import market, a move welcomed by authorised partners, finds Doug Woodburn

For authorised resellers sourcing from official channels, competing with grey market kit must feel like boxing with one hand tied behind their back.

You've invested in training, earned your accreditations and qualified for all the rebate and deal-registration schemes going. And yet, when it comes to the crunch, the customer tells you they've found a cheaper quote elsewhere at below your cost price, ignoring the possibility the kit may not be properly supported, or worse - be counterfeit.

"Parallel importing" refers to branded goods that are imported into a market - in the UK's case the European Economic Area (EEA) - and sold there by a third party without the owner's consent. The practice allows brokers to exploit big price differentials found in different markets.

Critics claim it also dilutes IP rights and can cause customer confusion and quality control and safety problems. It's this skewed playing field that the big vendors are so keen to address, with Cisco the latest to go public on a settlement it has reached with a UK broker it caught dabbling in parallel imported kit.

This month, Cisco shared with CRN that it had settled a trademark infringement dispute with K2 IT Ltd after it was caught trading in kit that had originated from outside the EEA. The Stockport-based firm acknowledged that its unauthorised trading activities led to a number of counterfeit items being inadvertently transacted by the company.

In May, police smashed a $10m (￡6.6m) London Cisco counterfeit ring and Neil Sheridan, Cisco's director of brand protection, emerging markets, said the settlement with K2 should also be viewed as a "big event" in Cisco's brand-protection strategy.

"The London raids were a direct counterfeit issue," he said. "The issue we are addressing here is primarily parallel import [from outside the EEA], and as a consequence, there was also some counterfeit product we identified at K2." He added: "I think you will see some further actions from the information we now have [on K2's suppliers], which we are considering how we are going to use."

The availability of cheap kit imported from outside the EEA has long been a source of frustration for authorised Cisco partners, many of whom welcomed news of the latest settlement.

Paul Sweeney, chief executive of Cisco Gold partner ANS, said authorised dealers often find themselves gazundered despite all the pricing benefits they enjoy from Cisco.

"At an enterprise and public sector level, customers are aware of the risks around grey imports and are very wary," he said. "But we do see it as you go further down into the SMB, where they just want to buy as cheap as possible. If you tell them it might be counterfeit or there might be a problem with the warranty, they are prepared to take the risk. You can spot it a mile off because we'll quote the customer with all our programmes and incentives and they'll be getting it below our cost."

Justin Harling, managing director of Cisco Gold partner CAE, also welcomed the development.

"Counterfeit - even if inadvertent - is still counterfeit and it does cause issues down the line," he said. "We've noticed from Cisco that they're actively involved in closing these markets down and will also engage with us as partners to educate people as to why they should buy through the official route. If there's anyone nowadays who thinks there is an alternative, they are sadly mistaken and deserve the consequences."

Chris Roche, managing director of Cisco partner Celerity, said: "The partners who invest in the skills, training and accreditations should be protected, so we welcome this."

K2 and its directors have given undertakings that they will not infringe Cisco's trademarks in the future. The firm has also incorporated a new business that will transact future sales under an indirect channel partner agreement with Cisco and Sheridan said he was grateful for K2's "constructive approach".

Sheridan said tools Cisco has recently introduced have improved its ability to detect trademark infringement. Cisco has reached settlements with multiple other firms recently but details were not made public, he said.

HP is another big vendor that has ramped up enforcement activity, last year telling us the amount of UK kit it had stopped from going grey had risen sevenfold over two years.

Cisco said it initially identified a relatively small number of products K2 sold in the EEA in violation of Cisco's trademark rights. It used these infringements as the basis for securing wider disclosure of several years' worth of K2's infringing trade in Cisco products.

Sheridan stressed that Cisco has no issue with legitimate trading between countries within the EEA, which comprises the 28 EU member states, Iceland, Liechtenstein and Norway. "Where people are trading in parallel imports and counterfeit, we do look at that," he explained.

"It's on K2's head to know whether or not the kit [they sell] is EEA-compliant. The law is pretty clear that the onus is on the person who is selling it and I don't think they took sufficient precautions to prevent themselves trading in infringing products."

He added: "With all the complaints that partners have around the broker market and what impact it has on their business, this action is directly to support our partners to have that level playing field."

Parallel lines

The term "parallel imports" refers to branded goods that are imported into a market and sold there by a third party without the consent of the owner. The practice is often seen as "an equivalent risk to counterfeit products", according to James Whymark, associate at law firm Baker & McKenzie. "Parallel imports often result in lower sales of authorised products, the dilution of IP rights - and in many cases consumer confusion - an inability to control quality and potentially health and safety concerns," Whymark said in a report - Anti-counterfeiting 2014 - A Global Guide - that appeared in World Trademark Review.

While the goods are genuine, unless the trademark owner has consented to them being sold within the market in question, those involved can be found liable for trademark infringement. "If you are bringing in kit from outside the EEA, there's a fair chance that at least some of it will be counterfeit," added Cisco's Sheridan.

"And that's our primary focus: to clamp down on parallel imports and then, as a result, a subset of that is going to be counterfeit."

Timeline

Getting tough on channel rule breakers

June 2012 - Oracle wins landmark legal victory in Supreme Court against UK distributor M-Tech, which had imported Sun disk drives into the EEA

October 2012 - Trader KX Network Solutions says M-Tech case set a precedent as it goes under following cease-and-desist letter from Cisco ordering it to stop importing kit into the EMEA region

October 2013 - Cisco strips Phoenix IT Group of Gold partner status over an apparent breach of Ts and Cs

August 2014 - Cisco's UK boss Phil Smith tells CRN that cracking down on grey and counterfeit kit in the channel is "high on his radar"

September 2014 - HP's UK enterprise channel boss, John Ansell, announces the number of legal proceedings it has taken against grey market offenders has risen threefold over two years

June 2015 - Police smash $10m Cisco counterfeit ring, arresting three men in London

November 2015 - Cisco settles a trademark infringement dispute with Stockport-based broker K2 IT Ltd