UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 01-10068
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
VERSUS
IBRAHIM ELSAYED HANAFY; MOHAMED M. MOKBEL;
SAMER SAMAD QUASSAS; ADEL HISHAM SAADAT,
Defendants-Appellees.
Appeal from the United States District Court
For the Northern District of Texas
August 15, 2002
Before JOLLY, DeMOSS, and PARKER, Circuit Judges.
DeMOSS, Circuit Judge:
Appellees Ibrahim Hanafy, Mohamed Mokbel, Samer Quassas and
Adel Saadat were found guilty by a jury of mislabeling and
trademark infringement in violation of 18 U.S.C. § 2320 and 21
U.S.C. §§ 331(a), 333(a)(2) and 321(m). The Appellees were also
found guilty of money laundering and conspiracy charges flowing
from the above offenses. The district court overturned the jury
verdict as a matter of law and the United States now appeals.
BACKGROUND
The Appellees in this case all owned businesses which
purchased individual cans of infant formula and then repackaged the
cans into trays for resale to wholesalers. The cans at issue in
this case were all originally either bought, or obtained through
welfare programs, or stolen by various third parties who were not
associated with the Appellees. These cans of formula were then
resold by these various third parties to a number of different
convenience stores throughout Texas. The convenience stores in
turn sold the infant formula to various companies owned by the
Appellees. The Appellees then consolidated the cans of baby
formula, by manufacturer, into cardboard containers or shipping
trays. These trays were designed to extend upward only a few
inches so that the cans would remain visible, and these trays
resembled the trays used by the manufacturers themselves, including
use of the manufacturers’ trademarks on the trays. Though not all
of the cans in any given shipping tray would necessarily share the
same “sell by” date, it is unchallenged that all of the cans were
sold within their “sell by” date. Also, though the cans in a tray
may have come from different batches of the same manufacturer, all
of the cans that were resold were genuine and unadulterated.
The government charged the Appellees with conspiracy under 18
U.S.C. §371, interstate transportation of stolen goods under 18
U.S.C. § 2314, trafficking in goods with counterfeit marks under 18
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U.S.C. § 2320, selling misbranded goods with the intent to defraud
under 21 U.S.C. §§ 331(a) and 333(a)(2), money laundering under 18
U.S.C. § 1956, and engaging in monetary transactions with
criminally derived property under 18 U.S.C. § 1957. At trial, the
government attempted to show that some percentage of the baby
formula was stolen, that the Appellees knew it was stolen, and that
at least $5,000 worth of stolen baby formula had been transported
between states to satisfy 18 U.S.C. § 2314. The government also
contended that the Appellees counterfeited trademarks on the
shipping trays and mislabeled the trays. A jury trial was held,
and the Appellees were found guilty on all charges. Following this
verdict, the Appellees filed a Fed. R. Crim. P. 29(c) motion for
acquittal.
The district court ruled that, despite the jury verdict, the
evidence supporting the stolen goods charge was insufficient to
meet the $5,000 minimum value threshold required under § 2314. The
court also ruled that, as a matter of law, the packaging used by
the Appellees did not constitute a counterfeit mark under § 2320
and that the marks on the shipping trays did not constitute
“labeling” as a matter of law under 21 U.S.C. §§ 331(a) and
333(a)(2). The court then overturned the remainder of the verdict,
which was based on the above predicate offenses, except for the
conspiracy count. The court held that because the alleged
counterfeit mark and misbranding conduct was not unlawful, they
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could not support a conviction for conspiracy. However, even
though there was insufficient evidence to support the interstate
transportation of stolen goods charge, that charge could still form
the basis of a conspiracy count. As the district court did not
know which of these charges was the basis for the jury’s verdict on
the conspiracy count, the court granted the Appellees a new trial.
See Yates v. United States, 354 U.S. 298, 312 (1957) (“[T]he proper
rule to be applied is that which requires a verdict be set aside in
cases where the verdict is supportable on one ground, but not on
another, and it is impossible to tell which ground the jury
selected.”).
The government now appeals the district court’s ruling that
the packaging trays did not constitute a counterfeit mark and its
ruling that the shipping trays did not constitute labeling as a
matter of law. The government further argues that, once the
trademark issues are reversed, the money laundering and conspiracy
charges should be reinstated. The government does not appeal the
district court’s ruling that the evidence was insufficient to
support the stolen goods charge.
DISCUSSION
Did the Appellees illegally use counterfeit trademarks?
This court reviews de novo a district court’s order ruling on
a motion for acquittal. United States v. Restrepo, 994 F.2d 173,
182 (5th Cir. 1993). Issues of statutory interpretation are also
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reviewed de novo. United States v. Rasco, 123 F.3d 593, 597 (5th
Cir. 1997).
In order to prove a violation of 18 U.S.C. § 2320(a), the
government must establish that: (1) the defendant trafficked or
attempted to traffic in goods or services; (2) such trafficking, or
the attempt to traffic, was intentional; (3) the defendant used a
counterfeit mark on or in connection with such goods or services;
and (4) the defendant knew that the mark so used was counterfeit.
United States v. Sultan, 115 F.3d 321, 325 (5th Cir. 1997). The
term “traffic” means to transport, transfer, or otherwise dispose
of, to another, as consideration for anything of value, or make or
obtain control of with intent so to transport, transfer or dispose
of. 18 U.S.C. § 2320(d)(2). “A ‘counterfeit mark’ is defined as
a spurious mark used in connection with trafficking that is
identical or indistinguishable from a registered trademark and the
use of which is likely to confuse, cause mistake, or deceive.”
Sultan, 115 F.3d at 325 (citing 18 U.S.C. § 2320(d)(1)(A)(I), (ii)
and (iii)).
The district court found that the baby formula cans at issue
were not counterfeit because the goods themselves were genuine.
United States v. Hanafy, 124 F.Supp.2d 1016, 1023 (N.D. Tex. 2000).
The court noted that there are two exceptions to the use of a mark
on allegedly counterfeit goods. Id. One is an exception for “gray
goods.” “Gray goods” are goods that are authentic and that have
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been obtained from overseas and imported into the United States.
Id. The second exception is the “authorized use” or “overrun”
exception. Under this exception, a counterfeit mark “does not
include any mark or designation used in connection with goods or
services of which the manufacturer or producer was, at the time of
the manufacture or production in question authorized to use the
mark or designation for the type of goods or services so
manufactured or produced, by the holder of the right to use such
mark or designation.” 18 U.S.C. § 2320(e)(1). Based on these
exceptions, the district court noted:
A common denominator of these two exceptions is
that the goods to which the mark is attached were
manufactured by, or with the permission of, the
owner of the mark--that is, the goods themselves
are genuine. That Congress saw fit to exempt “gray
market” goods and overruns by a licensee (sold
beyond the license period) from criminal liability
lends support to an interpretation that § 2320 was
intended to prevent trafficking in goods that were
similar to but different than the goods normally
associated with the mark.
Hanafy, 124 F.Supp.2d at 1023-24. The district court also noted
that, despite the government’s contention that repackaged genuine
goods caused confusion, the cases relied upon by the government
were all civil cases under the Lanham Act and as such, should not
be used as authoritative in interpreting a criminal statute.1
1
The district court similarly distinguished attempted comparisons to the Lanham Act for
finding that the goods in this case were counterfeit.
6
The government argues that it was error for the district court
to construe § 2320 so narrowly. The government contends that
§ 2320, by its plain meaning should apply to the instant case. It
also argues that an expansive view of what is counterfeit should be
used and that the Lanham Act should be instructive on this point,
citing United States v. Petrosian, 126 F.3d 1232 (9th Cir. 1997).
The basic question before this court is whether a shipping
tray that is truthfully marked with the contents it contains, which
are genuine articles, is a “counterfeit good” for the purposes of
§ 2320(a) when the markings include the manufacturer’s trademarks
and contain no more information than that which is carried on the
cans themselves. The Supreme Court has stated, in a civil case,
that one who purchases a genuine product in bulk and divides it
into smaller portions for sale to consumers may do so as long as
the products are marked as having been repackaged. Prestonettes,
Inc. v. Coty, 264 U.S. 359, 368-69 (1924). The government asserts
that this and other civil cases, by analogy, establish that to
repackage the cans of baby formula into cardboard trays is
essentially the same as attaching a counterfeit mark to genuine
goods. See Monsanto Co. v. Haskel Trading, Inc., 13 F.Supp.2d 349,
356-58 (E.D.N.Y. 1998) (finding that defendants had violated the
Lanham Act when they repackaged small packages of NutraSweet into
boxes for resale). The government further cites Petrosian to
support the idea that the Lanham Act can be used to expand the
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scope of the terms used in § 2320. In Petrosian, however, the
defendants had purchased genuine Coca-Cola bottles, filled the
bottles with a different cola-like carbonated beverage that was not
Coca-Cola, and told purchasers the beverage was Coca-Cola.
Petrosian, 126 F.3d at 1233. The court held that attaching a
genuine mark to a counterfeit good makes the mark counterfeit under
§ 2320. Id. at 1234. That is not the case here, however, where an
associated mark is attached to the genuine products it is
associated with.
Also, though Petrosian indicated that the definitions in the
Lanham Act and § 2320 are identical, the Tenth Circuit has rejected
such an approach. As the district court pointed out, the Tenth
Circuit has found that Lanham Act precedent is of little value in
a § 2320 case because the Lanham Act deals with civil liability.
United States v. Giles, 213 F.3d 1247, 1250 (10th Cir. 2000). The
Giles court held that because § 2320 is a criminal statute, it must
be construed narrowly. Id.
We find the district court and Tenth Circuit’s reasoning more
persuasive. We therefore hold that attaching a mark to trays
containing the genuine unadulterated, unexpired products associated
with that mark does not give rise to criminal liability under
§ 2320.
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Did the Appellees introduce misbranded food articles into
interstate commerce?
Under 21 U.S.C. § 331(a), “[t]he introduction or delivery for
introduction into interstate commerce of any food, drug, device, or
cosmetic that is adulterated or misbranded” is prohibited. The
government alleges that the failure to indicate that the baby
formula was repackaged is the equivalent of misbranding under the
statute. The government further alleges that the Appellees conduct
was “with the intent to defraud or mislead” which increases the
potential criminal penalties. 21 U.S.C. § 333(a)(2). Under 21
U.S.C. § 321(n):
If an article is alleged to be misbranded because
the labeling or advertising is misleading, then in
determining whether the labeling or advertising is
misleading there shall be taken into account (among
other things) not only representations made or
suggested by statement, word, design, device, or
any combination thereof, but also the extent to
which the labeling or advertising fails to reveal
facts material in the light of such representations
or material with respect to consequences which may
result from the use of the article to which the
labeling or advertising relates under the
conditions of use prescribed in the labeling or
advertising thereof or under such conditions of use
as are customary or usual.
“The term ‘labeling’ means all labels and other written, printed,
or graphic matter (1) upon any article or any of its containers or
wrappers, or (2) accompanying such article.” 21 U.S.C. § 321(m).
From these provisions it is clear, as the district court noted,
that § 331 of the Federal Food, Drug, and Cosmetic Act covers not
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only affirmative representations but material omissions as well.
Hanafy, 124 F.Supp.2d at 1026.
The government contends that the Appellees omitted any
information from the shipping tray markings indicating that the
infant formula had been repackaged. The government also asserts
that at least one wholesaler testified that he would not have
bought the formula had he known it was repackaged.2 The district
court, however, found that an essential element of this claim
relied on whether the shipping trays constituted “labeling” under
§§ 331(a) and 333(a)(2). After analyzing several cases which held
a “common theme” that “labeling” is intended to provide substantial
information about the use or benefits of the article, the district
court concluded that shipping trays did not constitute “labeling.”
Id. at 1027.
In light of the district court’s analysis of Supreme Court and
Circuit Court precedents, we are persuaded that the district court
was correct in granting the Appellees’ motion for acquittal. In
Kordel v. United States, the Supreme Court was faced with the
question of whether the separate shipment of literature saved drugs
2
This witness was the manager of Stanford Trading, a company that acted as a wholesaler
as well as a diverter of goods similar to the type of business the Appellees themselves were
engaged in. His specific testimony was that he informed the Appellees that he did not have a
market for repackaged baby formula. The witness also testified that Stanford Trading did sell
repackaged goods, such as toothpaste. The witness was additionally capable of noticing
differences in the trays of the Appellees compared to a tray of baby formula directly from the
manufacturer, but it is unclear whether such differences were noticed at the time he purchased the
baby formula trays from the Appellees.
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from being misbranded within the meaning of the Federal Food, Drug,
and Cosmetic Act. 335 U.S. 345, 347 (1948). In holding that the
drugs were misbranded, the Court noted that because the literature
“supplement[ed] or explain[ed]” the drug, it accompanied it. Id.
at 350 (stating “[i]t is the textual relationship that is
significant”). Though this and many of the cases cited by the
district court dealt with “labeling” in the sense that a separate
label, booklet or pamphlet was involved, see Hanafy, 124 F.Supp.2d
at 1026-27, this Court can not find, and the government does not
point to, any case which breaks from the common thread that the
“labeling” be intended to provide substantial information about the
use or benefits of the article. We therefore hold that merely
identifying the contents of a shipping tray with no more
information than that which is already upon the articles themselves
does not “explain” or provide “substantial information” so as to
rise to the level of “labeling” as contemplated by Kordel and its
progeny.3
Should the remaining money laundering and conspiracy charges be
reinstated?
The government asserts that once the counterfeit trademark and
misbranding verdicts are reinstated, the laundering and conspiracy
charges must also be reinstated. As we affirm the district court’s
3
The district court noted that the shipping trays would be removed before the cans would
be placed on the shelves for consumers and that the shipping trays in this case contained virtually
no information that was not also displayed on the immediate containers themselves.
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decision on the previous issues, however, these remaining issues
are also affirmed.
CONCLUSION
Having carefully reviewed the record of this case and the
parties’ respective briefing and for the reasons set forth above,
we conclude that the district court’s decision to grant the
Appellees’ motion for acquittal should remain undisturbed. We also
conclude that the district court did not err in granting the
Appellees a new trial as to the conspiracy charge. We therefore
AFFIRM the district court’s decision.
AFFIRMED.
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