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After a jury took less than three hours to convict four businessmen on 99 counts of fraud and counterfeit branding over the sale of baby formula, a Texas district judge dismissed 98 of the charges and ordered a new trial on one count. The charges stemmed from prosecutors’ accusations that some of the cans or cases of formula had been obtained illegally, before being sold to the defendants. Additional charges were brought because the defendants used manufacturers’ trademarks on the cardboard shipping trays without permission when they resold the formula. The formula resales were part of a business known as grocery diversion, a legal industry that has grown as a result of companies selling products wholesale to different stores at drastically different prices, depending on the geographic location and type of store. The court appointed Vinson & Elkins lawyers to represent pro bono one of the defendants, Ibrahim Elsayed Hanafy, who was facing a sentence that could have been between three and seven years in jail and forfeiture fees of $704,650. “He had no money as a result of the confiscation of all his inventory. This was his business and they took it all,” said Scott Breedlove, one of his lawyers. Breedlove said the case was particularly interesting because the government’s arguments on the trademark violations cited civil case law in the criminal case. “They were pressing a novel interpretation of criminal trademark law and the judge declined to create new criminal law,” he said. Joe Revesz, an Assistant U.S. Attorney in Dallas who was handling the prosecution, disputed that. “This is nothing novel,” he said. “The Trademark Counterfeit Act is based on the Lanham Act, and all the civil cases are decided under the Lanham Act.” A JUDGE’S VIEW Judge Sam Lindsay found that some of the government’s charges were legally deficient while others were factually insufficient. The remaining charges he identified as derivative of the counts dismissed and therefore deficient as a matter of law. The judge dismissed the charge that the defendants had transported stolen goods interstate, saying the threshold minimum of $5,000 required under 18 U.S.C. 2314 was not met. Counts 3 to 11, trafficking in goods with counterfeit marks, 18 U.S.C. 2320, were dismissed because the unauthorized use of the trademark in connection with genuine goods wasn’t a violation. Counts 12 to 17, introducing misbranded food articles into interstate commerce with intent to defraud, 21 U.S.C. 331(a) and 33(a)(2), were dismissed after the judge found that shipping trays are not labeling. The remaining money-laundering counts were dismissed because Judge Lindsay found there was no evidence to establish the predicate offense of interstate transportation of stolen goods. The judge found the first charge, conspiracy, 18 U.S.C. 371, to be legally sufficient but tainted by the inclusion of two other allegations of conspiracy that the court found were not criminal offenses. Revesz was disappointed in the ruling and is appealing. “We think it’s important because it involves a consumer product,” he said. “It’s the only food infants have during the first year of their lives. They’re 100 percent dependent on it.” Breedlove noted that the three-week trial — he and associates Todd Murry and Keefe Bernstein spent 865 hours on the case — had a particularly interesting fact pattern — involving allegations of drug addiction and underworld involvement. The defendants were all Arab or Arab-American, and Breedlove said there was a nationalist tinge to the government’s arguments that emphasized the need to “protect American babies.” Revesz called that suggestion “balderdash” and said, “The defense tried to raise a racial or ethnic issue during the trial and the judge wasn’t having it.”

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