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In a ruling that could have broad implications, the 5th U.S. Circuit Court of Appeals held on Aug. 15 that printing a company’s trademark on trays used to ship another company’s repackaged products associated with that mark doesn’t violate federal criminal trademark or food labeling laws. If the ruling in USA v. Hanafy, et al. stands, it could block the future prosecution of wholesalers who buy name-brand products, repackage them and stamp the shipping trays with the trademark obtained by the manufacturer of the product. “Everyone was waiting to see what happened in this case,” says Joseph Revesz of Dallas, the Assistant U.S. Attorney who prosecuted Ibrahim Elsayed Hanafy, Mohamed M. Mokbel, Samer Samad Quassas and Adel Hisham Saadat. Revesz says similar cases are being looked at in other jurisdictions, but no other case has gone to a contested trial or been appealed. “This was the test case,” says Fort Worth, Texas, solo Danny Burns, Saadat’s attorney. Todd Murray, who represents Hanafy pro bono, says the 5th Circuit’s decision curtails what the defense believes are efforts by the U.S. Department of Justice to expand the congressionally authorized scope of existing criminal trademark counterfeiting and labeling laws. “It’s our belief that they were trying to extend the law to an area where the law wouldn’t go,” says Murray, a Dallas Vinson & Elkins associate who, with Vinson & Elkins associate Scott Breedlove, also of Dallas, argued the case before a three-judge panel of the 5th Circuit. The panel affirmed a December 2000 decision by U.S. District Judge Sam Lindsay of Dallas to dismiss 98 of 99 criminal counts on which a jury convicted the four defendants. Lindsay did not dismiss the defendants’ conviction of conspiracy under 18 U.S.C. � 371 but ordered a new trial on that count. PENNIES IN PROFIT Dallas solo Frank Johnson, who represents Mokbel, says the legitimacy and efficacy of the secondary market for products are at stake in the case. The 5th Circuit’s decision establishes “a very important precedent” with regard to the interpretations of mislabeling and trademark counterfeiting, Johnson says. The 5th Circuit opinion said the defendants owned businesses that purchased individual cans of baby formula from convenience stores around Texas. The convenience stores bought the cans from third parties, who either bought the cans or obtained them through welfare programs or by theft, the opinion said. According to the opinion, the defendants repackaged the cans in trays resembling those used by the formula manufacturer and printed the manufacturer’s trademark on the trays. While the cans in a tray may have come from different batches produced by the same manufacturer, all the cans were resold before their expiration date and were the genuine, unadulterated product, the opinion said. “There was never any showing that our guys were selling out-of-date or adulterated baby formula,” Murray says. The DOJ alleged in a brief that the defendants’ misuse of manufacturer trademarks constituted illegal trademark counterfeiting, violating 18 U.S.C. � 2320. The brief alleged that some of the defendants’ customers didn’t want to buy repackaged containers of formula cans, but “those were precisely the goods that defendants secretly sold them.” The 5th Circuit panel held that “attaching a mark to trays containing the genuine unadulterated, unexpired products associated with that mark does not give rise to criminal liability under Section 2320.” In its brief, the DOJ also alleged that the defendants violated the labeling provisions of the Food and Drug Act, 21 U.S.C. � 331 and � 333, by using manufacturer trademarks on the containers of baby formula to deceive purchasers into thinking that the repackaged products had been packed by the manufacturer. The defendants’ alleged mislabeling was a concern, the brief said, because they combined cans of formula from different production lots, making recalls of defective products impossible. Houston solo Donald Ervin, who represents Quassas, says the defendants repackaged the Enfamil baby formula in a tray with the word “Enfamil” on it. “Where’s the deception? Where’s the fraud? Where’s the crime?” Ervin asks. Ervin says the defendants made only pennies in profit on each can of baby formula they resold. One reason the defendants were convicted, he says, is that Americans can’t conceive of the idea that somebody would do this for so little profit per item so they believe that a crime has been committed. Lindsay concluded that shipping trays did not constitute “labeling,” so the defendants had not violated federal food labeling laws. The 5th Circuit panel affirmed Lindsay’s ruling. Judge Harold R. DeMoss Jr. wrote the panel’s opinion in which he was joined by Judges E. Grady Jolly Jr. and Robert M. Parker. Revesz says the Justice Department hasn’t decided its next move in Hanafy. “We’re considering our options,” he says. The options include seeking a rehearing before the panel or the full 5th Circuit, taking the case to the U.S. Supreme Court or retrying the defendants on the conspiracy charge.

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