Nearly a year ago, on March 1, 1995, Daniel Henson, the assistant special agent in charge of the Chicago office of the Food & Drug Administration's Office of Criminal Investigations (OCI), searched a warehouse in Lexington, KY. The warehouse belonged to the Lexington Wholesale Co., owned by Mohammed Shalash. Shalash was, and maybe still is, one of the major traffickers in illegally repackaged and relabeled infant formula. Besides Lexington, Shalash has warehouses in Dallas, Chicago, Denver and many other cities. Henson says that "several items" were seized during the Lexington search. Jim Dahl, assistant director of OCI in Washington, DC, says Shalash--a "count" among counterfeiters--has not been charged. He still may be "holding court;" his warehouses are still open. "It is clearly a very active, ongoing investigation," Dahl says. The complexity of the investigation helps explain why the FDA has yet to take any action against Shalash. "Big fraud cases can take many years," Dahl explains. The record of U.S. attorneys, who have the responsibility for bringing major counterfeiting cases, is pretty abysmal. The failure to put more criminals behind bars and the potential profits from counterfeiting, have combined to make counterfeiting the biggest "get-rich-quick" lure since the Yukon. But enough manufacturers have gotten miffed enough over repeated rip-offs that they have convinced Congress to toughen up criminal and civil penalties for counterfeiting. The Senate and a House subcommittee both passed similar bills in December. Falsifying labels for formula Ross Laboratories, Columbus, OH, has been one of the major targets of criminals who counterfeited labels on Ross' Similac formula or put Similac labels on cans of other product and sold the cans in cases that were similarly counterfeited. Other formula makers have been victims, too. Unfortunately, the record on infant formula prosecutions is tepid. Sentences have been handed down in only one diversion case with the perpetrators receiving caresses--slaps would be too strong a word--on the wrist. Two Missouri men got two years probation; the third got three years probation plus a $1ꯠ fine. Explaining that leniency, the OCI's Dahl maintains those three "were not running a Shalash-type operation." There have been arrests in three other infant formula diversion cases, all going back to February or March 1995. U.S. attorneys have filed no charges in any of those cases. Prosecutions of other types of product and package counterfeiting have often yielded similar results, or non-results. Little satisfaction In March 1995, the U.S. Attorney's office in Boston brought a case against two men for intending to counterfeit a Borden "Eagle Brand" baking product. Investigators found 18ꯠ labels and 15ꯠ packages of the butterscotch product, which had been originally manufactured by Borden, but never sold or labeled by the company. The packages were sold at an auction by a company which had purchased a Borden factory. The indictment also accused the men of selling counterfeit "Champion"- brand sweatshirts. Kathleen Griffin, spokeswoman for the Boston U.S. Attorney, says as a result of criminal convictions each of the men received three years probabation, three months home detention and no fine. Ouch! The results of the civil case brought by Borden were equally unimpressive. According to Mark Schonfeld, the Boston attorney who handled the case for Borden, the naughty boys were forced to repay Borden and Champion a total of $60ꯠ and to promise not to counterfeit those two products again. Outrage with the ease at which counterfeiters sidestep or saunter out of the legal system is propelling two very similar anti-counterfeiting bills currently winging their way through Congress. Sen. Orrin Hatch, (R-UT), and Rep. Carlos Moorhead, (R-CA), have both introduced the Anticounterfeiting Consumer Protection Act of 1995 (S. 1136/H.R. 2511). Tightening the loopholes The Hatch and Moorhead bills are very similar but not identical. The Senate passed S. 1136 on December 13. The House Judiciary subcommittee on courts and intellectual property, chaired by Moorhead, passed his bill on December 13, too. Both bills are an acknowledgement of the failure of the Trademark Counterfeiting Act of 1984. Among other things, that law created section 2320 of the U.S. Criminal Code, which is used by the FDA in its infant formula investigations as well as other cases. Catherine Simmons-Gill, president of the International Trademark Assn. and general counsel of General Media Intl. (New York, NY), told the Moorhead subcommittee on December 7, 1995, that the 1984 law had done some good. But she added, "Unfortunately, the 'Trademark Counterfeiting Act of 1984' has been unable to completely stem the tide of counterfeit goods moving into and within the United States." Anne Murphy, a corporate attorney with Microsoft Corp., Redmond, WA, a company which has been bedeviled by both domestic and foreign counterfeiters, is very enthusiastic about the Hatch and Moorhead bills. Both add a provision to section 2320 which would require U.S. attorneys to keep a list of counterfeiting cases they prosecute. Murphy says this is more than just a recordkeeping exercise. "It is a big deal," she emphasizes. "Congress is sending a message that counterfeiting is a priority. It will have a profound practical impact." Adding incentives Murphy explains that it is sometimes difficult to convince U.S. attorneys to pursue criminal counterfeiting cases because, first, the federal prosecuters believe drug and homicide cases are their first priority and second, it is hard to make a criminal counterfeiting case that is national, or at least regional, in scope. Allowing counterfeiting to be classified as a "predicate" act for the purposes of RICO--another provision of both bills--would make it easier for federal prosecutors to use the RICO criminal statute, and therefore serve as an incentive. However, it is extremely unlikely, according to one federal official who asks not to be named, that this bill will help the FDA in Similac-like counterfeiting cases. He says the bill does not give law enforcement people any additional authority under section 2320 of the U.S. Code. The bill "might help in some instances," he admits. But some of what it does "just doesn't reach to the circumstances we deal with." Nonetheless, Bob Gelardi, executive director of the Infant Formula Council, says his group supports the Hatch/Moorhead bills. Bipartisan support So does the Clinton administration. On December 7, Phillip Hampton II, assistant U.S. commissioner of trademarks--in an infrequent demonstration, at least these days, of bipartisan comity--called the Moorhead bill "a crucial measure." Although the Clinton administration has some technical changes it wants, Hampton said, "We believe enactment of this bill would mark a significant step forward in the fight against counterfeit activity." The bills also make it easier to win civil cases, which can result in injunctions and repayments to the company whose product or package is counterfeited. Mark Schonfeld, the attorney who represented Borden, says the most important civil improvement in the legislation concerns awarding of statutory damages. For example, statutory damages (as an alternative to actual damages) of up to $1 million per trademark could be awarded when the counterfeiting is "willful." The availability of statutory damages relieves a plaintiff from having to prove how much money he lost as a result of the counterfeit goods being sold. "All we will have to do is prove there was a violation of the counterfeiting law," explains Schonfeld. Broadening the coverage The bills would allow other federal officials besides U.S. Marshals, state and local law enforcement officials to accompany civil plaintiffs in the "ex parte" seizure of counterfeit trademarked goods. Angela Small, vice president of legal affairs at Saban Entertainment, Inc., Burbank, CA, told the Moorhead subcommittee that sometimes U.S. Marshals are tied up with what they believe to be more important chores. In those instances, they may not see a raid on a warehouse holding allegedly counterfeit Mighty Morphin Power Rangers--Sabin's key product line--to be of the highest priority. The bills also have provisions directed at particular sectors. They add the categories of computer programs and computer program documentation and packaging to the current list of products for which "knowingly trafficking in" counterfeit labels is illegal. If consumer goods like jeans and jewelry were the only things being counterfeited these days, the "flood of fakes" probably would not have swept Congress toward remedial action. But when legislators hear testimony about bogus packaging of food, medicines, and brake linings made of compressed cardboard, even they can see it is time to stem the flow.
