United States v. Cone

• Citation: 714 F.3d 197
• Decision Date: 15 April 2013
• Docket Number: Nos. 11–4888,11–4934.,s. 11–4888
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. Donald CONE, Defendant–Appellant, and Chun–Hui Zhao; Richard J. Nelson, Cisco Systems, Inc., Parties–In–Interest. United States of America, Plaintiff–Appellee, v. Chun–Yu Zhao, a/k/a Jessica Smith, a/k/a Chun Yu Zhao, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

714 F.3d 197

UNITED STATES of America, Plaintiff–Appellee,

v.Donald CONE, Defendant–Appellant,andChun–Hui Zhao; Richard J. Nelson, Cisco Systems, Inc., Parties–In–Interest.

United States of America, Plaintiff–Appellee,

v.Chun–Yu Zhao, a/k/a Jessica Smith, a/k/a Chun Yu Zhao, Defendant–Appellant.

Nos. 11–4888, 11–4934.

United States Court of Appeals,

Fourth Circuit.

Argued: Oct. 26, 2012.

Decided: April 15, 2013.

ARGUED: Lisa Hertzer Schertler, Schertler & Onorato, LLP, Washington, D.C., for Appellants. Lindsay Androski Kelly, Office of the United States Attorney, Alexandria, Virginia, for Appellee. ON BRIEF:Justin A. Torres, Gibson, Dunn & Crutcher, LLP, Washington, D.C.; Geremy C. Kamens, Office of the Federal Public Defender, Alexandria, Virginia, for Appellant Donald Cone. Neil H. MacBride, United States Attorney, Jay V. Prabhu, Assistant United States Attorney, Office of the United States Attorney, Alexandria, Virginia, for Appellee.

Before AGEE, WYNN, and FLOYD, Circuit Judges.

Affirmed in part, vacated in part, and remanded by published opinion. Judge AGEE wrote the majority opinion, in which Judge FLOYD joined. Judge WYNN wrote an opinion concurring in part and dissenting in part.

OPINION

AGEE, Circuit Judge:

Donald Cone and Chun–Yu Zhao were convicted of various charges under an indictment arising out of a scheme to import and resell counterfeit pieces of computer networking equipment, some of which bore the trademark of Cisco Systems, Inc. (“Cisco”). On appeal, they challenge certain evidentiary rulings made at their joint trial and whether some of the criminal acts alleged can support a conviction for criminal counterfeiting under 18 U.S.C. § 2320. Additionally, Cone challenges whether sufficient evidence supports his conviction for conspiracy and Zhao challenges the sufficiency of the evidence on certain substantive counts upon which she was convicted. For the reasons set forth below, we reject Zhao and Cone's attack on the district court's evidentiary rulings and Cone's argument that his conviction was not supported by sufficient evidence. However, the government's theory of prosecution based on a “material alteration” theory of counterfeiting trademarks is not cognizable under the criminal counterfeiting statute based on the facts of this case. Further, the government's evidence on Count 10 was insufficient as a matter of law to sustain Zhao's conviction. We therefore vacate the judgment of the district court on certain counts of conviction, affirm the judgment of the district court in all other respects, and remand for resentencing.

I.Background and Material Proceedings Below

A. The Factual Background

Zhao, then a recent immigrant from the People's Republic of China (“China”), was recently divorced from Junling Yang, an indicted co-conspirator in this case who remains at large, when she married Cone.¹ While living and working in the United States, Zhao and Cone formed JDC Networking, Inc. (“JDC”), a licensed distributor of products made by and for Cisco. JDC conducted frequent business with a company known as Han Tong Technology (“Han Tong”), a Hong Kong-based business alleged to be operated by members of Zhao's family. As a Cisco “registered partner,” JDC was contractually prohibited from purchasing Cisco products for resale from outside of the United States, yet records introduced at trial reflect that, from 2004 through 2010, JDC imported over 200 shipments from Han Tong and companies associated with Han Tong in China containing both genuine Cisco products and fake imitations.

In 2005 and 2006, while Zhao and Cone were living together in Rockville, Maryland, U.S. Customs and Border Patrol (“CBP”) agents began intercepting and seizing shipments of highly sophisticated counterfeit computer networking products sent from Han Tong to “Lucy” and “Donald,” at addresses in Rockville, Maryland. The investigation went cold, however, when the shipper of the counterfeit goods began declaring a very low value for the goods shipped and using variant spellings of the destination address, thus foiling CBP's tracking techniques.

From 2004 to 2010, JDC marketed computer equipment bearing a Cisco mark to consumers and resale outlets. Several of JDC's customers, however, were dissatisfied with some of the products they purchased from JDC. E-mails introduced at trial from JDC customers revealed that some clients believed they had been sold counterfeit or fake products.

Zhao filed income tax returns indicating that JDC was struggling and that she was only earning a small salary. In fact, JDC was thriving and producing significant income for her. JDC records reflect that it was purchasing Cisco products (or purported Cisco products) in China for resale at considerably below the expected market price for such products and then reselling the products with a high markup.

As JDC thrived, however, Zhao's marriage to Cone deteriorated. In late 2007, Cone moved out of the couple's home, and Zhao moved into a condominium with her ex-husband Yang. Upset with Zhao over their faltering marriage, Cone sent Zhao a series of e-mails demanding his share of JDC proceeds. In one, he stated “I won't let my life get ruined. I will make sure everyone knows the truth about everything. IRS, DOJ, Customs, Immigration, et cetera.... I have proof of everything.” (J.A. 1651.) In another e-mail, Cone indicated that “other companies were returning products to us because they were counterfeit.” (J.A. 1653.) Zhao and Cone later divorced.

In 2010, CBP was notified that four pieces of “highly sophisticated, very expensive” counterfeit networking technology (“routers”) bearing Cisco marks were seized upon entry from China into the United States, bound for a Parcel Plus retail storefront in Northern Virginia and with an estimated value of thousands of dollars per piece of equipment. CBP agents compared the attributes of this shipment with those in the 2005–06 investigation and concluded that the 2010 shipments were similar and likely related to the same counterfeiting scheme.

Coordinating its efforts with DHL (a shipping company) and Immigration and Customs Enforcement (“ICE”), CBP intercepted the next package sent from China to the address in Virginia. When CBP and ICE agents opened the package, they discovered over 300 labels bearing a Cisco mark that agents suspected to be counterfeit. CBP and ICE forwarded the package to an ICE facility in Washington, where agents coordinated a controlled delivery of the package to the Parcel Plus retail storefront. Agents observed Zhao retrieving the package and followed her to her home. CBP and ICE agents then executed an anticipatory search warrant at the residence.

In the course of searching Zhao's home, federal agents discovered, in addition to the shipment of suspected counterfeit Cisco labels that led them to Zhao, unlabeled transceivers that matched the labels found in the shipment, labeled transceivers, business and financial records, torn labels and label backing, and instructions on how to convert Cisco equipment into different models.

As investigators were executing the search warrant at Zhao's home, a FedEx delivery driver attempted to deliver two packages to her. The delivery driver revealed to the agents executing the warrant that Zhao maintained a storage unit across the street. Although Zhao initially denied the existence of the storage unit (and later provided law enforcement agents with a false unit number and a false entry code to the storage facility), agents were eventually able to gain access. Agents found quantities of boxes filled with equipment bearing a Cisco mark filling “at least half” the storage unit. (J.A. 614.)

After being arrested, Zhao was interviewed by ICE Agent Julie Hilario for approximately 45 minutes. Although Zhao initially denied any involvement with counterfeiting (and even denied receiving the package that was the subject of the controlled delivery), she eventually admitted that she sold “fake” Cisco products to make a greater profit than with a legitimate product.

As ICE and CBP pursued the investigation, agents interviewed Cone by telephone (he had left the United States and was living in China). Cone admitted that JDC received and resold both real and counterfeit Cisco products from Han Tong (which he described as a “fake” company). (Vol. V J.A. 1990.) With respect to “authentic” Cisco products, Cone informed agents that he and Zhao altered authentic Cisco products obtained from China and sold them to clients, representing that they were higher end products than they actually were. Cone was later arrested when he returned from China in December 2010.

B. District Court Proceedings

Cone and Zhao were both indicted by a grand jury (along with Yang and Chun–Yan Zhao, defendant Zhao's sister) in 2010 in the United States District Court for the Eastern District of Virginia on one count of conspiracy in violation of 18 U.S.C. § 371, with three objects: (1) trafficking in counterfeit goods and labels; (2) importation and sale of improperly declared goods; and (3) wire fraud (Count 1); and three counts of wire fraud in violation of 18 U.S.C. § 1343 (Counts 16–17, 23).²

As relevant to that part of the Count 1 conspiracy charge alleging trafficking in counterfeit goods and labels, the government presented at trial three theories underlying the alleged objects of that conspiracy. First, that some of the products seized from Zhao's residence or sold to end-users were represented to be Cisco products but in fact were “pure” counterfeits (i.e., the products were never made by or for Cisco). Second, other products (acquired from legitimate Cisco resellers in the United States and abroad) were indeed made by or for Cisco, but were converted by Zhao and Cone into a different type of Cisco product and represented to buyers as the original of that item (the “material alteration” theory). Third, other products acquired from China that were originally made by or for Cisco...