United States v. Zhou

• Decision Date: 10 June 2013
• Docket Number: No. 11–1261.,11–1261.
• Citation: 717 F.3d 1139
• Parties: UNITED STATES of America, Plaintiff–Appellee, v. SHENGYANG ZHOU a/k/a Tom, Defendant–Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

717 F.3d 1139

UNITED STATES of America, Plaintiff–Appellee,

v.SHENGYANG ZHOU a/k/a Tom, Defendant–Appellant.

No. 11–1261.

United States Court of Appeals, Tenth Circuit.

June 10, 2013.

Jessica E. Yates of Snell & Wilmer L.L.P., Denver, CO, for Defendant–Appellant.

James C. Murphy, Assistant U.S. Attorney (John F. Walsh, United States Attorney, with him on the brief), Denver, CO, for Plaintiff–Appellee.

Before KELLY, SEYMOUR, and TYMKOVICH, Circuit Judges.

SEYMOUR, Circuit Judge.

Mr. Shengyang Zhou pled guilty to trafficking and attempted trafficking of counterfeit goods in violation of 18 U.S.C. § 2320 and § 2. He was sentenced to eighty-seven months' imprisonment and three years' supervised release, and he was ordered to pay restitution of $507,567. Mr. Zhou contends the district court made a number of errors in sentencing him. We disagree and affirm.

I.

Mr. Zhou's plea agreement set forth a lengthy statement of facts which the parties agreed the government's evidence would establish. The following facts are taken from the plea agreement or from undisputed portions of the presentence report, which the district court adopted. SeeFed.R.Crim.P. 32(i)(3) (“At sentencing, the court: (A) may accept any undisputed portion of the presentence report as a finding of fact....”).

Between December 2008 and March 2009, the Food and Drug Administration (FDA) issued a series of nationwide broadcast alerts on its website advising the public that the agency had identified over seventy-two purported weight loss products containing undeclared active pharmaceutical ingredients (APIs) that could put consumers' health at risk. One of the undeclared APIs was Sibutramine, a Schedule IV non-narcotic controlled substance that was at the time approved by the FDA only for the treatment of obesity in a patented drug commonly known as “Meridia.” The alerts stated that the listed products posed serious health risks and advised consumers to immediately stop taking them and to consult a medical professional.

Starting in January 2010, the FDA issued a separate series of broadcast alerts on its website regarding the marketing and sales of counterfeit versions of a weight loss product known by its brand name, “Alli,” which had also been found to contain dangerous levels of Sibutramine. The genuine product is manufactured by the pharmaceutical company Glaxo Smith Kline (GSK) and contains Orlistat as its API, not Sibutramine, and is approved by the FDA for over-the-counter sales. The alerts indicated that the counterfeit Alli was typically being sold to consumers on internet auction websites and looked similar to the authentic Alli weight loss drug, including the Alli name and trademarks, but contained certain enumerated defects. The alerts further warned that consumers who took counterfeit versions of the drug in accordance with the GSK dosing directions for genuine Alli could be ingesting up to twice the recommended maximum dosage for Sibutramine, resulting in a myriad of health risks.

During all periods relevant to this case, the name “Alli” and certain stylized versions of that name were trademarks registered by GSK on the principal register of the United States Patent and Trademark Office. GSK used these registered trademarks on the labels affixed to the bottles in which the Alli capsules were contained, on the associated boxes and related packaging, and on patient literature enclosed with the product.

The investigation of Mr. Zhou was initiated by federal agents from the FDA Office of Criminal Investigations (OCI), Immigration and Customs Enforcement (ICE), and the Postal Inspection Service after a controlled delivery in April 2009 to a Broomfield, Colorado resident identified as J.K. The parcel contained hundreds of boxes of “Super Slim” and “Meizitang,” two of the purported weight loss products listed in the FDA alerts as containing undeclared APIs. J.K. advised the agents that he operated an internet-based business selling these purported weight loss products to consumers throughout the United States. He informed the agents that one of his suppliers was a Chinese national ultimately identified by the agents as Mr. Zhou. J.K. told the agents that he had previously purchased from Mr. Zhou commercial quantities of these products, as well as “2 Day Diet,” another product listed in the FDA alerts. He admitted that he had continued to purchase these products after learning about the FDA warnings and corresponding with Mr. Zhou about the alerts.

Starting in August 2009, an FDA–OCI undercover agent began contacting Mr. Zhou through email, first portraying himself as J.K. and then also as J.K.'s business partner. In November 2009, the undercover agent placed an order with Mr. Zhou for 500 boxes of Super Slim. Mr. Zhou filled this order during late November and early December by causing six parcels to be mailed from various addresses in China to an undercover address in Littleton, Colorado. The parcels contained more than 18,000 capsules of Super Slim in blister packs, samples of which were determined in FDA laboratory testing to contain Sibutramine. In exchange, agents paid Mr. Zhou $2,500 via two Western Union payments sent to an individual in China later identified by Mr. Zhou as his girlfriend.

In January 2010, the undercover FDA–OCI agent, acting as J.K.'s business partner, placed a second order with Mr. Zhou for 200 boxes of Super Slim and 100 boxes each of Meizitang and 2 Day Diet. In addition, having learned that Mr. Zhou also sold commercial quantities of purported Alli, the agent requested fifty boxes of Alli. Mr. Zhou fulfilled this order, causing five parcels containing the requested quantities of the drugs and accompanying packaging and leaflets to be mailed from China to the undercover address in Littleton, Colorado. Tested samples from these parcels were determined to contain Sibutramine.

One of these five parcels contained approximately 6,000 capsules of purported Alli, along with fifty folded boxes, bottles, and consumer product literature bearing the registered trademarks and other markings of the authentic Alli product (each bottle and corresponding box were to contain 120 capsules). On close inspection, the capsules, bottles, and related packaging and literature were found to share the same defects and errors detected in the counterfeit Alli products that were the subject of the FDA warnings. The agents paid Mr. Zhou $4,000 for these shipments via Western Union wire transfers to Mr. Zhou's girlfriend in China.

In February 2010, Mr. Zhou agreed to meet with the FDA–OCI undercover agent in Bangkok, Thailand for the ostensible purpose of negotiating future sales of larger volumes of counterfeit weight loss products, as well as to introduce Mr. Zhou to a second undercover agent, a Postal Inspector, posing as the owner of a chain of grocery and health food stores in the United States. During the meetings, which were video and audio recorded, Mr. Zhou portrayed himself as the manufacturer and supplier of the counterfeit weight loss products and acknowledged that they contained Sibutramine and were the subject of FDA alerts in the United States. He told the agents that he sold commercial quantities of these products to various re-distributors in the United States, including in Colorado and Pennsylvania. Mr. Zhou and the agents discussed the various defects in his last batch of counterfeit Alli, and Mr. Zhou promised to correct these problems in the next batch of 10,000 boxes he planned to manufacture.

The undercover agents indicated they were interested in purchasing larger volumes of counterfeit Alli but wanted Mr. Zhou to send it as air cargo with the help of a collusive private customs broker, actually another undercover FDA–OCI agent, who would assist in the plot. At the meeting in Bangkok, the undercover agents placed an order for 100 boxes each of 2 Day Diet and Super Slim to be shipped through the mail, as well as 1,000 boxes of counterfeit Alli to be shipped as air cargo. The agents paid Mr. Zhou $5,500 as half payment for the order.

Following the meeting in Bangkok, the FDA–OCI undercover agent posing as J.K.'s associate exchanged several emails with Mr. Zhou regarding the progress of this third order. In early March 2010, a parcel containing approximately 2,994 capsules of Super Slim, along with 100 boxes and related materials, was received at the Littleton, Colorado undercover address from codefendant Ms. Qingming Hu, Mr. Zhou's Houston, Texas-based redistributor. The following day, a second parcel was received from China containing the order of 2 Day Diet and associated packaging materials. Samples from each of these parcels were found to contain Sibutramine.

In an email sent March 2, 2010, Mr. Zhou asked the undercover agents to consider increasing their order of counterfeit Alli to cover his entire batch of 10,000 boxes, containing a total of 1.2 million capsules. The agents agreed to do so but they wanted additional assurances the defects in the boxes, bottle labels, and customer pamphlets noted in the previous batch of counterfeit Alli had been corrected. Mr. Zhou agreed to send the agents samples of the new batch and also to show the agents samples at a meeting in Honolulu, Hawaii later that month.

Thereafter, Mr. Zhou mailed from Kunming, China to Littleton, Colorado a parcel containing five sets of purported Alli boxes, the accompanying customer product pamphlets, and a sheet of bottle labels. The items bore GSK's registered trademarks for the Alli product and were devoid of the defects and mistakes present in the previous batch of counterfeit Alli.

On March 23, 2010, Mr. Zhou arrived in Honolulu and was met at the airport by the undercover FDA–OCI agent posing as J.K.'s associate and the Postal Inspector posing as the grocery and natural food stores owner. They went to a hotel where they met with a second undercover FDA–OCI agent, portraying himself as the collusive private customs broker. The...