Case: 13-10735      Document: 00513090032         Page: 1    Date Filed: 06/23/2015




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT


                                      No. 13-10735                       United States Court of Appeals
                                                                                  Fifth Circuit

                                                                                FILED
UNITED STATES OF AMERICA,                                                   June 23, 2015
                                                                           Lyle W. Cayce
              Plaintiff - Appellee                                              Clerk

v.

CHARLES ANTHONY JONES,

              Defendant - Appellant




                   Appeal from the United States District Court
                        for the Northern District of Texas
                              USDC No. 3:12-CR-245


Before REAVLEY, OWEN, and HIGGINSON, Circuit Judges.
PER CURIAM:*
       Charles Anthony Jones argues in his appeal only the district court’s
restitution award in this counterfeit pharmaceutical drug trafficking case. He
asserts that the restitution award exceeded the statutory maximum
punishment because it did not reflect the victim pharmaceutical companies’
actual losses under the Mandatory Victims Restitution Act (MVRA), 18 U.S.C.
§3663A. We agree and remand for recalculation of the restitution award.


       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                 No. 13-10735
                                        I.
      Jones pleaded guilty, pursuant to a plea agreement, to trafficking of
counterfeit pharmaceutical drugs used for the treatment of erectile
dysfunction. He was sentenced to 37 months of imprisonment, two-years of
supervisory release, and restitution of $633,019.00 under the MVRA. Jones
waived his right to appeal the sentence or conviction, but reserved the right to
appeal a sentence exceeding the statutory maximum punishment or an
arithmetic error. On appeal, Jones argues that the restitution award was not
restricted to the victims’ actual losses, and thus exceeded the statutory
maximum punishment.
                                       II.
      We ordinarily review the legality of a restitution order de novo. United
States v. Adams, 

, 365 (5th Cir. 2004). However, the review is for
plain error when a defendant fails “to object to either the amount of restitution
recommended in the pre-sentence investigation report or the district court’s
restitution order.” United States v. Maturin, 

, 659-60 (5th Cir.
2007).
                                       III.
      Jones challenges the district court’s calculation of restitution for several
reasons. He first argues that some of the pills reflected in the presentence
report (PSR) did not infringe on the victims’ trademarks and therefore should
have been excluded. This argument clearly fails. The Government effectively
proved, and Jones acknowledged at sentencing, that each of the counterfeit
pills was labeled in some way with the trademarked names of the genuine
drugs. Thus, all of the pills included in the PSR’s calculation violated the
victim companies’ trademarks.




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                                        IV.
      The crux of Jones’s remaining arguments – that restitution should be
based on (1) the victims lost sales; and (2) lost net profits – is supported by this
circuit’s holding in United States v. Beydoun, 

(5th Cir. 2006).
                                        A.
      In Beydoun, which pertains to the sale of counterfeit cigarette papers,
we held that the victim’s lost net profits for sales diverted by the counterfeit
activity is the proper measure for calculating restitution. 

There,
the Government did offer evidence of the victim’s lost sales, but provided no
proof that all of the counterfeit items were distributed or sold. 

      Comparatively, here the Government offered no evidence of the victims’
lost sales, but asserts that the pharmaceutical companies here have a legal
monopoly for the drugs at issue, and that every counterfeit pill purchased
accounts for a lost sale for the victim pharmaceutical companies. In support of
its proposition, the Government relies on the Second Circuit’s decision in
United States v. Milstein, 

(2d Cir. 2007) which uses the wholesale
price defendant would have paid for the legitimate drugs if legally purchased
from the pharmaceutical companies. There is a critical distinction here. In
Milstein, defendants duplicitously sold counterfeit drugs directly to doctors,
pharmacists, and pharmaceutical suppliers.          Thus, it can be reasonably
assumed that the doctors and pharmacists thought they were purchasing the
genuine drugs from legitimate distributors, and would have purchased the
genuine drugs from the actual pharmaceutical companies if the sales had not
been diverted.
      The same may not be assumed for Jones’s individual customers, who
would have had to get a prescription to obtain the drugs legitimately. Notably,
the district court herein even stated that it was not likely that the majority of
Jones’s customers would have sought a prescription from a doctor and
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                                   No. 13-10735
purchased the more expensive erectile dysfunction drugs.             Consequently,
Milstein’s reasoning does not apply to this case.
      Additionally, the Government erred in concluding that Beydoun stands
for the proposition that, if there is one exclusive seller of a product in the
United States, that seller suffers a loss whenever counterfeit drugs are placed
into the market. Beydoun does not reach this conclusion.
      Further, Jones is correct in asserting that the counterfeit pills not placed
in commerce and sold (i.e., pills sold to law enforcement or seized) may not be
included in the restitution calculation. The district court in Beydoun based
restitution on the number of counterfeit cigarette paper booklets defendant
had assembled, but did not require a calculation of the number of booklets
actually distributed and sold. There, this court stated that the district court
erred because “there was no actual loss to the legitimate sellers if the booklets
were never placed into commerce and sold.” 

. The
court remanded the case to the district court to reevaluate the evidence and
determine the number of items actually placed into commerce to compete with
the legitimate cigarette papers. 

the instant case, counterfeit
pills that were not distributed and sold may not be included in the restitution
calculation.
                                         B.
      Finally, Jones argues that the proper measure for calculating a
restitution award is the victims’ lost net profits instead of the retail price of the
genuine drugs that the district court relied on in the PSR. The Beydoun court
stated that lost net profits was the proper measure because the MVRA’s
purpose is to compensate a victim for its losses. 

contrary, the
Government contends that multiplying the number of infringing items by the




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                                      No. 13-10735
genuine item’s wholesale 1 price is the proper measure for calculating
restitution because of the unique nature of the pharmaceutical industry. The
Government, again citing Milstein, further argues that Beydoun does not
control this case because it only applies to that specific commercial setting
related to the sale of counterfeit cigarette papers and not pharmaceutical
drugs. We disagree and restate that Beydoun controls this case.
                                            V.
       Our decision in Beydoun sets forth the measure of calculating
restitution, and the district court’s restitution award in the instant case does
not conform to that holding. Accordingly, we REMAND to the district court for
recalculation of the restitution amount in accordance with this court’s decision
in Beydoun. Further, we conclude that on remand, the Government may make
any contention of law not previously resolved and may be permitted to present
additional evidence on the basis that special circumstances exist which justify
departing from the general rule stated in United States v. Chem. & Metal
Indus., 

, 753 (5th Cir. 2012) (new evidence not generally permitted
on remand).
       Conviction and Sentence AFFIRMED.                     CASE REMANDED for
determination of restitution.




       1 The Government’s brief states that the term “wholesale price” is more accurate than
the term “retail price” used in the PSR, because the victim pharmaceutical companies do not
sell their drugs directly to consumers.
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