Limiting Cross-Examination About Gray Market Goods In A Counterfeiting Case

In a counterfeit prescription drugs case, what relevance does evidence concerning a "gray market" hold? Fourth Circuit concludes that without some "connection" showing the defendant believed he was selling in this market, the trial court could exclude cross-examination of government witnesses about a "gray market." The ruling also did not interfere with the defendant's rights under the Fifth Amendment Self-Incrimination Clause, in United States v. Zayyad, _ F.3d _ (4th Cir. Jan 24, 2014) (No. 13–4252)

In counterfeit goods cases, the defense may seek to introduce evidence about a "gray market" or "diversion market" to show goods were sold in a "genuine, non-counterfeit" products. As the Supreme Court has noted, “The term ‘gray market good’ refers to a good that is ‘imported outside the distribution channels that have been contractually negotiated by the intellectual property owner.’ Such goods are also commonly called ‘parallel imports.’” Zayyad, _ F.3d at _ n.1 (quoting Kirtsaeng v. John Wiley & Sons, Inc., 133 S. Ct. 1351, 1379 n.9 (2013) (internal citation omitted)). The Fourth Circuit recently was asked to review whether the trial court's exclusion of some of this evidence was permissible under the FRE and may have violated the Fifth Amendment Self-Incrimination Clause.

Trial Court Limitation

In the case, defendant Zayyad was prosecuted for sale of counterfeit prescription drugs (Viagra and Cialis pills) in his convenience store. He was apprehended following two sales that he made to a former associate who had agreed to cooperate with law enforcement after his arrest. The jury hung at his first trial and a mistrial was ordered. Before his second trial, the government moved in limine to deny the defense from “attempting to raise during the Government’s case-in-chief, through cross-examination or otherwise, any evidence or argument regarding an alleged ‘diversion market’ or ‘grey market’ for genuine, non-counterfeit, prescription medications[.]” The government advised that the defendant could testify, if he elected to, "that he believed the Viagra and Cialis pills he sold were genuine pills from a specific ‘diversion market’ or ‘grey market’ channel[.]” Instead, defendant Zayyad claimed the "gray goods" evidence to necessary as an "affirmative defense" and the government should not be allowed to "impair his Sixth Amendment rights to confrontation and Fifth Amendment due process rights by forcing him to testify." Zayyad, _ F.3d at _. The trial court granted the government's motion to limit cross-examination of government witnesses concerning a gray-market as irrelevant under FRE 401 since "there [was] no evidence that shows that the defendant possessed any genuine pills," and as confusing, misleading and a waste of time under FRE 403. The trial court did not limit the defendant's ability to introduce evidence about his belief in a gray market. However, the defendant did not introduce any gray market evidence and did not testify at trial. The jury convicted the defendant. On appeal, he challenged the trial court limitation on the gray market evidence.

Fourth Circuit Analysis: Application of FRE 401 and FRE 403

The Fourth Circuit agreed that there was no error in limiting cross-examination of government witnesses about the gray market. First, the evidence was irrelevant under FRE 401 since there was no evidence that the defendant believed he was selling in or was aware of a gray market. Zayyad, _ F.3d at _ (citing United States v. Curtis, 782 F.2d 593, 599 (6th Cir. 1986) ("Unless there is a connection between the external facts and the defendant’s state of mind, the evidence of the external facts is not relevant.")). Without some "connection to the knowledge element," this cross-examination was irrelevant. The defendant could present evidence showing that he believed his actions were justified, but he declined to do so in the case.

The circuit found support in other tax evasion and criminal antitrust cases:

  • United States v. Jinwright, 683 F.3d 471, 483 (4th Cir. 2012) (in tax evasion prosecution, excluding cross-examination concerning the witnesses’ beliefs that certain payments were non-taxable “gifts” as irrelevant in the absence that the defendants relied on this belief)
  • United States v. Powell, 955 F.2d 1206, 1214 (9th Cir. 1992) (in failure to file income tax returns prosecution, noting that “[l]egal materials upon which the defendant does not claim to have relied … can be excluded as irrelevant and unnecessarily confusing because only the defendant's subjective belief is at issue: the court remains the jury's sole source of the law. In addition, the court may instruct the jury that the legal material admitted at trial is relevant only to the defendant's state of mind and not to the requirements of the law, and may give other proper cautionary and limiting instructions as well.”)
  • United States v. Harris, 942 F.2d 1125, 1132 n.6 (7th Cir. 1991) (“Case law on which the defendant did not in fact rely is irrelevant because only the defendant's subjective belief is at issue.”)
  • United States v. Dynalectric Co., 859 F.2d 1559, 1574 n.19 (11th Cir. 1988) (in criminal antitrust and federal mail fraud prosecution, excluding evidence of economic conditions as irrelevant since the defendants did not show they relied on those conditions in submitting the bid)

The circuit also agreed that the trial court properly excluded the cross-examination under FRE 403, as "the gray-market evidence would confuse, mislead, and waste time." Without a connection to the defendant's belief, the jury would be invited to speculate about his state of mind. As the circuit noted, "at least lacking any evidence from Zayyad that he believed that he was selling gray-market pills, the jury’s inquiry would have been complete guesswork." Zayyad, _ F.3d at _.

Fifth Amendment Choice?

The Fourth Circuit dismissed the claim that the trial court limitation interfered with the defendant's Fifth Amendment Self-Incrimination Clause. Instead, the circuit reframed the argument as a complaint about "the burdens of presenting his chosen defense." This did not result in a constitutional violation:

A defendant may struggle with how to attack an element that involves his own state of mind, particularly when he lacks contemporaneous evidence of that state of mind. But a defendant’s rights “would not be violated simply because he had to choose between not testifying and laying [the required] foundation.” [United States v.] Kokenis, 662 F.3d [919,] 927 [(7th Cir. 2011)]. “Evidence by its nature builds pressure to rebut it -- that’s what the adversary system is about. That the defendant faces a dilemma demanding a choice between complete silence and presenting a defense has never been thought an invasion of the privilege against compelled self-incrimination.” United States v. Kelly, 592 F.3d 586, 594 (4th Cir. 2010) (internal quotation marks and alterations omitted). Zayyad cannot use the privilege against self-incrimination as a means to free himself from the basic rules of relevancy.

Conclusion

The Zayyad case highlights the type of showing that must be made to introduce state of mind or justification evidence. The trial court did not preclude any defense evidence on this issue. The trial court merely denied any cross-examination of government witnesses about a legitimate or "gray" market without some showing that the defendant believed he was selling in this market. Without this connection, cross-examination on this area was barred under FRE 401 and FRE 403. The evidentiary ruling also did not interfere with the right of the defendant to elect not to testify at trial.

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