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Intellectual Property Rights

Convicted counterfeit pharmaceutical distributor re-sentenced

HOUSTON - A Chinese national and former owner of Pacific Orient International Ltd. was re-sentenced to prison Friday for conspiring to distribute counterfeit pharmaceutical drugs and misbranding counterfeit drugs. This re-sentencing follows the decision of the 5th Circuit Court of Appeals to reverse one count of conviction. The investigation was conducted by U.S. Immigration and Customs Enforcement (ICE) and the Food and Drug Administration-Office of Criminal Investigations (FDA-OCI).

Kevin Xu, 38, was convicted following a jury trial on July 3, 2008, of conspiring to distribute counterfeit pharmaceutical drugs and causing the introduction of counterfeit and misbranded drugs into interstate commerce. In January 2009 he was sentenced to 78 months in federal prison without parole - 60 months for the conspiracy conviction to be served concurrently with 36 months for misbranding and trafficking in counterfeit drugs, and 18 months for one count of misbranding pharmaceutical drugs to be served consecutively. Xu appealed his convictions.

On March 4, the 5th Circuit Court of Appeals affirmed his convictions on all counts except one. One substantive charge was found to have insufficient evidence to prove the pharmaceutical drug at issue in that charge was registered in the U.S. Patent and Trademark Office. The case was remanded to the district court for re-sentencing.

Xu's 36-month sentence on the reversed count of conviction was to be served concurrently with the same sentence imposed on other affirmed counts of conviction for trafficking in misbranded pharmaceuticals.

On April 23, U.S. District Judge Sim Lake sentenced Xu to the same sentence originally imposed - 78 months in federal prison without parole - as the sentence imposed on the reversed count of conviction did not affect the original sentence. In addition, Xu was ordered to pay $1,286,060 in restitution to Eli Lilly Corporation and Pfizer Pharmaceuticals.

Xu owned Pacific Orient International Ltd., a foreign company based in the Peoples Republic of China that exported and distributed counterfeit pharmaceutical drugs into the United States and the United Kingdom. A nine-count indictment was filed against Xu following his arrest in August 2007, charging him with conspiring with others in the Peoples Republic of China to traffic in counterfeit pharmaceuticals and trafficking in counterfeit and misbranded pharmaceuticals. A federal jury convicted Xu of all counts in July 2008.

During the 11-month undercover investigation of Xu by agents with ICE and the FDA-OCI, Xu discussed with agents his ability to manufacture branded pharmaceutical drugs and packaging for the drugs. Xu provided an undercover agent with a list of 25 pharmaceutical drugs he could manufacture that included drugs manufactured and marketed exclusively by Pfizer Pharmaceuticals Inc., Eli Lilly Corporation, Hoffman La Roche, AstraZeneca and Sanofi-Aventis. Beginning in December 2006 and continuing through June 2007, Xu shipped Tamiflu, Plavix, Zyprexa, Aricept and Casodex to ICE agents in Houston that appeared identical to the drugs manufactured by the legitimate trademark holder. Thereafter, Xu traveled to Houston from China to meet with undercover agents to further discuss a venture to supply counterfeit pharmaceutical drugs that would ultimately be dispensed to the public.

Xu is considered to be a significant supplier of counterfeit pharmaceutical due to his ability to manufacture large quantities of various counterfeit pharmaceuticals and packaging that was identical to authentic pharmaceuticals. Chemists employed by the pharmaceutical companies and the Forensic Chemistry Center of the FDA have testified that the counterfeit drugs supplied by Xu contained active ingredients that varied from amounts listed on the label and contained unknown impurities. Agents discovered Xu had utilized the Internet and actually sold counterfeit drugs to citizens of the United States. These pharmaceuticals pose significant health risks. Records obtained during the investigation revealed Xu received more than $1.5 million from the sale of counterfeit pharmaceuticals during 2007.

Xu was also involved in the distribution of counterfeit pharmaceuticals in the United Kingdom that had penetrated the legitimate supply chain in London, prompting a massive recall for Zyprexa, Plavix and Casodex by the Medicines Health and Regulatory Agency (MHRA) in London. These pharmaceuticals bore the same lot number as the counterfeit pharmaceuticals sent by Xu to agents in Houston.

Plavix is a drug used in the treatment of blood clots, while Zyprexa is a drug used in the treatment of schizophrenia. Casodex is used in the treatment of prostate cancer. Tamiflu is used in the treatment of influenza - the flu and Aricept is used in the treatment of Alzheimers.

This case is being prosecuted by Assistant U.S. Attorneys Samuel Louis and Vernon Lewis.