SAN FRANCISCO -- Agents of the FBI and FDA arrested 10 people on June 19, charged with conspiracy to traffic in counterfeit goods, to commit criminal copyright infringement and to introduce misbranded food into interstate commerce stemming from the illegal distribution and counterfeit of the liquid dietary supplement 5-Hour Energy.
One additional defendant remains subject to an arrest warrant.
According to the indictment, all 11 defendants were involved in the illegal repackaging and eventual counterfeiting of 5-Hour Energy.
Farmington Hills, Mich.-based Living Essentials makes 5-hour Energy, which contains a blend of B-vitamins and amino acids, zero sugar, four calories and caffeine comparable to a cup of the leading premium coffee. It is available at retail outlets in the United States and Canada as well as throughout the U.K., Ireland, Spain, Portugal, the Netherlands and South Africa.
The company manufactures all 5-Hour Energy products at factories in Wabash, Ind. The company has registered and owns all 5-Hour Energy trademarks and a copyright, including the “5-Hour Energy” name and various graphic elements of the product’s labeling and packaging. The 5-Hour Energy trademarks and copyrighted material are displayed on every bottle of 5-Hour Energy and display boxes.
Living Essentials does not provide licenses to any individual or entity to manufacture 5-Hour Energy.
According to the indictment, defendants Joseph Shayota and Adriana Shayota, his wife, through their company Baja Exporting LLC, agreed with Living Essentials to distribute 5-Hour Energy in Mexico. Living Essentials manufactured the liquid 5-Hour Energy product and provided Spanish-language labeling and display boxes to Baja Exporting. Living Essentials also provided Baja a complete product package under the agreement that the 5-Hour Energy with Spanish-language labeling was only to be distributed by Baja in Mexico.
But according to the indictment, the defendants attempted instead to divert the product and to sell it in the United States at a higher price.
After initial efforts to sell the product failed because of the Spanish-language labeling and display boxes, the defendants replaced the labeling and display boxes with counterfeit labels and boxes designed to imitate Living Essentials’ U.S. packaging. The defendants repackaged more than 350,000 bottles of 5-Hour Energy and sold them in the United States at a price that was 15% lower than what Living Essentials charged for authentic 5-Hour Energy. By December 2011, Joseph and Adriana Shayota had sold off Baja’s stock.
Also according to the indictment, by early 2012, the defendants had moved into counterfeiting the entire 5-Hour Energy product. The defendants manufactured the counterfeit 5-Hour Energy liquid at an unsanitary facility using untrained day workers. The defendants mixed unregulated ingredients in plastic vats while attempting to mimic the real 5-Hour Energy products.
From December 2011 through October 2012, the defendants allegedly ordered more than seven million counterfeit label sleeves and hundreds of thousands of counterfeit display boxes and placed false lot and expiration codes on the bottles and boxes. The defendants often changed the lot and expiration codes on the counterfeit bottles and boxes to parallel the valid codes being used on the authentic product.
The indictment further alleges that the defendants travelled to Guadalajara, Mexico, and hired manufacturers for the blank plastic bottles and caps imprinted with the Living Essentials-trademarked “Running Man” logo. They also purchased equipment to shrink-wrap the counterfeit 5-Hour Energy labels on the counterfeit bottles and to place false lot numbers and expiration dates on the bottoms of the counterfeit bottles.
In addition, the indictment alleges that from May 2012 to October 2012, Midwest Wholesale Distributors distributed more than four million bottles of counterfeit 5-Hour Energy into commercial channels throughout the United States. Midwest sold approximately 508,032 counterfeit 5-Hour Energy bottles to Baja Exporting and more than 3.5 million counterfeit 5-Hour Energy bottles to the Dan-Dee Co.
Click here for a partial list of retail vendors and wholesale distributors to whom the alleged counterfeit product was sold.
All defendants are presumed innocent until proven guilty. If convicted, the defendants face the following maximum statutory penalties:
- For each count of conspiracy to traffic in counterfeit goods: 10 years imprisonment, a $2 million fine, three years of supervised release and a $100 special assessment.
- For each count of conspiracy to commit criminal copyright infringement: five years imprisonment, a $250,000 fine, three years of supervised release and a $100 special assessment.
- For each count of conspiracy to introduce misbranded food into interstate commerce: five years imprisonment, a $250,000 fine, three years of supervised release and a $100 special assessment.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.