Column: Chicago judges are starting to push back against 'SAD' scheme in IP cases

Reuters

Column: Chicago judges are starting to push back against 'SAD' scheme in IP cases

Nov 19, 2024 at 9:53 pm GMT

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The opinions expressed here are those of the author, a columnist for Reuters.

By Alison Frankel

Nov 19 (Reuters) -For the last decade, Chicago federal court has been the hub of a peculiar brand of intellectual property litigation that one prominent law professor has dubbed an “abusive” scheme to exploit procedural rules and capitalize on judicial deference to IP owners.

The strategy, as described by both Santa Clara University law professor Eric Goldman and Chicago-Kent College of Law professor Sarah Burstein, is for a lone plaintiff to join dozens or even hundreds of alleged infringers or counterfeiters in a single lawsuit alleging that all of the defendants are operating in concert and must be immediately enjoined from operating internet storefronts.

A key feature of the cases, according to the law professors, is secrecy: The lawsuits typically list defendants — usually foreign companies operating online storefronts on Amazon, eBay, Etsy and other U.S. platforms — in a separate schedule filed under seal. (That’s why Goldman calls these cases “Schedule A defendant,” or SAD, lawsuits.)

Most of the defendants, Burstein told me, do not even know they have been sued until judges have granted temporary restraining orders that freeze their U.S. bank accounts and shutter their internet storefronts. By then, Burstein said, defendants have little choice but agree to (undisclosed) settlements.

Hundreds of Schedule A cases are filed every year in Chicago federal court, in what U.S. District Judge Steven Seeger described as “a torrent” in a ruling last December denying Zorro Production’s request to litigate its motion for a restraining order against 310 defendants in secret. Seeger said the Chicago federal courthouse had become “an assembly line” for Schedule A cases requesting ex parte restraining orders against defendants that have no idea they've been named in lawsuits.

Burstein, who has written a forthcoming Harvard Law Review article discussing how trademark plaintiffs in Schedule A lawsuits take advantage of judges' disdain for counterfeiters, said these cases are “the most important phenomenon in IP litigation that no one is paying attention to.”

But Chicago judges recently seem to have begun to push back against Schedule A cases.

Just look at the last few weeks. On Nov. 4, U.S. District Judge John Blakey dismissed a copyright infringement case against 18 defendants that, by his reading of the plaintiff's allegations, were not related to each other. On Nov. 12, U.S. District Judge Sunil Harjani denied a different copyright owner's motion for a temporary restraining order against 59 defendants, holding that the plaintiff failed to allege a relationship among the defendants that would justify their joinder in a single lawsuit.

Then on Monday, U.S. District Judge Jeremy Daniel tossed Toyota Motor Sales' Schedule A trademark infringement case against 103 defendants that he found to have been misjoined in a single lawsuit.

The Daniel decision is especially notable because the judge gave plaintiffs lawyers at Greer, Burns & Crain a chance to brief the joinder question. Daniel requested the supplemental brief in an Oct. 18 order registering his concern that Toyota, like other Schedule A plaintiffs in cases before him, had failed to allege any concerted action by defendants. (Earlier this month, as Santa Clara law professor Goldman has reported, Daniel issued a similar order in a different Schedule A case. The plaintiff in that case voluntarily dismissed its suit without submitting the requested supplemental brief justifying joinder.)

None of the four Greer Burns lawyers who signed Toyota's Oct. 25 brief addressing Daniel’s joinder concerns responded to my email query. But their brief argued that the defendants were all part of a “swarm” of “offshore internet-based counterfeiters who exploit the anonymity and mass reach afforded by the internet."

Requiring Toyota to file individual lawsuits against each alleged infringer, the brief said, would defy the impact of these sprawling attacks on the company’s intellectual property rights. Moreover, Greer Burns pointed out, federal judges in Chicago and several other venues (including federal courts in Manhattan and Miami) have, over the last decade, allowed hundreds of plaintiffs to proceed with lawsuits joining multiple anonymous internet storefronts linked only by their alleged infringement.

Toyota’s swarm argument relied heavily on a 2020 decision by U.S. District Judge Thomas Durkin of Chicago in a Schedule A counterfeiting case filed by Bose Corp. Durkin ruled that Bose, which, like Toyota, was represented by Greer Burns, adequately alleged that 17 Chinese defendants were linked by the mass harm they caused the company. "It is the injuries in the aggregate — the swarm — that is harmful and from which Bose seeks shelter,” Durkin concluded.

Daniel rejected that rationale in Monday’s Toyota decision, comparing the alleged infringers in Toyota's Schedule A to vendors hawking unauthorized merch outside of concert venues. Though vendors might be selling similar wares at similar prices, Daniel said, they are not acting in coordination with each other. They are competitors, he said, not conspirators — and federal procedural rules do not permit competitors acting on their own to be joined in a single lawsuit.

The recent rulings by Blakey, Harjani and Daniel are not the first to deny joinder in Schedule A cases in Chicago. As I mentioned, Seeger was fairly scathing about these lawsuits in his December 2023 Zorro decision. And last May, U.S. District Judge Joan Gottschall of Chicago declined to follow Bose when she ruled that plaintiffs in four different infringement lawsuits had improperly joined defendants linked only by their purported infringement. Gottschall, in turn, cited two other Chicago trial judges who had previously cast a skeptical eye on Schedule A joinder.

But Chicago-Kent law professor Burstein said the recent rulings seem to signal mounting resistance, at least among Chicago federal judges, to Schedule A cases.

Because these cases were often litigated in secret and settled outside of court, Schedule A lawsuits “were operating in the shadows,” Burstein said. “Finally some judges started speaking up [and] now we are starting to see pushback.”

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