Schedule A Defendants (SAD) Scheme

In recent years, Chinese Amazon sellers may have been unfairly targeted in huge intellectual-property infringement lawsuits filed in Chicago. These lawsuits are technically legal. Even so, trademark and copyright holders regularly claim hundreds of sellers are acting in concert to sell counterfeit goods. Regardless of the truth. The result? Amazon or another e-commerce platform freezes your account, barring you from accessing your money. 

The majority of the articles published on our blog concern this very subject. 

These cases are consistently filed using a document known as “Schedule A.” That’s important because Schedule A lawsuits conceal the identities of the defendants. The confidentiality of the defendants’ names gives the plaintiff who filed the suit a stark advantage. Any helpful adversarial evidence a single defendant may have cannot be shared with the other defendants. 

Chinese E-Commerce Sellers Unfairly Sued 

In June, Zeyi Yang of MIT Technology Review, quoted me (Travis Stockman) on this topic in two articles.

1. The US city that scares Chinese Amazon sellers

2. The counterfeit lawsuits that scoop up hundreds of Chinese Amazon sellers at once.

Below, I will examine the content of these articles. 

As I stated to Yang, approximately 70% of my Schedule A defense clients are based in China. Less than 10% are from the United States. 

The law firm that is leading the charge in these cases is primarily Greer, Burns & Crain, based in Chicago. Justin Gaudio, an attorney at that firm, says, “the reason so many Chinese sellers are sued in such cases is that counterfeiting is largely a Chinese problem,” reported Yang. 

Yang further quoted Gaudio as saying, “These cases focus on China-based defendants since the bulk of counterfeit products sent to the United States come from China and its dependent territories.” 

Now, I’d like to take a look at a specific case that Yang mentioned. It involved an e-commerce business owner named Sun Qunming. 

Descriptive Term or Trademark Infringement 

Sun’s company of 13 people sold phone cases on Amazon to customers in the US and Europe starting in 2016. Her business is based in Shenzhen, China. In November 2021, Sun listed a particular phone case with air-filled cushions on Amazon. She used the following product title, “Samsung Flip 3 Case, Galaxy Flip 3 Case with Ring, Built-in Airbag Protective Case for Samsung Galaxy Z Flip 3 5G 2021, Black.” 

Sun and over 160 other e-commerce sellers were sued for trademark infringement by PopSockets. Why did that happen? Simply because that phone case vendor, unbeknownst to Sun, had trademarked the word “airbag.” Specifically within the context of electronic device accessories – also in November 2021. Due to the lawsuit, the $60,000 balance between Sun’s two Amazon accounts were frozen and the accounts themselves were restricted. Sun went on to spend $20,000 in legal fees in response to the lawsuit. In June of 2022, her accounts were reinstated. The financial damage, however, was already inflicted. 

Check out the complaints included at the bottom of each article on our blog. There, you can see that these types of lawsuits typically use a filing template. The language in each lawsuit is nearly identical. Greer, Burns & Crain and other firms basically “mass-produce” these lawsuits. As Yang says, lawsuits that are “so new that it doesn’t have an official name yet.” This practice saves time and money in filing. It also brings in money to the plaintiffs and the firms who represent them. Herein lies the potential abuse and unfairness referred to earlier. 

The Evolution of Intellectual Property Infringement

Yang says the lawsuits may be taking advantage of online sellers like Sun who are unfamiliar with the US justice system and could encounter a language barrier. Ning Zhang, Sun’s US attorney, was quoted as saying, “It doesn’t matter if [the claims] have any merits—you can just sue [the sellers], freeze their accounts, and force them to negotiate with you to take their money back.” 

The precise definition and understanding of intellectual property and counterfeiting is not as clear in the e-commerce sphere. Prior to the existence of online sellers, counterfeit would refer to products unlawfully using brand names with the intent to profit from name recognition. 

In the case of Sun and her use of the word “airbag” which led to her alleged trademark infringement, she said she understood the word to be common and descriptive. Especially because she had previously used it. PopSockets, meanwhile, claimed in the lawsuit that Sun and the other defendants strategically set out to, “deceive unknowing consumers by using the POPSOCKETS Trademarks without authorization … to attract various search engines crawling the Internet looking for websites relevant to consumer searches for PopSockets Products.” 

The Cost of E-Commerce Lawsuits 

Yang goes on to mention Eric Goldman, law professor at Santa Clara University of Law and Co-Director of the High Tech Law Institute. In 2021, Goldman found out about a German company with rights to the word “emoji” sued over 10,000 online sellers from 2020 to 2021. A portion of those defendants included the word as part of a description for a product that had an emoji image. In one suit, the judge decided the copyright claim was too broad. Even so, the court awarded the German company $25,000 in damages from 231 of the defendants. Goldman, Yang says, published a paper on this issue and declared these lawsuits the “Schedule A Defendants Scheme” (SAD Scheme). 

Zhang, Sun’s attorney, relayed to Yang that most Chinese defendants do not take action because they cannot afford the cost of legal fees. Zhang says sellers will reach a settlement with the plaintiff or “abandon their Amazon account and the cash in it,” depending on which has a higher cost. Reportedly, the settlement amount proposals are usually 60% of the frozen account’s balance. When the court issues a default judgment, whatever cash frozen in the accounts is awarded to the plaintiff. Per Goldman, writes Yang, “70% of all Schedule A cases end in such default judgments.” Around 600,000 online sellers have been sued this way in the last 10 years, according to Goldman. 

Yang points out that plaintiff’s may have legitimate cause to file Schedule A lawsuits, but notes that Goldman’s opinion is that it is “overused.” 

Schedule A Defendant Lawsuits: Legitimate or Abusive?  

In the PopSocket lawsuit concerning the use of “airbag,” the complaint included a common claim, “E-commerce store operators like Defendants are in constant communication with each other … regarding tactics for operating multiple accounts, evading detection, pending litigation, and potential new lawsuits.” To support that kind of claim, Yang quotes Gaudio of Greer, Burns & Crain saying, “many sophisticated online counterfeiters operate under different seller aliases on multiple platforms [because] their ability to profit through anonymous internet stores is enhanced as their numbers increase.”

Moira Weigel, professor of Communication Studies at Northeastern University, Yang writes, says her research on Amazon third-party sellers shows that Chinese sellers do sometimes have multiple accounts – though forbidden by the platform – but for “mundane reasons” like ensuring products remain competitive. Weigel says, “I’m always inclined to believe that accounts of criminality are overblown.” 

Finally, I will end where Yang ended, with a quote of my own words. “It’s a procedural assembly line. It’s just a repeated process, and it’s just growing by mass numbers.”

Up Next we will be discussing the LifeVac Infringement Lawsuit.