Brands Flock to Chicago Court in War on Internet Counterfeiters

Harry Styles, the NBA, and other big-name brands have filed thousands of lawsuits over the past decade in a Chicago-based federal court to stop alleged online counterfeiters, using a strategy that’s now drawing more scrutiny from judges and academics.

The strategy involves filing intellectual property complaints against a group of online merchants—sometimes hundreds at a time—under a single docket using what’s known as a “Schedule A” filing.

Some say the practice is necessary to combat a spike in counterfeit merchandise flowing into the country. One Library of Congress report estimated illegal domestic and international sales of counterfeits at $1.7 trillion to $4.5 trillion per year. Others criticize “Schedule A” litigation as an abuse of the system that improperly groups unrelated defendants and falls short of procedural protections.

The US District Court for the Northern District of Illinois received 817 Schedule A filings in 2022, a Bloomberg Law analysis of federal dockets found. That’s an increase of more than 900% from 2013, when the first Schedule A cases were filed. The court is on pace to surpass that mark, with nearly 250 of the lawsuits being filed already this year.

The combination of experienced judges and convenient jurisdictional rules is among the reasons that court has become so popular for filing mass counterfeiting suits, attorneys say. The lawsuits seek fast injunctions and often result in default judgments to stop online counterfeiters, whose operations are often based in China or other foreign jurisdictions and are almost impossible to identify.

But some Northern District judges have begun to question the strategy.

“These cases are coming with a level of frequency that is making some of us wonder, ‘Why? Why us?’” Judge Manish Shah said at a January hearing where he granted a $50,000 default judgment against a group of unresponsive online vendors. “Have we been too easy and not skeptical enough on this practice? Are we getting taken advantage of by the plaintiffs’ bar in bringing these cases?”

Schedule A’s Rapid Rise

Brand owners and their attorneys view the lawsuits as one of the few available tactics to counter an enormous rise in counterfeit merchandise flowing into the US from elusive foreign sellers.

The lawsuits allow them to shut down listings and deter counterfeiters through monetary damages, said Justin Gaudio, an attorney at Greer Burns & Crain LLP who filed more than 100 Schedule A cases last year. The strategy is more effective than the “Whack-a-Mole game where you’re sending takedown notices to the platforms,” he said.

In a typical Schedule A case, a brand will sue a large group of entities that sell counterfeit products through their own websites or on e-commerce sites like Amazon.com Inc. or eBay Inc.. In a single lawsuit, brands can list hundreds—or even thousands—of defendants on a document titled “Schedule A,” often filed under seal.

There’s typically little to no publicly available information about the defendants, who are often identified on schedules under names such as “cheapjerseys.sale.”

Plaintiffs can quickly ask the court to freeze the accounts of the alleged counterfeiters on the marketplaces.

Since 2013, the Northern District of Illinois has received 3,220 Schedule A complaints, with filings increasing every year since 2015, Bloomberg Law’s analysis found. The largest jump in cases came at the start of the pandemic, when 2020 filings rose to 485, from 295 in 2019.

Almost 85% of the complaints were trademark infringement lawsuits, the others being copyright and patent cases.

Gaudio said his firm first started filing Schedule A cases in 2011, and the tactic has since become a substantial part of its anti-counterfeiting practice.

Legal Safeguards

Eric Goldman, a law professor at Santa Clara University, published a paper in March that called the Schedule A lawsuits an “abusive” litigation scheme that bypasses legal safeguards and ultimately costs federal courts.

He cites a 2021 Schedule A case brought by German company Emoji Co. GmbH, which owns a US trademark registration for the word “emoji.” The complaint flagged hundreds of Amazon listings that included the word “emoji,” even for products where the use of the word clearly doesn’t violate trademark law, Goldman said.

Judges’ willingness to quickly grant temporary restraining orders allows plaintiffs like Emoji Co. to get away with legally flawed complaints without much scrutiny, he argued.

The threadbare allegations often don’t identify why the Illinois court has personal jurisdiction over each defendant, he said. “That’s just an abuse.”

Sarah Burstein, a Suffolk University law professor and academic co-director of its IP Center, said that plaintiffs also appear to be strategically selecting judges.

In some cases, she said, plaintiffs have dismissed defendants who haven’t yet responded or been served when their suit was assigned to a judge known to require plaintiffs to post large bonds when seeking temporary restraining orders—only to refile in hopes the case is assigned to another judge.

Sealed Lists

Goldman also expressed concerns about Schedule A lists of defendants being sealed and plaintiffs not providing service of process, resulting in companies sometimes finding out they’ve been sued only after their marketplace accounts have been frozen.

Sealing, however, can be necessary to ensure that defendants don’t destroy evidence or delete their accounts, said William Stroever, an attorney at Cole Schotz PC.

“Back in the old days when anti-counterfeiting lawyers were doing raids on Canal Street in New York, you don’t tell everyone you’re coming in the morning,” he said.

Stroever acknowledged that non-infringing sellers may get tied up in these suits, but he said that’s an inevitable risk with all kinds of litigation.

Goldman said he’s also concerned about multiple unrelated defendants being improperly grouped into one lawsuit. The grouping strategy allows plaintiffs to avoid paying an additional $402 filing fee to the court for each complaint. That’s “costing taxpayers millions of dollars to have these cases handled in a mass fashion,” he said.

“Brand owners cannot afford to pay a quarter-billion [dollars] in filing fees to enforce their trademark rights through the courts,” Gaudio said, adding that the court system also wouldn’t be able to support the resulting number of cases, which often fit the same fact patterns—even if the grouped defendants turn out to be unrelated.

Why Chicago?

The Northern District of Illinois has drawn so many Schedule A cases for several, often self-reinforcing reasons.

Plaintiffs often want to sue in a court that already has experience with those types of cases, said Saurabh Vishnubhakat, director of Cardozo Law School’s intellectual property and information law program. He likened the filings to “a repeat player story,” with “a relatively small number” of attorneys driving the trend.

Stroever said that plaintiffs may not want to risk filing in other districts, where judges are less experienced and may rule differently.

Jurisdiction precedent in the Chicago-based court could also play a role in helping plaintiffs.

Last year, the Seventh Circuit ruled that the Northern District of Illinois had personal jurisdiction over a China-based retailer that sold a single pair of counterfeit shorts to the Illinois-based attorneys for the NBA.

The ruling acknowledged that in other circuits, plaintiffs’ attorneys purchasing a single product may not suffice to establish jurisdiction.

Attorneys said they’ve noticed a rise in Schedule A filings in New York and Florida, though not to the level seen in Illinois.

“The big picture conclusion is that there’s a business model involved here, a business strategy,” said Vishnubhakat.

Goldman doesn’t see the practice changing anytime soon.

“As long as it keeps working,” he said, “plaintiffs are going to keep doing it.”