“Schedule A” litigation is a form of intellectual property (IP) litigation that involves suing multiple online sellers (sometimes in the hundreds) accused of infringing trademark, copyright, or patent rights, with Chinese sellers being a prime target of such lawsuits. The defendants are joined in a single lawsuit and identified in a so-called “Schedule A,” usually by reference to an online store name, trade name, or domain.
For a company addressing infringement of its IP rights by dozens or even hundreds of online sellers, Schedule A litigation appears to be a good option—alternative service of process on foreign defendants, joinder of the defendants in a single lawsuit, and a temporary restraining order that extends to third-party financial institutions and freezes the defendants’ assets combine to give IP owners a powerful weapon in enforcing their IP rights against alleged infringers.
However, for Chinese sellers and other targets of Schedule A litigation, Schedule A litigation raises serious issues of unfair competition, lack of due process, and abuse of the judicial system. Professor Eric Goldman of Santa Clara University School of Law describes Schedule A litigation as:
a sophisticated but underreported system of mass-defendant intellectual property litigation [that] occurs most frequently in the Northern District of Illinois and principally targets online merchants based in China. The SAD Scheme capitalizes on weak spots in the Federal Rules of Civil Procedure, judicial deference to IP rightsowners, and online marketplaces’ liability exposure. With substantial assistance from judges, rightsowners can use these dynamics to extract settlements from online merchants without satisfying basic procedural safeguards like serving the complaint and establishing personal jurisdiction over defendants.[1]
This article first provides a summary of Schedule A litigation and then describes several controversial aspects of Schedule A litigation from the perspective of IP owners seeking to efficiently combat counterfeits and Chinese sellers faced with such lawsuits. The article concludes with observations on improving Schedule A litigation to better balance the interests of IP owners, online sellers, online marketplaces, consumers, and the courts.
Schedule A Litigation
“Schedule A” refers to an increasingly popular form of IP lawsuit filed in federal district court that names multiple defendants in a single complaint.[2] The plaintiff is usually an IP owner who alleges the defendants are selling counterfeit or infringing goods on an online marketplace. The defendants, who are oftentimes Chinese sellers and can number in the hundreds, are typically listed in a “Schedule A” attachment to the complaint, usually by reference to an online store name, trade name, or domain. The complaint is typically filed with a caption generically referencing the defendants as “The Individuals, Corporations, Limited Liability Companies, Partnerships, and Unincorporated Associations Identified on Schedule A Hereto” and under seal to avoid alerting the defendants that they have been sued and allow the plaintiff to obtain a temporary restraining order.
Along with the complaint and the Schedule A, the plaintiff typically files multiple motions seeking the following relief:
- Leave to file the complaint and Schedule A under seal to allow the plaintiff to effect service and obtain an ex parte TRO;
- Leave to serve the defendants using alternative means (usually by email to the address registered with the online platform) to avoid normal means, such as through the Hague Convention for foreign defendants;
- An ex parte TRO ordering (a) the defendants to stop the allegedly infringing conduct; (b) third-party online marketplaces to take down allegedly infringing products, freeze the defendants’ financial assets in their online marketplace accounts, and provide information regarding the defendants and the allegedly infringing products to the plaintiff; and (c) third-party financial institutions to freeze the defendants’ financial assets.
The motions are typically granted in their entirety, with a nominal bond required for the TRO.
The following steps illustrate the typical process after the court grants the plaintiff’s motions:
- The plaintiff provides the TRO to the online marketplace platforms, confirms the marketplaces will comply with the TRO and freeze the defendants’ allegedly infringing marketplace activity and accounts, and obtains the identifying and financial information for each defendant;
- The plaintiff serves each defendant with the complaint, summons, and TRO using the alternative means authorized by the court. For Chinese sellers, this typically means by email;
- Having had their products taken down from the online marketplace and their accounts and cashflow frozen, certain defendants may, regardless of the merits of the plaintiff’s claims, try to settle with the plaintiff and get dismissed from the case;
- A TRO initially lasts for fourteen days, but the court may extend the TRO for another fourteen days at the plaintiff’s request or until a preliminary injunction hearing is held to determine whether the TRO’s restrictions on the defendants and online marketplaces should be continued during the pendency of the case. Many Chinese defendants opt not to appear at the preliminary injunction hearing for various reasons, but the consequence of failing to appear is that the court will normally enter a preliminary injunction against those defendants. For defendants who appear at the hearing, the court will hear evidence and arguments and decide for each defendant whether to enter a preliminary injunction. The court may also dismiss the case against certain defendants or sever certain defendants from the case based on service of process, personal jurisdiction, joinder, or venue. During this process, with their products still down from the online marketplace and their accounts and cashflow still frozen, certain defendants may try to settle with the plaintiff.
- After the preliminary injunction hearing, the case will proceed against defendants who have not been dismissed or severed from the case. Defendants who have not formally responded to the complaint will need to do so; otherwise, they risk being found in default and subsequently having a default judgment with a damage award and permanent injunction entered against them. Any damage award may be collected against any assets still frozen under the TRO and preliminary injunction.
Controversial Aspects of Schedule A Litigation
TRO/Preliminary Injunction
The plaintiff in Schedule A litigation obtains significant leverage over the defendants when it obtains a TRO that enjoins the defendants from selling or otherwise dealing in the allegedly infringing products, orders online marketplaces to take down the allegedly infringing products, and freezes the defendants’ assets. The plaintiff can secure assets that may otherwise be difficult to obtain from foreign defendants, leverage the defendants’ dire situation to negotiate quick favorable settlements, and obtain default judgments that can be easily enforced against the restrained funds.
From the defendants’ perspective, such broad injunctive relief, based on general conclusory and often inaccurate allegations, granted on an ex parte basis, and oftentimes secured only by a nominal bond, is anti-competitive, unjust, and non-compliant with due process and procedural rules.
For Chinese defendants faced with a Schedule A TRO (or potential preliminary injunction), the injunctive relief should be carefully examined and challenged when appropriate. Issues of note include the following:
- How do the plaintiff’s general conclusory allegations of infringement (covering the entire group of defendants named on the Schedule A) apply to a specific defendant’s actual circumstances? Schedule A litigation is intended to cast a huge net and inevitably captures some defendants for whom the allegations of infringement are false or misleading at best.
- Does the requested injunctive relief restrain the defendant’s ability to conduct business wholly unrelated to the allegedly infringing conduct? The outcome of injunctions in Schedule A litigation often impacts all the defendant’s marketplace activity and prevents it from conducting business unrelated to the allegedly infringing conduct (e.g., selling products not accused of infringement).
- Does the asset restraint include funds wholly unrelated to the alleged infringement? In many cases, the funds contained in a frozen account include amounts from the sale of the allegedly infringing products and amounts from the sale of wholly unrelated products. Moreover, defendants’ accounts are usually “frozen” in one direction only—funds are not allowed out but are allowed in—which results in the amount frozen to continuously increase and the percentage of funds related to the accused products to continuously decrease during the period the restraint is in place.
- Does the TRO or preliminary injunction comply with Fed. R. Civ. P. 65(c)? “The court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c). In many Schedule A cases, the plaintiff proposes, and the court accepts, a nominal bond (e.g., $5,000) regardless of the number of defendants, the volume of potential lost sales due to the injunction, or the amount of funds restrained. In a case involving hundreds of defendants, millions of dollars of potential lost sales, and millions of dollars of frozen funds, a $5,000 bond to cover “the costs and damages sustained by [defendants] found to have been wrongfully enjoined or restrained” is woefully deficient. Some judges in the Northern District of Illinois now require plaintiffs in Schedule A cases to post a bond of $1,000 per defendant, which hopefully will cause plaintiffs to conduct a more thorough pre-filing investigation, evaluate their cases more carefully, and be more selective on who to include on their Schedule A list of defendants.
Service of Process
Schedule A litigation is often targeted at foreign defendants, in particular Chinese defendants, so it is not unusual for Schedule A plaintiffs to have to serve process on tens or hundreds of foreign defendants in a single case.
Fed. R. Civ. P. 4(f) is intended to address service of process on foreign defendants outside the U.S. Fed. R. Civ. P. 4(f) has three subsections: subsection (1) says service may be made by an internationally agreed method of service, such as the Hague Convention; subsection (2) addresses service where there is no governing international agreement; subsection (3) is a catch-all provision authorizing service pursuant to a court order “by other means not prohibited by international agreement.” Under Fed. R. Civ. P. 4(f)(1) service of process by an internationally agreed method (e.g., Hague Convention) should be the norm. While Fed. R. Civ. P. 4(f)(3) allows service of process by alternative means, alternative means is usually permitted only after the plaintiff has made a prior attempt at service under the Hague Convention.
However, certain courts appear to be more receptive to allowing alternative service under Fed. R. Civ. P. 4(f)(3). In the Northern District of Illinois, for example, judges typically allow service by email on foreign defendants in Schedule A cases, which makes it simple for plaintiffs to serve tens or hundreds of foreign defendants and risker for each foreign defendant to ignore email service as ineffective.
Joinder
In Schedule A litigation, the plaintiff will typically file a complaint alleging infringement of its IP rights against tens or even hundreds of defendants, along with a series of motions including one for entry of a TRO. At this juncture, the court can either grant the TRO and other motions, which it usually does, or require the plaintiff to demonstrate that joinder of the defendants is proper under applicable rules.
By suing multiple defendants in a single lawsuit, the plaintiff can save time and money on filing fees, service of process, discovery, and litigation management. The plaintiff can also leverage the economies of scale to pursue infringers who may otherwise be too small or too numerous to sue individually. However, by suing multiple defendants in a single lawsuit, the plaintiff may violate the rules of joinder, which require that the claims against the defendants arise out of the same transaction, occurrence, or series of transactions or occurrences and that there be a question of law or fact common to all defendants. See Fed. R. Civ. P. 20(a)(2)(A)-(B).
For patent cases, joinder is permissible only where the claims against the defendants arise out of “the same transaction, occurrence, or series of transactions, or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process” and “questions of fact common to all defendants or counterclaim defendants will arise in the action.” 35 U.S.C. § 299(a)(1)-(2). Absent waiver, accused infringers may not be joined together “based solely on allegations that they each have infringed the patent or patents in suit.” Id. § 299(a)(2).
How should a court handle the joinder (or misjoinder) issue in a Schedule A case?
H-D U.S.A. v. Partnerships and Unincorporated Associations Identified on Schedule “A”, 2021 WL 780486 (N.D. Ill. Mar. 1, 2021), is instructive. In H-D, the court sua sponte addressed the joinder issue after the plaintiff filed a complaint asserting trademark infringement against 198 defendants and moved to file the complaint under seal and for a temporary restraining order. After examining the complaint, the court found that:
Plaintiff’s only allegation in support of joinder is brought merely on information and belief: that the defendants ‘are an interrelated group of counterfeiters working in active concert to knowingly and willfully manufacture, import, distribute, offer for sale, and sell Counterfeit Harley-Davidson Products in the same transaction, occurrence, or series of transactions or occurrences. But that alone is not a factual averment. Rather, it is a conclusory statement supported by only another conclusory statement that the defendants have ‘notable common features, such as use of the same registration patterns, accepted payment methods, check-out methods, keywords, illegitimate search engine optimization (SEO), advertising tactics, similarities in price and quantities, the same incorrect grammar and misspellings, and/or the use of the same text and images,’ and ‘[o]n information and belief’ communicate with one another in chat rooms. But Plaintiffs make no factual showing whatsoever supporting these conclusory allegations.”
Id. at *2 (citations omitted). The court held that such conclusory allegations were insufficient to justify joinder of the 198 defendants and ordered that “[the plaintiff’s] motions are taken under advisement and Plaintiff is ordered to show cause, in writing, as to why the case should not be dismissed or severed for misjoinder …. Alternatively, Plaintiff may file an amended complaint by then if it can cure the joinder issues raised herein.” Ultimately, the plaintiff in H-D amended its complaint naming a single defendant and soon thereafter voluntarily dismissed the case against that defendant.
Chinese defendants should consider whether misjoinder applies in their case and, if so, whether it makes strategic sense to seek dismissal from the case or, alternatively, to be severed from the case.
IP rights holders certainly have a challenge in enforcing their IP rights against myriad infringers operating on online marketplaces. Schedule A litigation may be an appropriate solution in some cases, but it is clearly not the right solution in many cases pursued to date. What plaintiffs should recognize is that not all defendants – not even Chinese defendants – are the same. Some may be blatant counterfeiters while others are not. Some may, as alleged, hide their true identity and business address while others may not. Some may be related and working together, but most are not.
In any event, plaintiffs initiating Schedule A litigation should have a good faith and reasonable basis for their infringement allegations and a proper basis for joining the tens or hundreds of defendants listed on Schedule A. They should conduct adequate pre-suit investigations and file complaints in good faith. Judges need to be willing to test the plaintiffs’ allegations at the ex parte TRO stage before issuing a TRO and should comply with the requirements of Fed. R. Civ. P. 65(2). Judges need to sua sponte address the issue of misjoinder. And Chinese defendants need to stand up for themselves and fight when the circumstances call for it.
Skip Fisher is a partner and a member of the firm’s Intellectual Property, Litigation, IP Transactions, and International practices. His practice focuses on strategic counselling, high-stakes litigation, and complex licensing in all areas of intellectual property, and he has a niche practice in Chinese intellectual property law, practice, and procedure. Skip has been recognized for his IP expertise by leading legal directories, including Chambers, The Legal 500, Acritas Stars, MIP IP Stars, and IAM Patent 1000. Any opinions stated in this paper are the author’s alone and do not necessarily reflect the opinions of his firm or the clients of his firm.
[1] E. Goldman, A Sad Scheme of Abusive Intellectual Property Litigation, Columbia Law Review Forum, vol. 123, pp. 183 (2023).
[2] Most Schedule A cases are filed in a handful of federal district courts, with the vast majority filed in the Northern District of Illinois. The Southern District of Florida and Southern District of New York are also popular venues.
