Imagine you are a die-hard fan of the Major League Baseball team, the Chicago White Sox. As a supporter of the franchise, you want to buy a jersey to show your team pride. You check the team’s website only to find jerseys are listed for sale at over $100. Unable to afford this, you keep searching the internet until you find a jersey for sale at only $15. This is a much better deal, but this website is clearly not affiliated with the White Sox. Delighted with the price, you purchase the counterfeit jersey and can proudly support your team. Little did you know purchasing this jersey may have unintentionally supported an illegal activity known as trademark infringement.
Sales of counterfeit items such as this baseball jersey have become an increasingly common problem for trademark owners. Because most of these problematic sales occur over the internet, it is difficult to police the infringing activities. Counterfeit sales impact owners of all types of intellectual property (IP). IP owners have gotten creative with how they combat counterfeit sales. In the past decade, Schedule ‘A’ litigation has shown promise as an anti-infringement tool for IP owners.
I first came across this type of case while observing court proceedings in federal court during a law school externship. As a student who is interested in practicing IP law, I found Schedule ‘A’ litigation to be a unique approach to enforcing IP rights. Seeing this play out live in a courtroom prompted many questions to me, not all of which have clear answers. So, what exactly is Schedule ‘A’ litigation? Before I answer this question, let me first explain some trademark basics and background information to help you understand how this enforcement tactic developed.
How is the Sale of a “Counterfeit” Product Trademark Infringement?
Before you can understand why counterfeits violate a trademark, you need to understand what a trademark is. A trademark is a distinctive word, phrase, or logo that identifies the source of a good or service being used in commerce. A couple famous examples are Pink Floyd’s The Dark Side of the Moon album art, the golden arches of McDonald’s, or the Chicago White Sox logo. These marks identify where the product comes from. The trademark owner can use the same mark on different products to identify the source. For example, the White Sox can use their logo on a bat or jersey for sale to indicate the product comes from the White Sox. When you own a valid trademark, you can prevent other entities from using your identical trademark, or something similar to it in commerce. Someone who uses your mark in a way that is likely to confuse consumers is infringing your mark.
An important distinction in trademark infringement is the difference between a “counterfeit” product and a “knock-off” or “dupe” product. A counterfeit item is one that uses an identical trademark to the product it imitates to trick consumers into thinking the product is authentic. A dupe is a product that looks and functions similarly to another’s product but does not use its trademark to deceive consumers. Counterfeit products infringe trademarks, but the same is not true for all dupe products.
One example of trademark infringement via a counterfeit item is selling a baseball jersey with a trademark you don’t own, such as the White Sox logo trademark. Because this logo is used to identify the source of the product, i.e. the White Sox, someone selling a jersey with an identical logo without permission from the trademark owner is guilty of trademark infringement. And, identical logos, as opposed to merely similar ones, are the most blatant form of trademark infringement. There is no doubt the infringer is copying the owner’s trademark for profit. Sales of products with illegitimate trademarks such as counterfeit jerseys have been a frequent problem for trademark owners, now exacerbated by the rise in e-commerce. Many illegitimate online sellers are using trademarks they do not own on their products to fool consumers into buying their lower quality products.
This problem is not limited to sports teams’ jersey sales. It extends to all trademarks such as musical band memorabilia, designer bags, and any other iconic trademarks you could imagine. It is very difficult to prevent sales of counterfeit products. The counterfeit sellers, oftentimes located overseas, will change their names and hide their money as soon as they know the IP owner is onto them. Beyond trademarks, this problem also impacts owners of other IP such as copyright owners or patent owners.
Some IP owners view traditional remedies such as cease-and-desist letters or trademark infringement lawsuits as insufficient protection. A cease-and-desist letter is a letter to the alleged infringer that notifies them of potential legal action to stop their infringing activity. The problem with either a letter or a lawsuit is that these methods give advance notice to the party engaging in problematic conduct. In the earlier example of the jersey, if the White Sox organization sent a cease-and-desist letter to the seller of the jersey, the seller could remove all money from its website account to a different, foreign bank account. The seller could then merely create a new account under a different name to continue selling the counterfeit jerseys. The White Sox would never be able to get at the seller’s money or permanently prevent sales. Similarly, when an IP owner sues a bad-faith infringer, the infringing party can hide their money. This situation leaves IP owners stuck playing whack-a-mole, trying to stop the illegal sales from occurring. To combat this problem, Schedule ‘A’ litigation emerged.
What is Schedule ‘A’ Litigation?
Schedule ‘A’ litigation describes the process by which an IP owner may go to court and, instead of suing one company, pursue legal action against a list of tens or hundreds of companies that are selling alleged counterfeit products. This list is contained in an appendix to a lawsuit called “Schedule ‘A.’” The lawsuit refers to the companies as the “Individuals, Corporations, Limited Liability Companies, Partnerships and Unincorporated Associations on Schedule ‘A.’”
The primary advantage of this type of lawsuit is secrecy. The Schedule ‘A’ lists are often filed under seal, meaning that they are not publicly available. This benefits the IP owner because the seller does not have time to shield their profits from collection. The next step for an IP owner is to file a motion for a temporary restraining order (TRO) against all the alleged infringing defendants. The TRO allows the IP owner to prevent sales of counterfeit products from continuing to occur. One added benefit of the TRO for plaintiffs is that initially, the defendants do not get a chance to argue their case. TROs are an extraordinary remedy, but courts frequently grant them for plaintiffs in Schedule ‘A’ cases.
If a TRO is granted, a court order allows the IP owner to contact the vendor (Amazon, Temu, Walmart, etc.) and freeze the accounts of the alleged infringing product. Oftentimes, the lawsuit will continue without participation from a defendant. This results in a default judgment, which means the defendant did not participate in the lawsuit, so the plaintiff wins by default. Following this, the IP owner can collect whatever judgment the court has awarded. Some types of IP infringement, such as counterfeit trademarks (the identical ones), allow for statutory damages which can be significant—up to $200,000 per non-willfully infringed mark or $2 million per willfully infringed mark. Statutory damages are a way for courts to punish infringing defendants when actual damages are hard to prove. Thus, the IP owner can recover any money from the sales of infringing products from accounts the sellers have with the online third-party vendors.
Herein lies the biggest advantage of Schedule ‘A’ litigation: if the infringing companies had notice of the lawsuit, they could simply withdraw their money from the accounts affiliated with online vendors and create other accounts to continue illegal sales. Because Schedule ‘A’ litigation is secretive, the IP owner can launch a surprise attack and effectively recover the illicit profits.
So, to revisit the example of the baseball jersey, the White Sox can file a lawsuit against all the entities who are selling unauthorized jerseys, including the one I bought my jersey from. If the TRO is granted, the team can go to the online vendor and freeze the funds in the account. Once a default judgment is granted, they can collect this money. All this can be done without the jersey seller ever knowing about or participating in the lawsuit.
Why Does This Matter?
Sounds like a great system, right? While Schedule ‘A’ litigation seems like a great tool, irresponsible use can sometimes impact vendors and sellers adversely. When an IP owner names a defendant who sells a product that is not counterfeit, they wrongly rope them into the lawsuit. The seller must pay expensive legal fees and have sales halted despite performing no wrongful act. A seller can have their whole store shut down before they hear of any lawsuit.
Because Schedule ‘A’ litigation has been effective at preventing counterfeit sales, IP owners file this type of case more frequently. Specifically, the Northern District of Illinois has been a hotbed for such cases in the last decade or so. This unexpected tool for stopping counterfeit sales has not come without its own host of legal challenges, however. Some of the judges deciding these cases have even started to push back against Schedule ‘A’ plaintiffs.
Critics argue that Schedule ‘A’ litigation deprives the defendants of their Due Process rights if the defendant has money taken without notice. Because Schedule ‘A’ lawsuits can list hundreds of unrelated defendants, they arguably do not satisfy requirements for suing multiple parties at the same time. Also, the only way the plaintiff in these lawsuits contacts the defendants is through an email. Critics say this fails to meet notice requirements. One court recently agreed. Also, sometimes the infringement claims lack merit and wrongly hamper small businesses. These are just a few examples of the way judges, scholars, and (more rarely) practitioners have pushed back on the use of Schedule ‘A’ litigation to enforce IP rights.
A case before the Seventh Circuit Court of Appeals in Louis Poulsen AS v. Lightzey exemplifies the problems with this enforcement tool. The defendant, Lightzey, never made any sales in Illinois, yet still had their assets frozen when a TRO was granted. After Lightzey succeed in getting the case dismissed, they attempted to recover legal fees from the company that sued them. Lightzey is now appealing the court’s decision not to grant recovery. They argue that the plaintiff failed to investigate the defendant’s sales and wrongly roped them into this lawsuit. The defendant is asking the court to make the plaintiff pay the defendant’s fees associated with the lawsuit. This case presents a narrow issue of whether the court abused its discretion in failing to award attorney’s fees, but gives the Seventh Circuit the opportunity to give its opinion of Schedule ‘A’ litigation in its reasoning. Some have requested such guidance in an amicus brief filed in support of the petitioner.
Appellate courts rarely get such an opportunity to weigh in on Schedule ‘A’ cases because of the short-lived nature of the litigation. Whether the court gives Schedule ‘A’ litigation its blessing, condemnation, or pays it no mind, practitioners are patiently waiting to see what the Seventh Circuit will say. Plaintiffs’ attorneys prefer this effective tactic to proceed unfettered which benefits IP owners looking to aggressively enforce their rights. Other more skeptical attorneys want to ensure courts acknowledge constitutionally protected procedural guarantees. If the court acknowledges the issues associated with Schedule ‘A’ litigation, they could lay the foundation for future decisions clarifying the limits of joinder and notice. Such decisions would promote fairness and help avoid harming accused infringers who have been incorrectly swept up in lawsuits. With counterfeit products flooding the websites of online vendors, such clarity is paramount for efficient trademark enforcement.
Beyond courtroom developments, enforcement of IP rights still impacts the consuming public. It is important to be informed about where a product you buy comes from. If you buy a counterfeit product, you could be encouraging infringement. While consumers that purchase infringing goods will not face direct consequences, their money enables bad-faith actors to take advantage of IP they do not own. In any event, be sure to check twice where it comes from before you buy your next White Sox Jersey!
John Golden
Associate Blogger
Loyola University Chicago School of Law, J.D. 2027