Sun Qunming had no concept that the phrase “airbag” could possibly be trademarked.
Sun, who owns an e-commerce firm of 13 individuals in Shenzhen, China, has been promoting cellphone instances to Amazon consumers in Europe and the US since 2016. But final yr, her enterprise floor to a halt. One of her merchandise has air-filled bumper cushions at the perimeters to guard the cellphone. When she listed it on Amazon in November 2021, she named it—within the typical e-commerce vogue of piling up key phrases to draw search site visitors—“Samsung Flip 3 Case, Galaxy Flip 3 Case with Ring, Built-in Airbag Protective Case for Samsung Galaxy Z Flip 3 5G 2021, Black.”
What she didn’t know was that in the identical month, the phrase “airbag” when used within the context of digital machine equipment had been trademarked by one other cellphone case vendor, PopSockets. Just a few months later, the corporate sued Sun and greater than 160 different on-line sellers for trademark infringement. Sun’s two Amazon vendor accounts have been restricted and her account balances, totaling $60,000 at the time, have been frozen.
Over the following three months, Sun says, she spent $20,000 in authorized charges to reply to the lawsuit. The account suspension was dropped in June 2022, however the injury to her enterprise was accomplished: a brand new cellphone case sometimes sells properly for a few yr till the next-generation cellphone comes out, and she or he missed the window.
“I had plans for my life, like how my career would grow in a few years,” Sun says. “But when they did that to me, I felt like my whole plan had been disrupted. And I didn’t know what to do.”
What Sun skilled was not an accident, however a comparatively current growth on the planet of cross-border e-commerce.
US legislation companies, notably a handful based mostly in Chicago, have been placing collectively mass intellectual-property instances like this one, suing hundreds of sellers on Amazon or different platforms at the identical time for promoting counterfeit items. It’s a brand new kind of lawsuit—so new that it doesn’t have an official title but. One factor they’ve in widespread is that a number of defendants are sued at once, and the defendants’ identities are stored hidden.
These instances are designed to guard IP holders from counterfeiters, who’re a lot tougher to hint and maintain accountable within the period of e-commerce.
But within the US, these lawsuits have additionally turn into a profitable enterprise for the plaintiffs and their legislation companies. Lumping so many defendants collectively saves plaintiffs money and time when submitting instances in federal courts. The method is so streamlined and structured, legal professionals advised MIT Technology Review, that companies can mass-produce the lawsuits, reusing submitting templates and suing batch after batch of sellers. These practices should not illegal, however some legal professionals and teachers imagine they quantity to taking benefit of the IP safety system.
Chinese sellers now make up the bulk of third-party sellers on Amazon. But as their companies bloom, they’re additionally studying laborious classes about adjusting to a unique cultural and authorized system. Sellers like Sun really feel the lawsuits are designed to take benefit of individuals who lack expertise with the American justice system and face a language barrier.
“It started as a normal way to defend intellectual-property rights,” says Ning Zhang, an lawyer within the US who has represented Sun and different sellers in related conditions. But over time, Zhang says, she has witnessed the IP violation claims getting more and more baseless. “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.”
Staking trademark violation claims
Chinese merchandise have lengthy been related to counterfeiting and intellectual-property theft. This just isn’t with out trigger. In 2022, 60% of the counterfeit items seized at US borders, by worth, got here from China.
But IP rights and counterfeiting have turn into a lot blurrier ideas within the age of third-party e-commerce markets. Traditionally, counterfeit items revenue off established model names by driving on their title recognition. Not all logos are recognizable names, although; some simply appear like descriptive phrases.
In November 2020, PopSockets, a US firm that designs cellphone instances and different equipment, utilized to trademark the time period “airbag” underneath the class of “hand grips, stands, mounts, and cases adapted for handheld electronic devices.” The firm has merchandise that use air-filled elements, however examples of the phrase’s use to explain related options additionally existed earlier than the trademark. The software was authorized a yr later, on November 9, 2021.
Sun Qunming says she had used the phrase “airbag” earlier than to explain different cellphone instances she offered with out inflicting any hassle. And she admits she didn’t test whether or not it was trademarked this time. “If it’s an uncommon word, we will look it up in the trademark database to see whether it’s registered. But in terms of ‘airbag,’ the reason why I didn’t look it up was because I thought it was just a descriptive term. You see it everywhere,” she says.
The plaintiff, nonetheless, claimed within the lawsuit that defendants like Sun “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.” PopSockets declined to remark for this story.
These types of lawsuits first appeared on the radar of Eric Goldman, a legislation professor at Santa Clara University School of Law and co-director of the High Tech Law Institute, in 2021. A German firm that owns and licenses the phrase “emoji,” he found, had sued an estimated whole of greater than 10,000 e-commerce sellers from 2020 to 2021. Some of the events sued had merely used the phrase to explain a product that really included the picture of an emoji. But the court docket selections are working in its favor. In one of the handfuls of instances, the choose discovered the copyright declare too expansive however however awarded the proprietor $25,000 in statutory damages from every of the 231 sellers being sued.
Goldman, in a paper printed in March, calls this sort of lawsuit a “Schedule A Defendants Scheme” (or “SAD Scheme”). When these instances are filed, the names of defendants are put right into a doc, Schedule A, that is commonly instantly made confidential at the request of the plaintiff. As a outcome, the instances can contain hundreds of sellers at the identical time, but the sellers don’t know who else is being sued, and so they normally don’t know they’re being sued themselves till the court docket orders Amazon to freeze their accounts.
After Goldman regarded into the emoji instances, he stored eager about them. IP trolling lawsuits have existed for many years, however the way in which the instances have been filed struck him as taking benefit of the present court docket mechanisms to a singular diploma. “I just spent hours and hours peeling the layers in the end, and I kept getting more and more upset, realizing that there was a problem here that was systemic,” Goldman says.
China targets
Not all Schedule A lawsuit defendants are from China, however attorneys who spoke to MIT Technology Review say it’s Chinese sellers who appear to be focused essentially the most typically. Travis Stockman, a New York–based mostly lawyer who has represented e-commerce sellers in these instances, says about 70% of his Schedule A protection purchasers are from China, whereas fewer than 10% are based mostly within the United States.
Justin Gaudio, an lawyer at the Chicago-based legislation agency Greer, Burns & Crain (GBC) and the lead counsel for the plaintiff within the airbag lawsuit, advised MIT Technology Review in an electronic mail that the rationale so many Chinese sellers are sued in such instances is that counterfeiting is essentially a Chinese downside.
“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,” he stated, citing a report from the Buy Safe America Coalition. He declined to touch upon the airbag case particularly, and GBC declined to touch upon claims that the observe abuses the system.
What’s extra sure is that it’s rarer to see Chinese defendants seem in court docket and combat the claims, Zhang says. There are methods to push again on the IP infringement claims and to argue that due course of is lacking, she says, however sellers are seldom keen to attempt. They typically aren’t in a position to afford the authorized charges or the prolonged time it takes for a case to resolve.
Instead of preventing again, the defendants could both settle with the plaintiff or abandon their Amazon account and the money in it. Making a call normally comes all the way down to which one prices extra. Zhang says the proposed settlement quantity is commonly about 60% of the frozen account’s stability.
If sellers have simply small quantities of cash trapped of their Amazon account, they could properly resolve to not reply at all. The court docket ultimately makes a default judgment, awarding no matter’s frozen within the account to the plaintiffs. Goldman estimates that 70% of all Schedule A instances finish in such default judgments.
The meeting line of IP lawsuits
IP lawsuits with massive teams of e-commerce sellers as defendants first appeared within the early 2010s. The numbers of such instances have grown considerably in recent times, but only a few persons are conscious of their influence. According to Docket Alarm, a authorized database, the quantity of Schedule A instances filed within the US rose from 67 in 2016 to 938 in 2022. Goldman estimates that greater than 600,000 defendants could have been sued on this method during the last decade.
An whole Schedule A case can unfold within the matter of a couple of days. In the airbag case, after GBC filed the case on behalf of PopSockets on February 17, 2022, and sealed Schedule A, the authorized group requested the choose to concern a brief restraining order (TRO) the following day requiring Amazon, AliExpress, and Wish to freeze all 163 defendants’ accounts.
Five days later, the choose granted the movement. Sun realized about it eight days later as a result of her account was suspended by Amazon. It would take her till April to search out an lawyer.
There are legit the explanation why the plaintiff could sue hundreds of sellers at the identical time and conceal their names. One is to cease responsible defendants from transferring their belongings to different accounts and even out of Amazon. But Goldman believes the tactic has been overused.
In the case of the airbag lawsuit, the plaintiff claimed that the 164 defendants have been interconnected. “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,” the submitting reads.
“Many sophisticated online counterfeiters operate under different seller aliases on multiple platforms,” Gaudio says. Even if the defendants aren’t explicitly speaking with one another, they will nonetheless be thought of one group as a result of they “understand that their ability to profit through anonymous internet stores is enhanced as their numbers increase,” he says.
It’s true that some Chinese sellers personal a number of accounts on Amazon, although the platform forbids it, says Moira Weigel, a professor of communication research at Northeastern University who has been learning Amazon third-party sellers for the previous few years. But in her analysis, she’s discovered that the Chinese sellers typically do it for mundane causes, prefer to maintain their merchandise aggressive on the platforms. “I’m always inclined to believe that accounts of criminality are overblown,” Weigel says.
Lumping defendants collectively provides the plaintiff a sensible benefit: it may well cut back court docket submitting charges by as a lot as 98%. Keeping the Schedule A sealed additionally provides the plaintiff the profit of sustaining an data asymmetry, says Goldman. If somebody decides to combat again, the plaintiff can drop that defendant from the lawsuit with a purpose to stop adversarial proof from reaching different defendants or the judges.
In all, bringing such fits is really easy and cheap that some legislation companies are placing them out one after one other. “It’s a procedural assembly line. It’s just a repeated process, and it’s just growing by mass numbers,” says Stockman. Sometimes even when one lawsuit is being appealed, the plaintiffs are nonetheless submitting new ones, with the identical IP infringement declare, in opposition to hundreds extra sellers.
Trouble from Chicago
Among many Chinese e-commerce sellers, there’s a shared knowledge: beware of purchases from Chicago. Lawyers generally order the product in query as half of diligence earlier than they file a case. For years, most Schedule A instances have come from Chicago-based legislation companies submitting within the US District Court for the Northern District of Illinois. Of the 938 Schedule A instances filed in 2022, almost 85% (794) have been filed in Chicago. A purchase order order from Chicago could possibly be an indication of hassle to come back.
It’s unclear why Chicago has turn into a scorching spot for these instances, however the federal court docket there orders a lot greater compensation quantities than courts in different jurisdictions, says Stockman—generally greater than thrice as a lot.
Goldman even discovered a template on the web site of the Chicago court docket for legal professionals to make use of in submitting these Schedule A instances. “Basically the judge is saying: Here are the arguments that will work for me, so all you gotta do is plug in your name and wherever I’ve asked for a few facts,” he says. “The judge has basically systematized not making particularized allegations against defendants.”
Some judges have began to query the observe. According to Bloomberg, one choose at the Chicago court docket requested in January, whereas presiding over such a case, “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?”
Among Chinese sellers, GBC is the primary and best-known legislation agency that engages on this IP violation litigation: it filed almost one-third of all Schedule A lawsuits nationally final yr. But its strategies have turn into a handy template for making e-commerce IP claims at scale, and plaintiff corporations and legislation companies are catching on.
“Four years ago, there were probably three plaintiff law firms, the same in every case,” says Stockman. “Fast-forward four years to today: same venue, same jurisdiction, but every time I get hit with one of these cases, it’s a new law firm I’ve never heard of. [It] means everybody’s catching wind.”
Amazon’s position
Once e-commerce web sites are notified by the court docket to take motion in opposition to these sellers, they must comply. But sellers say that Amazon is the platform most accommodating to plaintiffs’ requests. It will instantly freeze the vendor’s account with none inner investigation, and sellers say it’s laborious for them to plead their case.
“Amazon is very strict when it comes to counterfeit sales,” says Stockman. That’s as a result of it doesn’t need the stigma of being flooded with low-priced counterfeit merchandise, typically related to platforms like Wish or AliExpress. Once the “magic phrase” counterfeit appears in a lawsuit, “[Amazon] will participate as needed to get them off the platform,” he says.
An Amazon spokesperson declined to comment for this story.
The emergence of e-commerce platforms like Amazon has decentralized and democratized access to marketing, and Amazon has always portrayed itself as the platform of small mom-and-pop sellers, says Weigel. But at the same time, she says, with the traditional IP protection regime failing to adapt to the new and more muddied e-commerce environment, Amazon is leaving these small brands to fight for themselves.
As a result, Amazon sellers are simultaneously struggling to protect their IP and to avoid falling victim to IP trolling lawsuits. But Amazon has mostly shielded itself from the legal conundrum it creates. “When there’s a new regulation, ultimately it’s passed on to sellers, because Amazon ultimately is insulated from liability by the platform model, Section 230, by most existing liability laws, and so on,” says Weigel.
Fighting back
Of the 163 sellers sued by PopSockets in the airbag case, only six hired attorneys to defend themselves. Sun was the first. She decided from the beginning that she wouldn’t just pay for the settlement deal.
“I felt like someone slapped me in the face, and why should I cry, hand over my money, and say: ‘That’s a good slap. Please be gentle on me next?’” she says. The attorney she hired told her that defending herself and countersuing PopSockets could cost her as much as $60,000—almost the entire amount frozen in the Amazon account. “But I made up my mind. I told myself: I would not give up and hand this money over to the [plaintiff],” Sun says.
After she spent $20,000 and two months filing a countersuit, the plaintiff agreed to dismiss the restraining order on her Amazon accounts. A lengthy legal process followed in which each side needed to find evidence to support or deny the validity of the “airbag” trademark. They eventually settled at the end of May for an undisclosed amount.
When Sun decided to appear in court, she tried to find other defendants to join her case and share the legal costs, but most of them chose to settle or abandon their accounts. “Not many people are like me,” she says. “If we could have stood up against these things together, they would know that we Chinese people are not so easy to take advantage of. And then they wouldn’t bully us so much.”
…. to be continued
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