Guest Post by Prof Burstein: Sanctions & Schedule A

By Sarah Burstein, Professor of Law at Suffolk University Law School

Jiangsu Huari Webbing Leather Co., Ltd. v. Joes Identified in Schedule A, No. 1:23-cv-02605 (SDNY Jan. 2, 2024), ECF 76.

The Schedule A litigation phenomenon continues apace in the Northern District of Illinois, a court that has become, in the words of Judge Seeger, “an assembly line for TROs.” But Schedule A litigation is not confined to Chicago. It has spread, perhaps most notably to the Southern District of Florida and the Southern District of New York.

One recent decision out of New York merits closer attention. In this case, as in most Schedule A cases, the plaintiff was able to obtain an ex parte TRO that included an order instructing Amazon to freeze the defendants’ seller accounts. The order also required the plaintiff to post a bond of $20,000 “for the payment of any damages any person may be entitled to recover as a result of an improper or wrongful restraint ordered.”

The plaintiff sued 163 defendants, alleging that each was liable for infringing a utility patent directed towards “a rectangular-shaped buckle-and-belt mechanism” for “an outdoor exercise product.”

At the TRO stage, the plaintiff’s “infringement evidence chart” consisted of a series of screenshots (many of them low-resolution screenshots) of the accused products. Here’s an example of all of the evidence submitted in that chart with respect to one of the defendants:

As per usual in a Schedule A case, the defendants did not find out about the case until after their accounts were frozen. When the plaintiff moved to extend the TRO, multiple defendants appeared to object. Judge Rochon refused to extend the TRO and the plaintiff voluntarily dismissed the case.

Two of the defendants, Hyponix and NinjaSafe, moved for bond damages, sanctions, and fees. They argued that the plaintiff had filed to conduct a sufficient pre-suit investigation and had committed various acts of litigation misconduct. They further argued that they each suffered damages from being wrongfully enjoined.

Judge Rochon granted the defendants’ motions for bond damages but denied their motions for sanctions and fees. She agreed that the moving defendants had been wrongfully enjoined because “Hyponix has pointed to at least four elements of claim 1 of the ’673 patent that are not present in its product” and “Ninja Safe has also shown that its products may not infringe claim 1 and has raised questions of invalidity.” Accordingly, Judge Rochon granted each moving defendant bond damages, though less than they asked for: $3,682.28 for Hyponix and $14,641.51 for NinjaSafe.

But she refused to grant sanctions or fees, despite being “troubled by Plaintiff’s conduct in this case.” In particular, Judge Rochon noted the “‘clear discrepancies’ between the protected elements of the ’673 Patent and the products of many of the parties against which Plaintiff secured a TRO.” She also noted other instances of “possible misconduct,” including:

  • “Plaintiff represented that most of the 163 parties were difficult to find and contact. In practice, however, contact information for many of the parties was readily available. . . . Plaintiff does not indicate that it tried with any diligence to locate these parties before seeking a TRO.”
  • “The pace and prevalence of Plaintiff’s dismissals suggest to the Court that Plaintiff used Rule 41 as part of a broader strategy to freeze the accounts of its competitors, then withdraw its claim against any party that happened to object.”
  • “Plaintiff failed to provide Hyponix with documents necessary for its defense. . . . . Plaintiff claims, falsely, that Hyponix did not request these documents.”

(Emphasis added.) Despite all of this, Judge Rochon refused to sanction the plaintiff:

Despite these concerns, the Court does not lightly award sanctions and will not do so in this case. Plaintiff holds a valid patent for its Hanging Exercise Product, its claim was colorable against at least some of the parties, and it dismissed its lawsuit voluntarily at a very early stage in the litigation (presumably in light of the issues raised by the Court at the order to show cause hearing), before any of the defendants responded to the Amended Complaint. Defendants here were made whole for their losses under the bond. Although a close question, the Court exercises its discretion to deny Defendants’ request for sanctions under its inherent powers and 28 U.S.C. § 1927. . . . To the extent that Plaintiff and its counsel engage in similar misconduct in the future, however, the Court will not hesitate to impose sanctions.

As Professor Eric Goldman noted in this blog post, “it would not be lightly awarding sanction when a plaintiff has committed so many violations.” Two additional points stand out as well.

First, the fact that some of the infringement claims might be colorable does not change the fact that the plaintiff brought numerous claims that were not—including the claims brought against the moving defendants. If the plaintiff had sued Hyponix and NinjaSafe separately, would that have changed the court’s analysis? If so, why should the fact of mass joinder insulate the plaintiff from sanctions? Especially in light of the fact that it’s far from clear that any—let alone all—of the defendants were properly joined, as they sell different products and do not seem to be actually connected in any way. See 35 U.S.C. § 299. In any case, the fact remains that this plaintiff brought many claims that were not colorable and used the machinery of the federal judiciary to wrongfully enjoin competitors. That is what should matter in the sanctions calculus, not the fact that some of the other claims (against apparently unrelated defendants) might have potentially had merit.

Second, it is true that the plaintiff dismissed the case at what would be, in a regular case, “a very early stage in the litigation.” But in a Schedule A case, the TRO seems to be the whole game. The plaintiff gets a TRO with an asset freeze, then starts making settlement demands. At that point, the defendants generally either settle or default. It appears that these cases aren’t meant to proceed any further. And as the defendants’ submissions show, significant damage can be done in these cases, even in a short period of time. (One also wonders how much money the plaintiff may have been able to extract in settlements before dismissing the case.)

In the end, the decision to sanction and to award fees is left to the discretion of the judge. And while it is encouraging to see Judge Rochon recognize the damage caused by acts that have become common in Schedule A cases (e.g., using FRCP 41 to dismiss defendants who fight back), it is discouraging to see a result that will only serve to further disincentivize Schedule A defendants from fighting back.

Once a judge grants a TRO with an asset freeze, the deck is heavily stacked against the Schedule A defendants. Defendants have strong incentives to settle, even when the cases against them lack merit. In many cases, it’s just too expensive to fight back, especially when your assets have been frozen.

If judges were willing to sanction plaintiffs—or at least shift fees—when Schedule A defendants were wrongfully restrained, that would do a lot to help level the playing field and incentivize the plaintiffs to bring better claims.

Without fee shifting or sanctions, the cost of bringing a nonmeritorious claim in a Schedule A case is virtually zero, while the harms to defendants who are wrongfully restrained—even for a short time—can be devastating. As Judge Hunt has noted, “the extraordinary remedy of freezing all [the defendants’] assets without notice” can “potentially ruin[] a legitimate business.”

Plus, as Casey Hewitt noted on Mastodon, Schedule A “defendants have no choice but to litigate, have no option to meet and confer and avoid a lawsuit . . . They did not ignore demand letters or refuse to negotiate or discuss alleged infringement.” But once they find out that their assets have been frozen, they have to “hire expensive IP litigators or they will lose their businesses.” In these circumstances, it seems like fee shifting for wrongfully enjoined Schedule A defendants should be the norm, not the exception.

Yes, it’s true that a presumption in favor of fee shifting would be a departure from normal federal court practice. But courts routinely use their discretion to grant procedural departures to Schedule A plaintiffs—e.g., email service, ex parte asset freezes, mass joinder upon conclusory (and in many cases, dubious) allegations. Perhaps it is time for judges to start using their discretion to make routine departures for Schedule A defendants, too.

Additional observations:

  1. This case is a good example of why patent litigation is a poor fit for the Schedule A litigation model. I’ve written here before about how design patent infringement is ill-suited to ex parte adjudication; so too is utility patent adjudication. If judges are going to keep allowing the Schedule A model in patent cases (and they don’t have to do so, in these cases or in any others), they should consider making it a regular practice to special masters to help analyze the infringement evidence at the TRO stage. And they should, at a minimum, require an individualized claim chart for each and every defendant.
  2. It is far from clear that Judge Rochon actually had the power to freeze these defendants’ assets in the first place. As Judge Kendall noted in a recent order, 35 U.S.C. § 284 “does not provide for the equitable relief of accounting and profits,” which is seems to be the standard basis for asset freezes in other types of IP cases. Furthermore, as Judge Seeger has noted, “Schedule A plaintiffs typically don’t request and receive equitable monetary relief” at the end of their cases, even when equitable relief is available. Other judges might be well-advised to start questioning whether they should use their discretion to keep granting these types of asset freezes, even in cases where a remedy of equitable disgorgement is actually available.

For more on the Schedule A phenomenon, see:

42 thoughts on “Guest Post by Prof Burstein: Sanctions & Schedule A

  1. 10

    Great news in the world of sanctions today as Donald Dimbulb gets slapped with $90 million in damages for lying about his r @ ping ways. More hits to come, I’m sure. Friendly reminder: some so-called attorneys actually voted for this c r e e p and still support him and the diseased desperate party that he presently ruled with his tiny baby-like fists. Everyone of those so-called attorneys needs to be mocked and scorned, forever. Human g a r b a g e, thankfully concentrated in the backwoods and sewers of America (yes, that includes Texas).

    1. 10.1

      That “Deplorables” mantra applied to nearly HALF of the US is just so “precious.”

      And yes, the fact that I did not vote for him does not excuse you from being a total arse.

      1. 10.1.1

        I agree: it is an accurate term. The percentage of deplorables is probably closer to 30%. These are irredeemable knuckle-dragging reactionaries who would, in fact, vote for Dingleberry Donny if he strangled a baby on live TV. Anything goes as long as it doesn’t please “the libs”!

        1. 10.1.1.1

          Are you high?

          Serious question, as there is exactly zero reality in your assertion of, “The percentage… is probably closer to 30%

          Zero.

          Heck, that “30%” is actually closer to those of the Democrat party that are ‘ok’ with puppt Joe Biden running again.

          Also, your “anything goes as long as…” mantra is EXACTLY the projection from the Sprint Left, given that Joe Biden’s reelection strategy – FLOPPING on the message of ‘Bidoenomics’ has fully retreated to a OMB-TDS “anybody But Trump” SINGULAR plank.

          But you be you and try to gaslight that you have anything BUT projection and aimless ad hominem as your rhetorical t001s…

          1. 10.1.1.1.1

            Meet Billy. Billy like to pretend he’s a “centrist” but he’s just another know-nothing rightwing crank, incapable of deceiving anyone but himself. Billy is the not-really-confused guy who sells tiki torches to the “fine people” who burn down your library, then he pretends to be surprised, then he blames the librarian for not being prepared.

            1. 10.1.1.1.1.1

              LOL – from your Sprint Left One-bucket land, there is no such thing as a Centrist.

              But you continue to be you.

              1. 10.1.1.1.1.1.1

                “there is no such thing as a Centrist”

                One of the two political parties is an authoritarian dominionist cult that rejects government except as a means for punishing people who aren’t in the cult. In this context, so-called “centrists” are invariably self-absorbed nitwits or worse.

                1. Your one-bucketing is a well-known fallacy.

                  You don’t have to show it again.

                  By the by: “One of the two political parties is an authoritarian dominionist cult that rejects government except as a means for punishing people who aren’t in the cult.” exactly describes the Democrat party – but you knew that, eh?

    2. 10.2

      I am more than certain that you – with all of your “white privilege” “virtue (signaling)” – are not better off now than you were before Puppet Biden was ‘Putin’ place.

      1. 10.2.1

        You couldn’t be more wrong but what a strange conjecture in the first place. Get a life.

        1. 10.2.1.1

          ah yeas, more projection from you…

          Follow your own advice there first Malcolm.

          (there is nothing strange given the proven false narratives directly traced back to Hilary, but go ahead and gaslight that too)

          1. 10.2.1.1.1

            LOL. Look at “independent” Billy getting himself all purple and splotchy thinking about bad ol’ “Hilary”. Too funny.

            1. 10.2.1.1.1.1

              Please Pardon Potential re(P)eat…

              Your comment is awaiting moderation.

              January 28, 2024 at 1:32 pm

              Me, splotchy? Not at all.

              But I do notice that your reply was entirely empty as to the facts as they have come out.

              More than a little embarrassing for you.

              As is typical.

              And yes, everyone along the spectrum EXCEPT the Sprint Left can admit the Hilary c0llus10n on “Russia Russia Russia.

              That you act – as predictable as it may be – as you do, SCREAMS so loud that your ill-aimed ad hominem cannot be heard.

              As they say,
              S
              V
              C
              K
              S
              to be you.

              1. 10.2.1.1.1.1.1

                Very splotchy.

  2. 9

    The bottom line here is that Schedule A secret complaint allegations and secret hearings to secretly obtain unopposable injunctions [TROs] and asset seizures are not properly usable in alleged patent infringement cases against real companies with real assets incapable of simply fleeing and disappearing like the kind of flea market counterfeit trademark product dealers that this fully ex parte judicial system was intended to catch. Note that the ND IL D.C. Schedule A template form is for trademark cases.

    1. 9.1

      Where do you break to breathe when reading that sentence?

      1. 9.1.1

        Run-on-sentences is a disease you can catch writing claims for 44 years. I’m still in rehab.

        1. 9.1.1.1

          Funny – you have lost most all other ‘symptoms’ of one who attempts to protect innovation.

          Most odd that run-ons have stuck with you.

  3. 8

    The earlier legal article* that is hot-linked in this blog usefully notes the harmful confusion of District Court judges as to proper infringement and claim scope tests for design patents by Fed. Cir. decisions. This was previously noted in ““Design Patents §103 – Obvious to Whom and As Compared to What?” Patently-O, Sept. 17, 2014.

    *”Guest Post: We need to talk about the NDIL’s Schedule-A cases”, October 30, 2022

  4. 7

    If these Schedule A litigation TRO abuses, and their clearly inadequate defendant awarded judicial sanctions, is that widespread, should not active Federal bar members and the ABA and AIPLA be trying to bring it up through other channels, such as for a Judicial Conference topic?

    1. 7.1

      Posts 7 – 9 = all good points Paul.

  5. 6

    The abuse here stems largely from the ex parte nature of the TRO, i.e., a TRO entered without any prior notice to the defendants. The Federal Rules authorize ex parte TROs in very very narrow circumstances; you typically have to present concrete evidence that the defendant is likely to destroy evidence or conceal infringing products if it receives notice. It’s an exacting standard that requires real evidence, because you’re dispensing with the most fundamental procedural Due Process right in the Constitution (i.e., prior notice and opportunity to be heard). Here, all the plaintiff did is hand wave and offered no concrete evidence as to any defendant, let alone the 160+ who were named.

    The ex parte nature of these proceedings thus required the Court to basically evaluate the merits of the application based on the one-sided and incomplete presentation by the plaintiff, with zero input from any of the countless accused parties who could have explained the reasons why the accused products didn’t infringe. The court in this situation often has to take the plaintiff at little more than its word that the application has substantive merit.

    And it’s no mystery why many judges are so reluctant to sanction plaintiffs harshly in this situation, even when the ex parte application turned out to be substantively frivolous. A judge cannot enter an injunction, even a TRO, without finding some likelihood of success on the merits. To then turn around and grant harsh sanctions based on a lack of merit, the judge is basically acknowledging that they got duped, by wrongly entering injunctive relief based on an application was frivolous all along. That’s why you see trial court judges, time and time again, whose pride will not allow them to enter what are clearly warranted sanctions against this type litigation abuse.

    1. 6.1

      So…

      Better decisions up front?

      I can see why Pride is a factor.

      With the advance of the participation-trophy generation, this is NOT going to get better any time soon.

      1. 6.1.1

        > So…
        > Better decisions up front?

        Yeah, but lack of notice and participation by the opposing party, PRIOR to the ruling, is precisely what prevents better decisions from being entered in the first place.

        And that’s the whole point. Injunctions like this are often filed ex parte not just to whipsaw the defendant, but because the plaintiffs often know the injunction application would disintegrate under the sunlight an opposing party could shed on its utter lack of merit.

        I don’t know if pride was the factor at play in this particular case, but it often is with judges who entered an injunction with these kinds of glaring flaws. There are certainly judges who can acknowledge they were duped, that they made a mistake, that they should have scrutinized the application more closely, and then bring down the sanctions hammer on the plaintiff-litigants who basically misled them. But many simply cannot bring themselves to do that.

        1. 6.1.1.1

          Please Pardon Potential re(P)eat….

          Your comment is awaiting moderation.

          January 25, 2024 at 2:32 pm

          Not following you – the rationale FOR this lack of notice is something that must be respected.

          This must put the onus on the judge. The fact that glaring errors may well be there should have an impact on the judge (in a perfect world).

          Certainly, motions for TRO that are an abuse of the system should carry a penalty as well.

          1. 6.1.1.1.1

            “Not following you.”

            That’s because you’re not very intelligent and because your default behavior is to willfully avoid misunderstanding a comment unless it’s a comment that amplifies your malignant rightwing scripts.

            1. 6.1.1.1.1.1

              “willfully avoid understanding” is what I meant to write, obviously.

              1. 6.1.1.1.1.1.1

                You are doing that projecting thing again.

                Shockers I know

            2. 6.1.1.1.1.2

              You are so right there Prophet.
              Thinking this is over is a misnomer. I plan on getting my Trust in my control do then all the rest will follow like an unstopped drain.

  6. 5

    There is a more basic problem here. Rule 20(a) governs joinder of defendants. It is widely accepted that “the fact that two parties may manufacture or sell similar products, and that these sales or production may have infringed the identical patent owned by the plaintiffs is not sufficient to join unrelated parties as defendants in the same lawsuit pursuant to Rule 20(a).” Pergo, Inc. v. Alloc, Inc., 262 F. Supp. 2d 122, 128 (S.D.N.Y. 2003)

    So these suits are improper on their face. (I believe the same rule applies in trademark and copyright cases. See Arista Records LLC v. Does 1-4, 589 F. Supp. 2d 151, 155 (D. Conn. 2008) (joinder improper in copyright infringement suit where there were no allegations of joint action or conspiracy by defendants); Golden Scorpio Corp. v. Steel Horse Bar & Grill, 596 F. Supp. 2d 1282, 1285 (D. Ariz. 2009) (stating that “allegations against multiple and unrelated defendants for acts of patent, trademark, and copyright infringement do not support joinder under Rule 20(a),” and collecting numerous cases); N. Face Apparel Corp. v. Dahan, 2014 WL 12596716, at *5 (C.D. Cal. Mar. 14, 2014) (“Defendants who merely infringe the same trademark do not satisfy the same occurrence and transaction requirement.”)

    Apart from that, it is amazing that judges don’t give much more scrutiny to ex parte TRO applications.

    1. 5.1

      Good point, thanks

  7. 4

    TROs are needed for blatant trademark infringers. But a TRO for a patent not even infringed, with no defense even allowed to be asserted, is clearly inconsistent with the requirements for a preliminary injunction in patent cases. Are any patent TROs, or sanctions for their misuse, headed for Fed. Cir. appeals?

  8. 3

    An effective means for providing inventors the exclusive right to their discoveries must be shut down asap. Nice infringer blog post.

    1. 3.1

      If you followed these Schedule A things, you’d know that this has become a plague. The fact that you got screwed by the system doesn’t mean that there aren’t others who abuse it.

      1. 3.1.1

        Another +1

        Not everything “bad” for a patent holder is indeed “bad.”

  9. 2

    “If judges were willing to sanction plaintiffs—or at least shift fees—when Schedule A defendants were wrongfully restrained, that would do a lot to help level the playing field and incentivize the plaintiffs to bring better claims.”

    Oh, please.

    While this outlier case does indeed seem to lack merit, in the large majority of cases, those with legitimate IP rights (including the giants of industry) to their creations fight a constant whack-a-mole battle in trying to keep infringers and interlopers from ripping them off.

    Let’s level THAT playing field, shall we.

    1. 2.2

      Fair enough point – plenty of room for improvement along other vectors.

  10. 1

    Looks like sanctions are appropriate.

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