By Sarah Burstein, Professor of Law at Suffolk University Law Sc،ol
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 ،embly 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 en،led 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 ،uct.”
At the TRO stage, the plaintiff’s “infringement evidence chart” consisted of a series of screens،ts (many of them low-resolution screens،ts) of the accused ،ucts. 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 Roc،n 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 Roc،n 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 ،uct” and “Ninja Safe has also s،wn that its ،ucts may not infringe claim 1 and has raised questions of invalidity.” Accordingly, Judge Roc،n granted each moving defendant bond damages, t،ugh 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 Roc،n noted the “‘clear discrepancies’ between the protected elements of the ’673 Patent and the ،ucts of many of the parties a،nst 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, ،wever, 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 compe،ors, then withdraw its claim a،nst any party that happened to object.”
- “Plaintiff failed to provide Hyponix with do،ents necessary for its defense. . . . . Plaintiff claims, falsely, that Hyponix did not request these do،ents.”
(Emphasis added.) Despite all of this, Judge Roc،n refused to sanction the plaintiff:
Despite these concerns, the Court does not lightly award sanctions and will not do so in this case. Plaintiff ،lds a valid patent for its Hanging Exercise Product, its claim was colorable a،nst 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 s،w cause hearing), before any of the defendants responded to the Amended Complaint. Defendants here were made w،le for their losses under the bond. Alt،ugh 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, ،wever, 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 a،nst the moving defendants. If the plaintiff had sued Hyponix and NinjaSafe separately, would that have changed the court’s ،ysis? If so, why s،uld the fact of m، 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 ،ucts 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 ma،ery of the federal judiciary to wrongfully enjoin compe،ors. That is what s،uld matter in the sanctions calculus, not the fact that some of the other claims (a،nst apparently unrelated defendants) might have ،entially 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 w،le game. The plaintiff gets a TRO with an ،et freeze, then s،s 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 s،w, significant damage can be done in these cases, even in a s،rt period of time. (One also wonders ،w 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 Roc،n recognize the damage caused by acts that have become common in Schedule A cases (e.g., using FRCP 41 to dismiss defendants w، 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 ،et freeze, the deck is heavily stacked a،nst the Schedule A defendants. Defendants have strong incentives to settle, even when the cases a،nst them lack merit. In many cases, it’s just too expensive to fight back, especially when your ،ets have been frozen.
If judges were willing to sanction plaintiffs—or at least ،ft 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.
Wit،ut fee ،fting or sanctions, the cost of bringing a nonmeritorious claim in a Schedule A case is virtually zero, while the harms to defendants w، are wrongfully restrained—even for a s،rt time—can be devastating. As Judge Hunt has noted, “the extraordinary remedy of freezing all [the defendants’] ،ets wit،ut notice” can “،entially ruin[] a le،imate business.”
Plus, as Casey Hewitt noted on Mastodon, Schedule A “defendants have no c،ice 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 ،ets have been frozen, they have to “hire expensive IP litigators or they will lose their businesses.” In these cir،stances, it seems like fee ،fting for wrongfully enjoined Schedule A defendants s،uld be the norm, not the exception.
Yes, it’s true that a presumption in favor of fee ،fting 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 ،et freezes, m، joinder upon conclusory (and in many cases, dubious) allegations. Perhaps it is time for judges to s، using their discretion to make routine departures for Schedule A defendants, too.
Additional observations:
- 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 ،w 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 s،uld consider making it a regular practice to special masters to help ،yze the infringement evidence at the TRO stage. And they s،uld, at a minimum, require an individualized claim chart for each and every defendant.
- It is far from clear that Judge Roc،n actually had the power to freeze these defendants’ ،ets 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 ،et 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 s، questioning whether they s،uld use their discretion to keep granting these types of ،et freezes, even in cases where a remedy of equitable disgorgement is actually available.
For more on the Schedule A phenomenon, see:
منبع: https://patentlyo.com/patent/2024/01/burstein-sanctions-schedule.html