Chinese Amazon sellers are getting worried about a recent development in the world of cross-border e-commerce.
US law firms have initiated mass intellectual property lawsuits against sellers on Amazon all at once for selling counterfeit goods across the platform. This is part of Amazon’s latest efforts to crack down on the sale of counterfeits on its marketplace.
In this article, we’ll discuss what triggered the mass lawsuits and why the recent development will matter to other third party sellers.
How Do Law Firms Trigger Mass Lawsuits Against Chinese Sellers?
Sun Qunming, an owner of a 13-person e-commerce company in Shenzhen, China, was surprised to see her phone cases suddenly flagged on Amazon in November 2021 for violating their trademark policy after selling the same product for over five years.
The product in question was a phone case with “air-filled bumper cushions” and one of the keywords she used to rank her products was “airbag.” To Qunming’s surprise, the term was recently trademarked by PopSockets, a phone accessories vendor based in Boulder, Colorado.
PopSockets sued Qunming and over 160 other online sellers for trademark infringement, causing their accounts to be suspended, and then had the lawsuit lifted in June 2022.
Qunming’s lawyer claims the mass lawsuits started as a normal way to defend intellectual property, but has recently become a new means of income for law firms in Illinois using a new IP Lawsuit trend called the Schedule A Defendants Scheme or “SAD Scheme.”
In this scheme, plaintiffs claim hundreds of online sellers violated trademark, patent, or copyright. Online platforms like Amazon then freeze all the sellers’ accounts and ask the court to award them the account balance as statutory damage. In addition, this IP lawsuit has grown by 500% over the past decade.
How Does the SAD Scheme Work?
These lawsuits affect multiple defendants who are sued simultaneously for trademark infringement while keeping the identity of each defendant hidden. The defendants' names are listed in a document called Schedule A. Often, the sellers remain unaware of the lawsuit until their Amazon accounts are frozen upon court order.
By gathering hundreds of defendants, plaintiffs can save time and money when filing cases. According to lawyers interviewed by MIT Technology Review, law firms have developed a structured approach to mass-produce lawsuits against sellers by reusing filing templates and suing in batches. While these practices are not illegal, some lawyers and academics argue that they might be taking advantage of the IP protection system.
Why Are Chinese Amazon Sellers the Prime Targets?
Simply put, Illinois-based law firms are targeting sellers who lack experience with the American justice system and have trouble understanding English.
In addition, products made in China have been linked with counterfeiting and IP theft for quite some time. In 2022, the US Customs and Border Protection claims 60% of counterfeit goods originated from China.
How Will This Affect Other Third Party Sellers on Amazon?
In the long run, Amazon and other law firms will continue to take aggressive action in limiting counterfeit products on the platform. From Amazon’s perspective, they want to limit low-priced, counterfeit products to avoid being in the same breath as other online selling platforms like Wish and AliExpress.
Over the past four years, the number of Schedule A cases in the United States on e-commerce sellers has increased rapidly, seeing a jump from 288 cases in 2019, to 938 in 2022.
If these numbers continue to rise, you can expect Amazon to continue to enhance its security and verification measures, leading to disruption in processes and headaches for sellers.