By: Teagan Raffenbeul

Counterfeit products have existed for thousands of centuries, with counterfeit currency dating back to 3300-2000 BC. Over time, counterfeiting has grown significantly, with its economic cost estimated to exceed trillions of dollars. As e-commerce has grown, so too has the availability of counterfeit products, including fake merchandise claiming to be endorsed by musical artists. Online marketplaces like Amazon and Etsy have enabled individuals to create and sell products using images of or related to famous individuals. 

In 2023, a fan of country singer Luke Combs created and sold tumblers adorned with Comb’s face on Amazon. The fan, Nicol Harness, sold eighteen of her Combs-themed tumblers, earning only $380. Nonetheless, she was included in a mass lawsuit filed against more than 200 online entities selling unauthorized Combs merchandise. Harness was ordered to pay $250,000 in damages, and her Amazon account was frozen – all before she had notice of the anti-counterfeiting lawsuit. Regardless of whether Harness knew she was infringing on Combs’ intellectual property rights, the products were still counterfeit and could be subject to lawsuits for violating an artist’s intellectual property rights. 

Anti-Counterfeiting Enforcement

Two federal statutes primarily govern anti-counterfeiting enforcement in the United States. The Lanham Act provides civil remedies, while the Trademark Counterfeiting Act of 1984 imposes criminal penalties for violations of the anti-counterfeiting provisions in the Lanham Act. Due to various impracticalities of criminal enforcement, such as timing constraints, trademark owners typically turn to civil trademark infringement lawsuits for relief. 

Counterfeit merchandise is deemed “counterfeit” because it infringes on a valid, registered trademark owned by an artist or another party. A trademark is a symbol that indicates the source of a product to purchasers. Trademarks may present themselves in the form of names, logos, colors, or symbols. For musical artists, their trademarks signal to fans that they endorse the product and officially license it. When an artist’s trademark appears on products they did not create or endorse, it can mislead and confuse fans and consumers into believing the artist is the actual source of the product, even when they are not. Even if a product contains a disclaimer stating the merchandise is merely inspired by the artist, it does not automatically protect the merchandise from receiving a cease-and-desist letter or facing a counterfeit lawsuit. Artists will often strategically choose which cases to litigate, balancing the negative publicity from suing fan-made merchandise against the necessity of taking action against enough infringing products to protect their trademark rights. Factors such as the similarity of names and products, as well as how well-known the infringed trademark is, are usually considered, with direct copies of artists’ own merchandise often purposely targeted.

Anti-counterfeiting lawsuits have a higher standard than the “likelihood of confusion” standard used in traditional trademark infringement cases. The Lanham Act defines a counterfeit mark as “a spurious mark which is identical to or substantially indistinguishable from a registered mark.” This requires a higher degree of similarity, with marks needing to be “identical” to be successful in a counterfeit lawsuit. 

Additionally, when filing a civil counterfeiting case, most plaintiffs will request an ex parte temporary restraining order (TRO). These TROs may be granted without prior notice to the alleged counterfeiter and they immediately remove the counterfeit items from the market. The TROs also prevent the alleged counterfeiters from disposing of or destroying evidence of the counterfeit items.

“SAD Schemes”

Due to the increase of e-commerce in the last decade, an influx of counterfeit merchandise has become easily accessible online. In response, several U.S. law firms, particularly in Chicago, have begun initiating mass anti-counterfeiting trademark lawsuits, targeting hundreds of merchandise sellers simultaneously. The uniformity found between anti-counterfeiting enforcement suits has led to these types of lawsuits being labeled by some people as “SAD Schemes.”

These mass lawsuits have been coined “SAD Schemes” or “Schedule A Defendants” schemes because plaintiffs typically file the complaint separately from a sealed Schedule A attachment. The plaintiff usually identifies a group of online vendors whose listed products infringe on their intellectual property rights and includes them on a Schedule A attachment. The complaint refers to these vendors as “defendants listed on a Schedule A,” and the judge then seals the Schedule A, keeping the defendants’ identities anonymous. The complaint itself generally includes a few factual allegations that are not particularized to any one defendant. Following this, plaintiffs frequently request an ex parte TRO to freeze the defendants’ assets and activity in the marketplace. 

These lawsuits are often filed by large brands such as Nike and Ray-Ban, however recently they have increasingly been applied to fight counterfeit merchandise. In 2022, the rock band Nirvana sued approximately 200 different sites for selling counterfeit products. The following year, pop artist Harry Styles filed a massive Schedule A trademark suit to combat the increasing quantity of counterfeit merchandise populating online stores. 

Downsides of “SAD Schemes” 

SAD Schemes are often filed under the presumption that the “counterfeiters” are difficult to locate and trace due to the nature of e-commerce. As a result, judges frequently permit email service. This provides plaintiffs a significant advantage, as many defendants are often not aware they have been legally served. Many defendants never see the email, as was the case in the Combs lawsuit, where the email was sent to the fan’s junk mail. Some defendants have said they have mistaken it for spam mail or an extortion attempt, and therefore disregard the email. Due to issues such as these, judges generally do not permit email service in ordinary cases. However, in SAD Schemes, when cases are filed under the presumption the alleged counterfeiters are anonymous online merchants who are difficult to track down, judges allow it. As a result, defendants’ funds are often frozen, and many default judgments have been rendered without any opposition from the defendants.

Lawyers utilizing SAD Schemes typically follow a standardized template with minimal factual allegations allowing them to easily “clone-and-revise” the complaint for future lawsuits. This streamlined approach, combined with the ability to target hundreds of defendants at once, saves plaintiffs significant time and money while also enabling lawyers to quickly process multiple cases. SAD Schemes can unfold in just a few days, resulting in a somewhat lucrative business for intellectual property firms. By leveraging Schedule A forms that keep defendants’ identities hidden and relying on the fact that most alleged counterfeiters are either unaware of the lawsuit or unwilling to fight back due to the expensive and time-consuming nature of the lawsuits, these lawyers and law firms have begun to turn it into a volume business. Over the past decade, this field has seen the number of Schedule A anti-counterfeiting trademark lawsuits rise from 105 to 938, with over 600,000 defendants having been sued.

SAD Schemes are a relatively new type of lawsuit. There is limited precedent, and district courts have taken various approaches in interpreting the statutory language and applying relevant terminology such as “counterfeit” and “counterfeiting.” This has resulted in some inconsistencies and confusion among existing case law. In the future, we can likely expect to see a continued rise in counterfeit merchandise and a rise in lawsuits by these artists to protect their intellectual property rights, hopefully providing more clarity and information on how anti-counterfeiting enforcement is executed.