Online marketplaces like Amazon and Walmart make patent infringement easy, quick, and largely anonymous. The marketplaces are not liable for infringement by their sellers, so a patent owner may be left playing whack-a-mole, pursuing multiple infringers from overseas (we’re looking at you, China) hiding behind fictitious names. As soon as an ad for an infringing product is taken down, another one pops up, under another fictitious name.
What’s to be done?
Amazon is the largest online marketplace in the world and controls more than 40% of U.S. online sales. Amazon has in place an effective, cheap, and quick system for the owner of a utility patent to take down ads for infringing products. Amazon calls its system the “Amazon Patent Evaluation Express” (APEX) program.
Under the APEX program, a patent owner notifies Amazon that a seller is infringing a utility patent. Amazon then notifies the seller and gives the seller three weeks to either file suit or agree to the APEX process. If the seller does not file suit or agree to the APEX process, that is, if the seller defaults, then Amazon takes down the offending ad. If the seller agrees to the process, then each of the seller and the patent owner each puts up $4,000.00. The patent owner presents written statements of how the advertised product infringes. The seller presents written statements as to why it does not infringe. Amazon refers the written statements to a patent attorney contracted by Amazon. The patent attorney decides whether there is infringement based on the statements. If the patent attorney finds infringement, Amazon takes down the ad, pays the patent attorney from the seller’s $4000.00, and refunds the patent owner’s $4,000.00. If the patent attorney finds no infringement, then the ad stays up, the patent owner’s $4,000.00 pays the patent attorney, and the seller’s money is refunded.
To avoid the whack-a-mole problem, Amazon gives the successful patent owner an ‘APEX ID.’ When the next ad pops up, the patent owner notifies Amazon, provides the patent owner’s APEX ID, and Amazon takes down the ad with no further proceedings. If the patent owner abuses his or her APEX ID by falsely targeting non-infringers, then Amazon revokes the APEX ID.
The Amazon APEX system is, in this author’s estimation, wonderful.1,2
The Amazon APEX system has one major weakness; namely, it does not extend to design patents. In Amazon’s defense, determining whether an ornamental design infringes a design patent is much more of a judgment call and not nearly as clear-cut as utility patent infringement.
So how to enforce a design patent against online infringement?
Enter Schedule ‘A.’ Schedule ‘A’ litigation was developed by lawyers representing famous brands subject to counterfeit and is not specifically authorized by statute. The practice may be used to enforce design patents and also to enforce other intellectual property, including trademarks.
Schedule ‘A’ refers to the litigation practice of filing an infringement lawsuit in Federal court that lists numerous defendants by online market aliases, URLs, or store numbers rather than by name in a schedule (Schedule ‘A’) attached to the complaint. It addresses a thorny problem not adequately addressed by pre- Internet Age law; namely, how to pursue anonymous infringers using assumed names who can appear and disappear in the blink of an eye. In Schedule ‘A’ litigation, the intellectual property owner may ask for a temporary restraining order applying to numerous defendants at once, halting sales, seizing proceeds, and generally gumming up the business of infringement. Using Schedule ‘A’ litigation, the intellectual property owner, including the owner of a design patent, may whack many moles at the same time.
A case pending before the Federal Circuit addresses a Schedule ‘A’ action. A design patent owner filed a patent infringement action against 67 different defendants running online stores. Of interest, 66 of the defendants defaulted or settled, showing the value of the Schedule ‘A’ approach. One defendant did not surrender, and prevailed at the trial court on a decision of non-infringement. The case is currently on appeal on the question of infringement. A group of law professors who view Schedule ‘A’ litigation as abusive to defendants filed a friend-of-the-court brief with the Federal Circuit. Here’s hoping that the Federal Circuit does not adopt the position of the law professors.
In short, Schedule ‘A’ litigation provides a great opportunity for relatively low-cost patent enforcement against online infringers, including for generally patent-unfriendly marketplaces like Walmart.com.
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1. Walmart, the second largest e-commerce marketplace in the U.S., with about a 10% market share, has no equivalent system. Yes, you can complain to Walmart, but Walmart won’t do anything about it other than tell the seller. Hail from overseas and want to sell products that infringe U.S. patents? List on Walmart.com.
2. Many sellers in APEX actions are based overseas and many default. The APEX program has a significant disadvantage insofar as U.S.-based or large sellers are concerned. By initiating an APEX action, the patent owner exposes itself to a declaratory judgment lawsuit in a distant state, which may force the patent owner to defend and enforce the patent far from home.
— Robert Yarbrough, Esq.