How to Recover Attorneys’ Fees in a Schedule A Trademark Case in the Northern District of Illinois | Sheppard Mullin Richter & Hampton LLP
In recent years, a substantial number of “Schedule A” trademark infringement cases have been filed in the Northern District of Illinois. In such a case, the trademark owner may file a trademark infringement complaint against a number of defendants, with the complaint identifying the defendants as “The Individuals, Corporations, Limited Liability Companies, Partnerships and Unincorporated Associations Identified on Schedule A hereto.” [See, e.g., Opulent Complaint]
The trademark owner may file Schedule A separately from the complaint with a request to the Court that the schedule be placed under seal. Sometimes, trademark owners file the entire complaint under seal. After filing sealed pleadings that shield the defendants’ identities, the trademark owner may then file ex parte motions for temporary restraining orders (“TROs”) against the secretly-named defendants. Because the proceedings are ex parte, the alleged infringer is not given notice of the proceedings or an opportunity to appear. If the Court grants the TRO, the trademark owner may then present the TRO to online marketplaces with a demand that the marketplaces immediately stop selling the allegedly infringing goods. The result may be that an alleged infringer may find all of its activity frozen by the online marketplace, including a freeze on the alleged infringer’s cash held with the online marketplace. This may create cashflow problems for the alleged infringer and prevent the alleged infringer from making future sales. Because its identity is sealed by the court, an alleged infringer may first learn of the TRO after its accounts are frozen.
Schedule A cases appear to be concentrated in the Northern District of Illinois because judges in that district have been receptive to granting ex parte relief. See, A. Anteau, “The Northern District of Illinois v. the Internet: How Chicago Became the Center of Schedule A Trademark Infringement Litigation”; Law.Com, December 19, 2023. At least two judges in that district even provide templates for TROs, preliminary injunctions and default judgments in Schedule A cases. See Northern District of Illinois (uscourts.gov); Northern District of Illinois (uscourts.gov). The justification for the ex parte nature of these proceedings is that it, if notice was required, online counterfeiters (frequently from China) could hide their assets or move their counterfeit products to new sites as soon as an infringement case was filed.
Notwithstanding the foregoing, remedies and relief do exist if an entity is the subject of a wrongfully obtained ex parte TRO. Recently, Ya Ya Creations, a defendant in a Schedule A trademark case, obtained an attorneys’ fees award against a plaintiff that failed to conduct a proper investigation before naming two Ya Ya-affiliated entities as alleged infringers in a case filed in the Northern District of Illinois. [Award of Fees] The dispute began in August 2021, when the plaintiff filed a lawsuit against Ya Ya for trademark infringement and a variety of other causes of action in the Eastern District of Texas. The Texas court transferred the case to the Central District of California in April of 2022. Four months after the transfer, the plaintiff filed a very similar lawsuit against Ya Ya in the Middle District of Florida. On May 26, 2023, the Florida court transferred the case to the Central District of California, and then the CD California consolidated the cases due to the similarity of the facts and claims. On September 26, 2023, the plaintiff filed yet another lawsuit. This time, the plaintiff filed a Schedule A trademark infringement case against a number of defendants in the Northern District of Illinois. In the Schedule A case, the plaintiff named two entities affiliated with Ya Ya as alleged infringers.
Notwithstanding the litigation history between the parties, the plaintiff obtained an ex parte TRO against Ya Ya in the Northern District of Illinois. Ya Ya first learned about the TRO after the court issued it and after an online marketplace froze Ya Ya’s accounts.
Ya Ya’s first step in seeking redress was to file an emergency motion asking the court to dissolve the ex parte TRO. [Ya Ya Motion to Dissolve TRO] Ya Ya argued that, because the parties were actively litigating against each other in California, the plaintiff had no basis to seek ex parte relief against Ya Ya or its affiliated entities without notifying Ya Ya of the proceedings. Ya Ya also argued that the plaintiff’s ex parte TRO was a transparent attempt to gain a litigation advantage in the California cases to either leverage a settlement, force Ya Ya into a position where it could not even pay its lawyers to mount a defense, or force Ya Ya to file for bankruptcy. In response to Ya Ya’s motion to dismiss, the plaintiff agreed to dismiss all of its claims against the Ya Ya-affiliated entities.
Ya Ya’s next step was to file a motion for recovery of the attorneys’ fees it expended in the Northern District of Illinois proceedings. [Ya Ya Request for Reimbursement of Attorneys’ Fees]. In response, the plaintiff argued that it was not obligated to pay Ya Ya’s attorneys’ fees, because it did not know the entities it named in the Northern District of Illinois lawsuit were affiliated with Ya Ya. But the court rejected that argument. The court concluded that, pursuant to Federal Rule of Civil Procedure 11, a court may award attorneys’ fees incurred while defending an ex parte TRO when (1) the TRO caused “needless delay” and unnecessarily “increased the cost of litigation,” or (2) the TRO was obtained by pleadings that were not “well grounded in fact” or made after “reasonable inquiry.” The Court determined that plaintiff could have avoided increasing the costs of litigation if it had conducted a reasonable inquiry to determine if the two entities were affiliated with Ya Ya, but it failed to do so. As a result, the Court awarded Plaintiff to pay Ya-Ya almost $100,000 in attorneys’ fees.
Trademark litigators should be aware that judges in the Norther District of Illinois have been receptive to granting ex parte TROs in trademark cases. If you represent a client that is the subject of an improperly granted ex parte TRO, be prepared to move quickly to dissolve the TRO and consider whether you have a basis to move for an award of attorneys’ fees.
