New Wave of Trademark Infringement Lawsuits Target Drop Shippers and Other Online Retailers

By Saper LawCategories: Copyrights, Intellectual Property, Internet Law, News, Trademarks

Saper Law is increasingly fielding calls from online retailers who have received notices from PayPal or from attorneys informing them that their accounts have been frozen. This article provides answers to frequently asked questions about trademark infringement lawsuits involving online retailers, including drop shippers.

WHAT HAPPENED TO MY ONLINE STORE AND PAYMENT PROCESSING ACCOUNT?

To crackdown on counterfeiting operations, big brands are suing online stores and freezing their PayPal accounts (or other payment accounts).
Big brands hire law firms to file lawsuits under seal and then persuade the courts to grant them Temporary Restraining Orders (commonly referred to as a “TRO”) and Injunctions. These legal remedies freeze the funds in the stores’ payment accounts and often lead to the stores’ suspension. Failure to comply with an injunction may result in being held in contempt of court. Some of the law firms representing plaintiffs in these cases include: Greer, Burns, & Crain, Ltd., Vogt IP, Kenner & Associates, P.C., AU, LLC, and Gulbransen Law.
If the stores do not respond to the lawsuit/complaint, the court will typically grant the big brands a “default judgment,” which results in the big brands seizing all of the money frozen in the payment processing accounts (such as PayPal).

WHAT IS COUNTERFEITING/TRADEMARK INFRINGEMENT?

Trademark infringement is the unauthorized usage of a trademark or service mark or the use of a similar mark in connect with goods or services that is likely to result in consumer confusion over the source or affiliation of the goods or services, or the dilution of the mark.
Counterfeiting is very similar to trademark infringement but involves a near exact replica of the mark(s) at issue.
There are several ways an online store can knowingly or unknowingly use a trademark: (i) on the product itself, (ii) on the packaging of a product, (iii) in the product description/listing item on Product Page, (iv) in pictures of a product on the Product Page, and (v) in the information listed on the Product Page.
Drop-shipping items from other stores can still result in infringement if the drop-shipping store purchases counterfeit or infringing items from the third-party stores. Drop-shippers should drop-ship from the company that owns the brand or from an authorized distributor or retailer that only sells the authentic, original product.
Depending on the case, counterfeit statutory damages range from a $1,000 minimum and a $200,000 maximum per type of goods and services sold—even if you did not intend to or just accidentally used the mark.
Willful counterfeit use of a trademark can carry up to $2,000,000 in statutory damages, plus attorneys’ fees.

WHAT DO I DO?

You have three basic options if your store is sued:

Do not respond and lose all of the money in your payment processing account (such as PayPal) and risk being permanently suspended from e-commerce sites like eBay and Amazon;
Negotiate a settlement agreement with the big brands by offering them part of the money frozen in your account(s);
Fight the lawsuit to either improve your bargaining position or win the lawsuit.

HOW DO SETTLEMENT NEGOTIATIONS WORK?

If you choose to respond and want to negotiate a settlement agreement, the amount you offer to the big brands from what’s frozen in your account(s) depends on a number of factors which includes but is not limited to: the number of products you sold, where you sold them, and whether your description / use of the brand’s trademark constitutes trademark infringement or was willful.
Before any settlement, the big brand may ask you to provide accurate sales records or supplier information, checking the information against records they already hold.
The settlement agreement you ultimately sign may require you to permanently stop using the at-issue mark.
Once you sign the settlement agreement, you will most likely be dismissed from the lawsuit and your online account providers will be notified. This should result in your online store accounts (PayPal, Ebay, Amazon, etc) being reinstated and no longer frozen.

WHAT HAPPENS IF I TRY TO FIGHT THE LAWSUIT?

Defendants can fight the lawsuit in three basic ways:

File a Motion to Dismiss

- A Motion to Dismiss formally asks the court to dismiss the plaintiff’s case based on a lack of jurisdiction, improper venue, insufficient process or service of process, or failure to state a claim upon which relief could be granted.
- Courts may deny these motions; the Plaintiff may have arranged the purchase of the product from your store from an Illinois buyer to establish personal jurisdiction, and your store may have used the trademark at-issue in a way that can be at least arguably infringing.
- Drafting a Motion to Dismiss may cost thousands of dollars to draft and file.

File a Motion to Oppose or Vacate the Preliminary Injunction

- Courts determine the need for an Injunction freezing the seller’s account by examining whether the seller is based in the U.S. or has U.S. property, how many allegedly infringing products the seller sold, and how much money is in the account.
- Courts usually allow the accounts to be frozen but you may be able to argue that only allow a small portion of the amount in the account(s) should be frozen.
- This Motion may cost a couple of thousands of dollars to draft and file.

Litigate the Case to Judgement

- Litigating the case to judgment can require the defendant to answer the Complaint, participate in discovery, file and respond to motions for summary judgment, and possibly go to trial.

1. 1. 1. Such litigation can last over a year and can cost tens of thousands of dollars.
    2. You are not guaranteed to win and if you lose, you may be required to pay damages and Plaintiff’s attorney fees and costs.

*Overall, in these counterfeiting cases, depending on the case, defendants usually choose to settle to avoid the high cost of litigation.

SHOULD I HIRE A LAW FIRM?

An attorney will help you assess the strength of your case. She can help you negotiate a settlement with the brands or represent you in litigation if you choose to fight the case.