The US city that scares Chinese Amazon sellers

China Report is MIT Technology Review’s newsletter about technology developments in China. Sign up to receive it in your inbox every Tuesday.

Want to know how to make Chinese Amazon sellers anxious?

Put Chicago in the delivery address when you order.

Why? Because in the last few years, many sellers have been slapped with massive lawsuits for intellectual-property infringement filed in Chicago. The total number of such cases has grown over 500% in half a decade. Once listed as a defendant, an online vendor can expect to spend several months and thousands of dollars trying to get out of trouble.

In this story I published today, I investigate the rise of this new IP lawsuit trend, which may have impacted hundreds of thousands of e-commerce sellers—most of them from China. 

What I found was an IP litigation industry that was much bigger than I had expected. In these lawsuits, plaintiffs usually claim that hundreds of online sellers infringed on their trademark, patent, or copyright. Then they ask platforms like Amazon to immediately freeze all the sellers’ accounts and ask the court to award them the account balance as statutory damage.

IP lawsuits, both legitimate ones and those that border on trolling, have existed for a long time. But what’s distinctive about this scheme—so new that it doesn’t have an official name yet—is the way they are filed in court to efficiently, inexpensively, and discreetly sue hundreds of sellers across different platforms at once. Using a document called Schedule A that classifies the defendants’ identities when the case is filed, these lawsuits make it easy for IP holders to claim they are being exploited by a big, conspiring criminal group of online sellers, whether it’s true or not.

The practices here are lawful—they are designed to protect rights owners in the e-commerce environment, where sellers are often overseas and anonymous. Schedule A makes it easier to confiscate the counterfeiters’ assets without alerting them early.

But I also talked to many defendants, attorneys, and academics who told me they feel this practice has been abused to become a lucrative business of suing sellers for sometimes baseless counterfeit claims.

Because it’s easy and inexpensive, the law firms that are proficient in these cases are recycling the filing templates and putting out hundreds of similar lawsuits every year, potentially getting millions of dollars from default judgments and settlements. In 2022, 938 Schedule A lawsuits were filed in the US, each targeting dozens or hundreds of defendants. About 85% of them were filed in the federal court in Chicago, and about one-third were filed by a single law firm.

“It’s a procedural assembly line. It’s just a repeated process, and it’s just growing by mass numbers,” says Travis Stockman, a New York–based IP attorney who has represented many defendants—70% of whom are Chinese—in these cases. Many of the sellers affected feel they did nothing wrong, and those from China particularly feel that they are being targeted because they aren’t familiar with the US legal system and cannot defend themselves easily.

Despite its scale—likely hundreds of thousands of sellers over the years, even though the exact number is unknowable because of the classified nature of Schedule A—I was also surprised by how obscure this trend is. Until this year, there has been almost no reporting or academic study of it in English. Even in China, the knowledge is only shared among those in the e-commerce industry.

To learn more about how these lawsuits work, why it’s problematic, and what role Amazon has played in it, you can read the full story here.

I hope my story can shine a light on this tricky matter. Smart litigation strategies are needed to hold e-commerce counterfeiters properly accountable; but they also have the potential to be very easily abused.

Do you think these Schedule A cases are a legitimate strategy to protect IP or an abuse of the IP system? I’d love to hear your ideas and reasons. Tell me at [email protected].

Catch up with China

1. Chinese president Xi Jinping has been busy meeting American delegates this week.

• On Friday, he told Bill Gates that he welcomed American companies, including Microsoft, bringing their AI tech to China. (Reuters $)
• On Monday, he met with Antony Blinken, the US secretary of state, as both sides showed willingness to ease geopolitical tensions. (CNBC)

2. The president of Foxconn, Apple’s biggest supplier, says an electric vehicle is like a big iPhone and may drive the company’s future growth. (BBC)

3. The national number of cremations for 2022 was omitted from China’s quarterly routine data reports, obscuring information relevant to understanding the covid-19 wave that followed China’s easing of pandemic restrictions. (CNN)

4. Despite being designated a national security threat in China, the US semiconductor company Micron is investing $603 million in a chip packaging facility in the country. (Reuters $)

5. France is pushing for an EU investigation and tariff on Chinese-made electric vehicles. Other EU countries may not agree. (Politico)

6. An 18-year-old Chinese fan of Lionel Messi became a social media star when he entered the soccer field and evaded several security guards to hug the Argentinian player. The whole stadium in Beijing was cheering on him, too. (Sixth Tone)

7. Yichun, a city with the most accessible lithium mines in China, is powering the electric-vehicle boom. But it comes at an environmental cost. (Reuters $)

8. Jack Ma, founder of Alibaba, is “alive, well, happy, creative, thinking” and “teaching at a university in Tokyo,” said Alibaba’s current president in an event in Paris. (CNBC)

Lost in translation

A research lab under the Chinese Academy of Sciences just unveiled its own generative AI chatbot named “Zidong Taichu 2.0.” The most interesting thing about it is its multimodality—the diverse types of information it can process. In addition to text and images, Zidong Taichu 2.0 can also analyze videos, audio (the genre and mood of music), radar signals, and 3D mapping data. It can combine inputs from different media to understand a task or generate output in any of these forms. With 100 billion parameters, the large language model is designed to mimic the way humans learn new information, since humans process language, sight, sound, smell, touch, taste, and biological signals all at once, says the lead researcher, Xu Bo. It can be used to process multimodal medical data for diagnosing complex diseases, he says, but also to detect sensitive information in social media videos that takes a long time for human moderators to find, according to Chinese AI publication Zhidongxi.

One more thing

Eating zongzi—a glutinous rice pyramid wrapped in bamboo leaves and tied in twine—is a must for celebrating the traditional Dragon Boat Festival, which will fall on June 22. But some zongzis in the Carrefour supermarkets in Taiwan are getting a little too risqué this year.