Roblox Sanctioned for SAD Scheme Abuse–Roblox v. Schedule A Defendants

December 4, 2023 · by · in Evidence/Discovery, Trademark

TIL: Roblox regularly uses the SAD Scheme. I found at least 19 cases. In the lawsuit I’m covering today, Roblox named over 250 defendants. If that’s true with the other 18 cases, Roblox may have sued 4,000+ defendants using the SAD Scheme. Seriously, Roblox? Do better.

[Roblox is represented in this case by Michael A. Hierl, Robert Payton McMurray, and William Benjamin Kalbac of the Chicago firm Hughes Socol Piers Resnick & Dym. Hierl was the lead counsel on the Emojico case I opined on in 2021.]

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Jurisdiction

The defendant Bigfinz sells t-shirts. It moved to dismiss for lack of jurisdiction. The court says “none of Bigfinz’s t-shirts were sold in Illinois.” Roblox showed that it was possible to order the shirts and have them delivered to Illinois. The court says that’s not good enough; “the online retailer generally must have sold at least one product in Illinois for personal jurisdiction to exist here.” Presumably, a test buy would suffice under 7th Circuit law, but I guess Roblox didn’t do the test buys. Motion to dismiss granted.

Some of you are probably wondering if the same jurisdictional defect applies to any of the 250+ other defendants. I bet most of Roblox’s lawsuit would unravel if the judge simply asked Roblox the obvious follow-up question, i.e., “what evidence do you have for each of the other 250 defendants that they sold infringing items in Illinois?” Yet, as typical in SAD Scheme cases, the court resolved the matter only with respect to the moving defendant and ignored the obvious implication for the other defendants.

Attorneys’ Fees

Bigfinz requested its attorneys’ fees. Applying the court’s inherent authority to punish bad faith litigation, the court concludes: “Roblox multiplied the proceedings of this case in bad faith.”

As usual in SAD Scheme cases, Roblox claimed that it needed an ex parte TRO to prevent defendants, including Bigfinz, from expatriating assets from the US jurisdiction. But “Roblox learned that Bigfinz was located in Florida and has sold only $201.50 worth of the allegedly infringing t-shirts.” Nevertheless,

rather than resolving what the Court presumes are plausible allegations of infringement for the minimal amount of money at issue, Roblox did the following: filed a motion for default and opposed the motion to vacate default; opposed this motion to dismiss; and opposed lifting of the restraining order on Bigfinz’s funds that were far in excess of the $201.50 at issue here. These actions were unreasonable considering the small amount of money at issue and the fact that Bigfinz does not pose any of the concerns Roblox articulated at the beginning of this case. Roblox never clearly articulated to the Court that Bigfinz was not the type of defendant Roblox described in its complaint and motions.

The court should have chastised Roblox for failing to do its Rule 11 homework regarding Bigfinz before filing the complaint. Instead, the court essentially says that Bigfinz put Roblox on notice about its factual errors post filing, when it contacted Roblox. But Bigfinz hasn’t proven those facts in court, and Roblox might even reasonably believe that Bigfinz infringed to the tune of at least $201.50. Bigfinz self-reported that number, and Roblox might wonder if it’s understated (though Roblox probably doesn’t have better evidence of the infringement amount).

Thus, Roblox is entitled to challenge the $201.50 number in court. And surely Roblox was entitled to get a ruling on jurisdiction, even if the court disagreed with its legal analysis. The court implies that Roblox should have just accepted a low-value settlement and moved on, but Roblox has the right to adjudicate its case.

Nevertheless, Roblox went too far. It shouldn’t have pursued the default judgment when it was in negotiations with Bigfinz. And it should have shrunk the freeze to $201.50 unless it had better evidence that a higher amount was appropriate. But Roblox didn’t want to release the larger freeze because it’s key to extracting an undeserved settlement amount. This hardline approach irritated this judge.

In theory, this ruling could indicate that judges will expect rightsowners to course-correct when SAD Scheme defendants point out the deficiencies in its case, even if those conversations take place extrajudicially. If so, this would be huge because SAD Scheme defendants routinely show rightsowners that their claims are overreaching, and rightsowners routinely disregard that evidence.

In practice, the judge didn’t even apply its logic to the rest of the lawsuit. Did Roblox disregard evidence from any of the 250+ other defendants in this case or keep a freeze in place above the amount in controversy? I bet many other defendants have similar stories, but the judge doesn’t pursue this obvious follow-up question.

The judge then turns to the possibility of misjoinder:

In this case, and the hundreds like it routinely filed in this District, plaintiffs join dozens or even hundreds of defendants in a single case, saving themselves thousands of dollars in filing fees. Many judges in this District permit this form of filing because—for the reasons Roblox articulated in its complaint, motion to seal, and motion for a temporary restraining order—it is the most efficient way to address the epidemic of counterfeit goods being sold in the United States on the internet by defendants located outside the United States. But by filing a complaint with many defendants, plaintiff’s counsel assumes the responsibility to vigilantly and scrupulously monitor the case for defendants that do not fit the allegations and to promptly take appropriate action when such facts come to light. Roblox failed to do that here.

Yay for the judge calling out the filing fee issue. Roblox paid $402 to file this case. In a case with 250 defendants, filing a single lawsuit using the SAD Scheme saved Roblox $100k in filing fees. Indeed, by reducing the filing fee to less than $2 per defendant, Roblox can pursue low-value defendants–like defendants with $200 at issue–even though the judicial administration costs vastly exceed Roblox’s expected financial benefit. The filing fee serves an important gatekeeping function for access to the public-funded court system, and SAD Scheme rightsowners regularly use misjoinder to undermine that gatekeeping

Despite the good news for this defendant, the court’s discussion has problems.

First, once again, the judge doesn’t extend the misjoinder concerns to the other 250 defendants.

Second, the judge says “by filing a complaint with many defendants, plaintiff’s counsel assumes the responsibility to vigilantly and scrupulously monitor the case for defendants that do not fit the allegations and to promptly take appropriate action when such facts come to light.” This is true but incomplete. Per Rule 11, the rightsowner has the obligation to get the facts right UPFRONT. The rightsowners should be “vigilant’ and “scrupulous” when filing the complaint, AS WELL AS course-correcting post-filing when new information emerges. Roblox’s pre-filing failings should be sanctioned. Roblox didn’t do the test buy, it didn’t figure out that Bigfinz was in Florida, and it demanded a greater freeze than it had evidence to support. If Roblox had properly done its homework, it never should have ensnared Bigfinz in the SAD Scheme in the first place.

Third, the judge seemingly has an ends-justifies-the-means attitude towards SAD Scheme cases. The judge says the SAD Scheme “is the most efficient way to address the epidemic of counterfeit goods being sold in the United States on the internet by defendants located outside the United States.” The SAD Scheme is surely efficient for rightsowners, but efficiency does not excuse the many ways the scheme subverts the rule of law. Our rules of civil procedure balance efficiency with accuracy, and judges should not overprioritize efficiency at the expense of accuracy. I fear ends-justifies-the-means thinking still pervades N.D.Ill. judges’ attitudes towards the SAD Scheme, despite their ever-growing first-hand experience with SAD Scheme’s abuses. This attitude may explain why it has so far proven impossible to get the judges to end the SAD Scheme.

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To summarize, Roblox has its case dismissed with an attorneys’ fee shift, which is good news for this defendant. That good news is tempered by the multiple ways the judge should have asked obvious follow-up questions regarding the other 250 defendants but didn’t. As a result, the outcome of this ruling does little to discourage the continued deployment and abuse of the SAD Scheme. In response to that frustrating tunnel vision, I am adopting a new meme for future SAD Scheme blog posts:

Case citation: Roblox Corp. v. Bigfinz, 2023 U.S. Dist. LEXIS 212147 (N.D. Ill. Nov. 29, 2023).

Prior Blog Posts on the SAD Scheme