Because the SAD Scheme Disregards Due Process, Errors Inevitably Ensue–Modlily v. Funlingo

May 28, 2025 · by · in Domain Names, E-Commerce, Internet History, Trademark

This started out like every other SAD Scheme case. The plaintiff, a fast-fashion vendor operating under the brand Modlily, filed a complaint under seal against 20 defendants, got an ex parte TRO and asset freeze, and rolled to an unopposed preliminary injunction. Then, one defendant, Funlingo, showed up in court…and, well, you can guess what happened next…

[Nomenclature note: in an example URL of “https://www.ericgoldman.org/biography.html,” the word “ericgoldman” is the second-level domain, the word “www” is the third-level domain, the word “org” is the top-level domain, and the word “biography.html” is in the post-domain path.]

In support of its injunction, Modlily identified 129 URLs for Funlingo product postings on Amazon. The court summarizes:

Plaintiff does not argue that “Modlily” appears in the product name or description of these listings, or anywhere on the webpage itself.  Instead, plaintiff’s evidence consists of the appearance of the term “Modlily” in the post-domain paths of the identified URLs.

Time for a stroll down Internet Law’s memory lane….

Cases about including a trademark in post-domain URLs date back to the 1990s. The flagship precedent in this area is Patmont Motors v. Gateway Marine, 1997 WL 811770 (N.D. Cal. 1997), which said:

the text that follows the domain name in a URL–in other words, the text that comes after the slash–serves a different function. This additional text, often referred to as the “path” of the URL, merely shows how the website’s data is organized within the host computer’s files. Nothing in the post-domain path of a URL indicates a website’s source of origin, and Patmont has cited no case in which the use of a trademark within a URL’s path formed the basis of a trademark violation. Therefore, the fact that the Go-Ped mark appeared in the path of Anthony DeBartolo’s website’s URL–
“www.idiosync.com/goped”– does not affect the Court’s conclusion that the website does not imply Patmont’s sponsorship or endorsement.

Patmont was followed by Interactive Products Corp. v. a2z Mobile Office Solutions, Inc., 326 F.3d 687 (6th Cir. 2003). Echoing Patmont, the court said the “post-domain path of a URL, however, does not typically signify source. The post-domain path merely shows how the website’s data is organized within the host computer’s files.” The court then held (emphasis added):

Because post-domain paths do not typically signify source, it is unlikely that the presence of another’s trademark in a post-domain path of a URL would ever violate trademark law. For purposes of the present case, however, it is enough to find that IPC has not presented any evidence that the presence of “laptraveler” in the post-domain path of a2z’s portable-computer-stand web page is likely to cause consumer confusion regarding the source of the web page or the source of the Mobile Desk product, which is offered for sale on the web page.

In other words, for decades, everyone believed that any URL component to the right of the top-level domain was irrelevant to trademark law. And yet, in 2025, Modlily actually shut down an Amazon merchant by asserting trademark infringement based on post-domain URL paths. 🤯

Heres how Modlily responded when Funlingo pointed out these problems to the court:

plaintiff does not contest Funlingo’s position that terms appearing in post-domain paths cannot constitute infringement, nor does it present any additional evidence of infringement.

🤯🤯 Injunction dissolved.

[As a second-order consideration, it’s likely that Amazon, not its merchants, determines the post-domain URL in its marketplace. In other words, even if the inclusion of the Modlily trademark in the URL had trademark significance (which it doesn’t), Modlily hasn’t shown that Funlingo, as opposed to Amazon, made the requisite trademark use in commerce by putting it in the URL. So I believe this case is f’ed in multiple ways.]

* * *

We’ll have to see what additional consequences will hit Modlily after the injunction dissolution. In other circumstances where a SAD Scheme plaintiff gets caught making a serious litigation error, the judge typically will resolve the motion on its desk and move on. However, I am not satisfied with that.

First, Modlily took an objectively unreasonable legal position to support its TRO and PI and, in so doing, harmed Funlingo, Amazon, and consumers. Even if Modlily claims it was a mistake to include Funlingo in the complaint, the court ought to issue Rule 11 sanctions for Modlily’s inadequate investigation/preparation of the case that led to a serious and consequential abuse of legal process. If I were a judge, and I realized that Modlily’s bad case prep had led me to grant extraordinary relief to Modlily, I would be PISSED.

[Note: if Modlily claims it made an innocent “mistake,” I would vigorously disagree. I would counterargue that litigation errors are the PREDICTABLE, FORESEEABLE, and INEVITABLE consequence when SAD Scheme plaintiffs corner-cut on due process. Had Funlingo’s case proceeded using a proper litigation process, the post-domain URL “mistake” would have been caught earlier (or perhaps Modlily would have properly done its homework as required by Rule 11 and never sued Funlingo at all). Thus, I don’t think there are any “innocent mistakes” when it comes to the SAD Scheme–there are only abuses of due process, and each abuse deserves to be classified–and sanctioned–as an egregious violation of the rule of law.]

Second, Funlingo certainly should have its case dismissed, and the court should award a fee shift under trademark law for Modlily’s abuses. (For years, it has been my position that SAD Scheme cases gone wrong should qualify as “extraordinary” for purposes of the trademark fee shift).

Third, it seems extremely likely that Modlily has sued other Amazon merchants based on post-domain URLs. In a footnote, the judge says “Plaintiff submitted evidence of the term “Modlily” appearing on the webpage for most of the other defendants.” HOLD UP…the court seems to treat this as exculpatory evidence, but it sounds inculpatory to me. “Most” ≠ “all.” Are the claims against those other defendants still active? And has Modlily made similar “mistakes” in its other SAD Scheme cases? The judge ought to issue an order to show cause requiring Modlily to explain any other times it has sued defendants solely based on post-domain URLs and how it will remediate its errors and compensate those victims.

And yet, the most likely scenario is that Modlily will get away with its abuses without so much as a slap on the wrist. 🤬

The court does allow Funlingo to peek into the sealed defendant list in a different Modlily SAD Scheme case. In that other case, Judge Daniel challenged joinder, and Modlily responded by dropping all of the defendants but one. Funlingo believes that some of the dropped defendants from that case were recycled into a different complaint, perhaps on the gamble that it could find another judge who’s less vigilant about policing joinder. The judge in this case says “it would be troubling if, dissatisfied with Judge Daniel’s order, plaintiff simply turned around and refiled against the same defendants before a different judge.” I agree, though Modlily deserves condemnation regardless of whether or not they are engaging in judge-shopping.

Case Citation: Hong Kong Yu’En E-Commerce Co. v. Individuals, Corporations, Limited Liability Companies, Partnerships and Unincorporated Associations Identified in Schedule “A”, 2025 WL 1413251 (N.D. Ill. May 15, 2025). Thanks to Prof. Fackrell for calling this ruling to my attention.

Prior Blog Posts on the SAD Scheme