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America’s Biggest Filer of Patent Suits Wants You to Know It Invented Shipping Notification

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Brent Reame, co-owner of online retailer Spice Jungle, which is among more than 100 mostly small companies sued in 2016 by Shipping & Transit.
Brent Reame, co-owner of online retailer Spice Jungle, which is among more than 100 mostly…

Like almost every online retailer, Spice Jungle LLC emails tracking numbers to customers when they place orders. That’s why the small firm was dumbfounded when it received a demand to pay $25,000 for the right to do so.

It came from a company called Shipping & Transit LLC, which soon followed with a lawsuit saying the spice seller had infringed on its patents “through use of its electronic tracking, text, email and other messaging to customers.”

Spice Jungle pored over the paperwork. “We have studied every line of every patent they claim we infringe on and we clearly do not,” said Brent Reame, co-owner of the 15-person business in Rockford, Mich.

Spice Jungle is among more than 100 mostly small companies sued in 2016 by Shipping & Transit, whose litigiousness makes it the largest filer of patent lawsuits in the U.S. this year, according to legal analytics firm Lex Machina. The number of businesses affected by Shipping & Transit’s actions is likely even larger, because this count doesn’t include those that paid quickly to avoid a lawsuit.

Shipping & Transit doesn’t sell tracking systems, or anything else. Its business address is a house in Boynton Beach, Fla. Claiming patents “for providing status messages for cargo, shipments and people,” the company or a predecessor have sued dozens of major retailers as well as delivery giants FedEx Corp. and United Parcel Service Inc., according to court records. The companies have extracted millions of dollars in payments, said people familiar with the legal actions.

The U.S. patent system has struggled to balance the goals of fostering innovation and reducing abusive litigation that can be costly to business.

Recent changes in the U.S. patent system have made it easier for companies with deep pockets to combat claims. Shipping & Transit has turned its sights on scores of small online retailers and logistics startups. It typically demands licensing fees of $25,000 to $45,000, amounts just small enough to discourage a legal battle, yet painful for businesses with only a few employees.

“I am literally losing sleep over this,” said Pat Nastri, chief operating officer of CD Universe, an online seller of music, movies and games. The $25,000 sought by Shipping & Transit, he said, “is one of our employees’ salaries.”

Despite hundreds of lawsuits filed by Shipping & Transit and its predecessor, a court has never ruled on the merits of its patent claims, according to Lex Machina. CD Universe, of Wallingford, Ct., settled last month on confidential terms. “To fight it would have cost more than settling,” Mr. Nastri said.

Martin Kelly Jones, a co-owner of Shipping & Transit, said the tracking of e-commerce packages relates to an idea he came up with in the 1980s to notify families of arriving school buses.

“We are one of the pioneers of determining when something is arriving and being able to message that out,” Mr. Jones said, adding that he spent millions of dollars trying unsuccessfully to bring a product to market. He filed the first patent held by Shipping & Transit in 1993 and additional ones through 2006, according to the company’s website.

The company is going after smaller targets because “there is no large retailer that is not a licensee,” Mr. Jones said. Told that one small-business owner, Mr. Nastri, was losing sleep over a claim, Mr. Jones said in a text message: “We are people with families and kids, businessmen—we never seek personal attacks or personal discomfort toward anyone!”

Mr. Jones, a 55-year-old former tennis pro with no formal engineering training, estimated that Shipping & Transit and a predecessor, called ArrivalStar, have collected licensing fees from more than 800 companies and other parties.

Anthony Dowell, a patent attorney who used to represent ArrivalStar, said he helped it win more than $15 million in license fees between 2009 and 2013 from over 200 parties, including municipalities and providers of shipping services. He said the patents he focused on expired in 2013.

Mr. Jones said 29 of his original 34 patents have expired. Firms that used them when they were valid may still owe licensing fees, he said.

Almost everybody settles, said Anthony Lo Cicero, an intellectual-property lawyer who has represented big retailers the company sued, “because the amounts are far less than the costs of fighting.”

A 2011 law created new proceedings at the federal Patent Trial and Appeal Board as an alternative to a lengthy court process for companies that want to fight back. In addition, a 2014 Supreme Court ruling said that abstract ideas, even if implemented on a computer, don’t warrant patent protection. And 32 states have enacted measures aimed at combating deceptive patent demands.

Shipping & Transit has adjusted to the changing landscape, Mr. Jones said. It now is more likely to sue at the outset rather than first issue demand letters, which could be challenged under the state laws.

Pat Nastri, chief operating officer of CD Universe
Pat Nastri, chief operating officer of CD Universe

Fighting claims isn’t cheap. Just getting through discovery costs an average of $358,000, said the American Intellectual Property Law Association, in cases where what it called “nonpracticing entities” seek less than $1 million.

Cases brought to the new Patent Trial and Appeal Board run at least $23,000 just to file, and other costs can push the total above $200,000—too much for many small firms—said Colleen Chien, an associate professor at Santa Clara University School of Law.

“To be able to take advantage of these new defensive options, you need to be able to afford them,” she said.

Companies with under $100 million in revenue accounted for 50% of the defendants in cases filed by nonoperating companies in the first eight months of this year, up from 43% in 2015, according to RPX Corp., a firm that helps companies mitigate patent risks. It estimated that for targets of all sizes, patent demands and lawsuits cost $7.4 billion in 2015, including legal expenses.

“Historically, patent trolls would go after the big companies,” said Ken Seddon, chief executive of Lot Network Inc., a trade group that helps protect companies from patent suits. “Now, patent trolls are starting to sue smaller companies because they don’t have the stomach to fight back.”

Asked about that term, Mr. Jones said critics have “gone to great extremes” to paint him and his firm as patent trolls, to which he takes offense. “Most of the time a troll is somebody who has bought somebody’s patents…. Because I am the inventor of these patents and have been involved in it, it is a stretch to say that I am a troll,” he said.

Technology innovations have made it possible for little firms to do business around the country but also made them vulnerable to patent claims over technology they use. U.S. Patent and Trademark Office director Michelle K. Lee said the small firms can “pull together collectively” to combat questionable claims.

Jeremy Bodenhamer tried that. His business ShipHawk, which helps shippers compare prices and book carriers, was hit last spring with a $45,000 licensing demand from Shipping & Transit, followed by a lawsuit. Mr. Bodenhamer contacted dozens of firms trying to put together a group to share the cost of fighting the company. Only one signed up.

“My whole purpose here is to stop these guys from hurting people, as long as it doesn’t hurt my company in the process,” Mr. Bodenhamer said in an interview this summer, adding he had notified a court of his intent to fight. Court records show the parties agreed in September to dismiss the case.

Mr. Jones denied his company’s actions hurt people. “I think the opposite. When inventors can invent and get paid for what they do, I think it promotes invention,” he said.

Mr. Jones, who lives in Vancouver, British Columbia, said he came up with the idea for a “vehicle notification system” in 1985 in Atlanta, after seeing a young girl waiting for a school bus on a rainy morning. He later formed a company to develop technology, involving hardware for buses, that could notify people their bus was arriving.

He struck partnerships to test the service, called BusCall, with two large companies but had trouble raising funds, and in 2002 an outside investor acquired his firm’s assets and formed ArrivalStar. It spent about 18 months seeking additional funding.

When that didn’t happen, said Mr. Jones, who had kept a minority stake, it began issuing patent demands to airlines, logistics firms, retailers and others.

One group, the American Public Transportation Association, pushed back after a spate of claims against public transit agencies. A lawsuit ended with ArrivalStar agreeing to make no future claims against the agencies and the trade association paying nothing, the association said.

“It wasn’t worth it to us to fight,” Mr. Jones said. “We had already licensed all the transit departments.” He also said he didn’t have a say in ArrivalStar’s corporate decisions.

FedEx has been using tracking systems at least since 1986 and began letting package recipients receive status updates in 1994. UPS has offered similar services for decades. ArrivalStar nonetheless has collected payments from both as part of settlements, according to Mr. Dowell, its former attorney.

Asked why it paid, UPS said, “It was a business decision that the company made.” FedEx declined to comment.

ArrivalStar sought a $1.4 million licensing fee from the U.S. Postal Service in 2011. The Postal Service reached an agreement with the company but didn’t pay, said Mr. Dowell.

In 2015, Mr. Jones and investor Peter Sirianni bought out other owners and ArrivalStar was renamed Shipping & Transit. Mr. Sirianni, the part owner of another company that has filed many patent claims, referred questions to Mr. Jones.

The Florida Division of Corporations lists Shipping & Transit’s business address as a house in Boynton Beach near a local highway. “There is no reason for us to have a storefront-type office,” Mr. Jones said. “Most everything goes to our attorneys.”

He said the company soon plans to launch an app that aggregates order confirmation and shipping information from major carriers, which would be its first commercial product.

Spokesmen for UPS and the Postal Service said their agreements with ArrivalStar, Shipping & Transit’s predecessor, should cover their customers’ use of technology.

Aaron Leon, CEO of an online retailer called LD Products Inc., thought he was covered by these agreements after the seller of printer cartridges was sued this year by Shipping & Transit. The company ended up settling the suit ,under terms that are confidential.

“At the end of the day, we just want to get this over with,” Mr. Leon said.

Mr. Jones said he wasn’t familiar with that case. He said using FedEx’s or UPS’s notification system would cover a shipper, but it might still need to buy a license if it provided any additional information, such as telling buyers an order has been filled.

“The second you are using technology beyond what a licensee has, you need a license from us,” he said.

After suing Spice Jungle in June, Shipping & Transit in late August notified a court it was voluntarily dismissing the claims. Mr. Jones said he wasn’t familiar with the spice case, either, but noted that his company will drop an action if someone is covered by a license.

One online retailer, Neptune Cigars Inc., filed a motion to dismiss the suit against it. In August, Shipping & Transit agreed not to pursue a claim against it, court records show.

“Companies should not settle with them,” said Julie Turner, an attorney who represented both Neptune and Spice Jungle against Shipping & Transit. “They don’t want to address the validity of their patents.”

Mr. Jones disputed that, saying there were various reasons it might drop a suit. “As far as tests of the validity of the patents,” he said, “we are fine with that.”

Write to Ruth Simon at ruth.simon@wsj.com and Loretta Chao at loretta.chao@wsj.com

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