Bloomberg Law
July 12, 2016, 6:47 PM

Online Retailers Face Patent Suits Over Package Tracking

Bloomberg Law - Staff Reports

By Ellie Smith, Bloomberg BNA

Tapping into the surging growth in online shopping, a single company has sued over 150 companies in the past year, mostly over a popular e-commerce feature: the ability to click a link and track packages during shipping.

Shipping and Transit LLC, which is based in Florida, owns patents related to monitoring vehicles’ movement. It has filed infringement lawsuits against such popular electronic commerce businesses as Edible Arrangements LLC, Wayfair LLC and Shutterfly Inc., as well as against conventional businesses that offer online ordering as part of their enterprises, including Acer Inc., Lifetime Brands Inc. and Arhaus LLC.

Absent from the list of alleged infringers are e-commerce giant Inc. and online electronics retailer Newegg Inc.

Newegg is renowned for fighting these kinds of lawsuits.

Shipping and Transit has also sued companies that create and sell software for tracking vehicles and transportation services, such as Lyft, Inc., according to an analysis of data from Bloomberg Law.

The slew of lawsuits comes as online sales have become an increasingly important part of the retail trade. The amount of money U.S. consumers spend on e-commerce has more than doubled since 2007. Last year alone, customers spent nearly $342 billion on e-commerce sites, according to the U.S. Department of Commerce.

Most Cases Settle

The majority of businesses accused of directly or indirectly infringing the Florida-based company’s patents settle. Court dockets list more than two-thirds of the infringement cases brought by Shipping and Transit as either settled or voluntarily dismissed.

Typically, Shipping and Transit sends a letter to a business demanding that it license its patent portfolio.

“They’ll approach a company asking for $30,000 or $40,000 and then will negotiate for lower amounts, as low as four figures,” said Julie Turner, a partner at Turner Boyd in California who represents LLC and Spice Jungle LLC against Shipping and Transit.

Lawyers who have worked on such cases said defendants frequently prefer settling to the often costly fight against patent licensing companies, which are also known as non-practicing entities (NPEs) or “trolls” by detractors who criticize their aggressive tactics against alleged infringers.

Even so, the company doesn’t fit the classic definition of an NPE that buys patents only so it can profit by broadly asserting them because the patent owner is also the inventor.

“If the company is not practicing today, that’s true, but so are companies out there with hundreds and hundreds of patents they aren’t using,” Jerold Schneider, a partner at Schneider Rothman IP Law Group in Boca Raton, Fla., who represents Shipping and Transit, told Bloomberg BNA. It’s “certainly not a troll,” he said.

Company’s Start: School Bus Tracking

Shipping and Transit has asserted these same patents before, but under different company names.

The business is rooted in transportation and the patents of the company’s owner. In the 1980s, Martin Kelly Jones invented a system to track school buses so parents could know when their children’s buses were approaching their stops. When revenue from that invention dried up, Jones started a “licensing program,” Schneider said.

Jones owns two groups of shipping-related patents that he has assigned over the years to various companies he’s operated, including Luxembourg-registered ArrivalStar SA, which filed more than 370 suits between 2003 and 2015 against companies for allegedly infringing the patents by using online shipping tracking and notifications — the same tactic used Shipping and Transit has used after it was assigned the patents in March 2015.

ArrivalStar—dubbed the most litigious NPE in 2013 by the international digital rights nonprofit Electronic Frontier Foundation — sued cities over the vehicle tracking methods used by public transportation systems to notify riders when the next bus will come. The transit agencies settled.

Deals With Shipping Companies

ArrivalStar also reached agreements to license its patents with United Parcel Service Inc.—the world’s biggest package delivery company — and FedEx Corp. after suing them both in 2007.

A FedEx spokesman declined to comment on the litigation. A UPS spokeswoman said there is no current litigation and confirmed UPS holds a license to use ArrivalStar patents that are now assigned to Shipping and Transit.

The U.S. Postal Service history of litigation with ArrivalStar is somewhat more complicated. After facing litigation from the company in the U.S. Court of Federal Claims, court documents show the matter was resolved with a “covenant not to sue,” which legally bars parties from initiating lawsuits.

On its face, such a covenant should protect the service and its customers from such lawsuits, but the covenant covered only one of the two groups of patents, Schneider said. Although the licensing agreements with UPS and FedEx included both patent groups, effectively shielding websites that use FedEx or UPS from future patent litigation, users of the Postal Service’s tracker may still be liable for infringement in the pending complaints.

All four patents are included in those complaints because Shipping and Transit may not necessarily know which shipping companies — UPS, FedEx, the Postal Service or another shipper not covered by a license or covenant — are being used by the online retailers it is suing.

Little Motive to Fight

Fighting these cases can be expensive. Most cases from Shipping and Transit have been dismissed before a judge’s answer is filed, because companies settle to avoid litigation costs, said Turner.

Vera Renieri, an intellectual property attorney for the EFF, told Bloomberg BNA that Shipping and Transit’s suits are usually dismissed within two months. Small companies, in particular, may not be prepared for the costs and effort that come with litigation when they get hit with a lawsuit or demand letter, she said.

Businesses may initiate suits after getting demand letters.

That way, they can pick a U.S. district court in which to litigate, possibly improving their chances of winning if they stay close to home or avoid a district, such as the U.S. District Courts for the Eastern District of Texas, reputed for being favorably inclined toward patent owners. In Shipping and Transit’s case it has not gone to the Eastern District of Texas, but rather the U.S. District Courts for the Southern District of Florida and Central District of California.

Companies that have preemptively sued Shipping and Transit pay for lawyers and other costs of litigation, but would still rather sue than wait to be sued, said Ranieri, who is also representing in a suit against Shipping and Transit.

But even companies that sue NPEs still end up settling, Turner said. That means aggressive players like Shipping and Transit can usually count on a payday.

“Initially they’re gung-ho about fighting,” she said. “But they come to realize at some point it must be a much more reasonable thing to settle, which allows Shipping and Transit to engage in their business practices.”

Another option for parties accused of patent infringement is to challenge the patents at the Patent and Trademark Office’s Patent Trial and Appeal Board. The PTAB was meant to be a less costly alternative to attacking a patent’s validity in court.

It costs $23,000 to file a PTAB challenge on up to 20 patent claims, $30,000 if it is a covered business method challenge.

However, it can still cost hundreds of thousands of dollars in attorneys’ fees to see a challenge through to the end. So far no one has challenged the Shipping and Transit patents at the PTAB.

Regulating Demand Letters

States have begun to protect customers from “bad faith” infringement claims, but they are limited in what they can do because patents fall under federal law.

Still, 32 states have passed laws to address the issue of bad faith patent infringement claims. Six states have introduced legislation, and in the Michigan Legislature, a bill has cleared one house. Much of the state legislation is aimed at limiting fraudulent demand letters under states’ rights to protect consumers.

In Congress, Rep. Jared Polis (D-Colo.) introduced a bill in April 2015 that would require patent demand letters to have more detail and that would strengthen oversight. The bill (H.R. 1896) was referred to the House Judiciary Courts, Intellectual Property and the Internet Subcommittee in May 2015 and hasn’t advanced.

Stephen Y. Chow of Burns & Levinson LLP in Boston told Bloomberg BNA that some lawmakers are wary of enacting laws to restrict patent litigation out of fear that enhanced rules would encroach on First Amendment rights. Also, patent owners could arguably counter any lawsuits based on state laws, because federal law preempts them, he said.

To contact the reporter on this story: Ellie Smith in Washington at

To contact the editor responsible for this story: Mike Wilczek in Washington at

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