Pushback Derails Company That Thrived on Patent Lawsuits

Its demise followed three cases where companies fought back and were awarded legal fees after Shipping & Transit decided not to pursue the patent claims against them. Judges in the cases awarded a total of more than $245,000 in attorneys’ fees and costs to businesses in 2017.

Shipping & Transit doesn’t sell tracking systems or anything else. Instead, it claims to own patents “for providing status messages for cargo, shipments and people,” according to court filings. The company typically demanded licensing fees of $25,000 to $45,000 from companies it said were infringing on its patents. Most agree to pay small amounts to avoid costly litigation.

Martin Kelly Jones, a Shipping & Transit co-owner, filed the first patent held by Shipping & Transit in 1993. Mr. Jones, who didn’t respond to requests for comment, previously said that in the 1980s he came up with an idea to notify families of arriving school buses but was unsuccessful in bringing a tracking product to the market.

Despite the many lawsuits filed by Shipping & Transit, a court has never ruled on the validity of the company’s patent claims, said Daniel Nazer, a senior staff attorney at the Electronic Frontier Foundation, a nonprofit that works on intellectual property issues. But Shipping & Transit’s business model took a hit after multiple courts ordered it to pay attorneys fees and questioned the company’s motives in bringing the patent lawsuits.

In 2016, Shipping & Transit filed 107 patent lawsuits, according to legal analytics firm Lex Machina. It filed five patent lawsuits in 2017 and none this year. The company had revenue of $707,000 in 2016 and $348,000 in 2017, but none in 2018, according to bankruptcy filings.

The challenges to its patent claims and the fee awards were “really the death knell for the company” because they increased the chances that other companies facing patent lawsuits from Shipping & Transit would fight back rather than settle, Mr. Nazer said.

In one ruling, a U.S. district judge in Santa Ana, Calif., called Shipping & Transit’s patent claims “objectively unreasonable” in light of a 2014 Supreme Court decision that held that certain kinds of abstract ideas weren’t patentable. There was a “clear pattern of serial filings,” the judge said, even when Shipping & Transit “should have realized it had a weak litigation position.”

Patent assertions by companies that don’t make products and are primarily focused on making money off of patents have declined since the Supreme Court decision, but still “remain extremely high,” said Shawn Ambwani, chief operating officer of Unified Patents, which specializes in challenging these types of assertions.

In another of the cases from 2017, a federal magistrate judge in West Palm Beach, Fla., said Shipping & Transit’s actions suggest that the company’s “strategy is predatory and aimed at reaping financial advantage from defendants who are unwilling or unable to engage in the expense of patent litigation.”

Peter Sirianni, a co-owner of Shipping & Transit, said the California decision “unjustly” went against the company and “knocked the asset out from under us.” Given the court rulings, the patents “are worth $1 to me,” he said. “I am not licensing them anymore.”

In its chapter 7 bankruptcy filing in West Palm Beach, Shipping & Transit listed more than $420,000 in secured and unsecured claims. That total doesn’t include specific amounts for the three judgments against it for attorneys’ fees.

Also in 2017, 1A Auto Inc., an online auto-parts retailer, was awarded $120,000 in attorneys’ fees and costs, but the bankruptcy has stopped efforts to collect that money. “I believe they pocketed all the money or they pocketed money they could have used to pay our attorneys’ fee judgment,” said the company’s attorney, Philip Swain.

Mr. Swain described Shipping & Transit’s strategy as “a stickup based on the cost of litigation. Our client had the guts to fight,” he said. “Not many do.”

Stephen Orchard, an attorney representing Shipping & Transit in the bankruptcy proceeding, said he has seen nothing to support the allegation that assets were transferred to the company’s owners ahead of the bankruptcy filing. He said Shipping & Transit filed for bankruptcy liquidation because collection efforts against the company “had ramped up.” It made more sense “to have an orderly resolution of the business affairs,” Mr. Orchard said, rather than face “litigation and collection efforts from coast-to-coast.”

Mr. Sirianni said he is still involved with another patent filer, Electronic Communications Technologies. The company filed 35 patent lawsuits between 2016 and 2018, according to Lex Machina.

Mr. Sirianni and Mr. Jones are associated with another company, Motivational Health Messaging, that says it has patents on “unique solutions to maximize the effectiveness of ‘health trackers.’ ” The company hasn’t filed any patent lawsuits, according to a review of court filings, but has issued letters demanding licensing fees for use of its patents.

Write to Ruth Simon at ruth.simon@wsj.com