ViaSat and SSL Posture, Others Watch Closely, as Patent Infringement Trial Approaches

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WASHINGTON — Eight U.S. citizens or residents plucked from the streets of San Diego to form a court jury will spend three weeks starting March 26 determining whether satellite broadband provider ViaSat Inc. is right in claiming $800 million in patent-infringement damages from satellite builder Loral Space and Communications.

The trial, in the U.S. District Court for the Southern District of California, follows the February 2012 lawsuit filed by Carlsbad, Calif.-based ViaSat. The lawsuit was prompted by the sale by what was then Loral’s satellite-building division, Space Systems/Loral (SSL), of a high-throughput broadband satellite to ViaSat’s principal U.S. satellite-broadband competitor, Hughes Network Systems, now owned by EchoStar Corp.

The Hughes satellite, Jupiter/EchoStar 17, bears a strong resemblance to ViaSat’s Loral-built ViaSat-1 satellite. ViaSat-1 has been in service since January 2012; Jupiter/EchoStar 17 entered service in October 2012.

Palo Alto, Calif.-based SSL has since been sold by Loral to MDA Corp. of Canada, with New York-based Loral retaining responsibility for the conduct and cost of the defense against ViaSat’s charges.

ViaSat’s case may be summarized as this: We purchased our ViaSat-1 high-throughput satellite from SSL and during design and construction gave SSL information that has since been the subject of three ViaSat patents. SSL then turned around and sold a nearly identical satellite, Jupiter/EchoStar 17, to our competitor and has made sales to other customers using our technology.

Loral’s response, in essence, is that ViaSat is guilty of extreme hubris, claiming fundamental principles of physics as products of its own intellectual labor and ignoring what had gone on in the satellite industry before ViaSat arrived on the scene.

Loral’s owners want to sell the company and its principal remaining asset, a majority economic stake in satellite fleet operator Telesat of Canada. Industry observers had thought this might encourage Loral to pursue a settlement with ViaSat as a way of removing a potential liability from negotiations with prospective buyers.

That has not been the case. Loral has countersued ViaSat alleging ViaSat infringements on Loral patents, and both sides appear dug in and willing to spend several million dollars a year each on legal teams.

ViaSat Chief Executive Mark D. Dankberg, in an interview here March 13 during the Satellite 2014 conference, appeared to view the impending trial with the same boyish enthusiasm he brings to the introduction of a new ViaSat product.

“Are you coming to the trial?” Dankberg asked. “There are going to be some really interesting things to come out of it.”

Asked how ViaSat arrived at a claim of $800 million in damages, Dankberg declined to go into detail beyond saying that a satellite like Hughes’ Jupiter/EchoStar 17 could be expected to generate $3 billion to $4 billion in revenue during its orbital life of 15-plus years.

Without ViaSat’s patent-protected intellectual property, he said, Hughes/EchoStar would have been forced to build multiple satellites to provide an equivalent service and generate an equivalent revenue stream.

An industry official familiar with the lawsuit said an alternative measure would be to assess how much of a royalty SSL/Loral would have to pay to ViaSat for each satellite sold with ViaSat-patented intellectual property. These royalties would come out of SSL’s profit and could conceivably be as high as a few tens of millions of dollars per satellite, this official said.

Another official said a close reading of ViaSat’s patents could lead one to conclude that “a satellite I was working on 20 years ago was built with ViaSat intellectual property!”

SSL President John Celli, in a March 10 interview here, said the ViaSat lawsuit has been “a distraction” for SSL management but that the company remains confident that it violated no confidence in its dealings with ViaSat or its contract with Hughes, and violated no valid patents.

Several satellite manufacturing officials have said privately that they fear the ViaSat lawsuit, if successful, might increase the number of lawyers involved in future satellite construction contract work.

Satellite builders speaking at a March 11 panel discussion at the conference were asked whether they had modified their dealings with customers in light of the ViaSat lawsuit against SSL. In what may have been an example of whistling past the graveyard, they all said they saw no relevance of the lawsuit to their own businesses or customer relationships.

As direct competitors in selling consumer satellite broadband services in North America, ViaSat and Hughes might view the success of one of them as eating into the revenue potential of the other.

ViaSat, which asked for a jury trial, wants the jury to award a total compensation of triple damages, or about $2.4 billion.

District Judge Marilyn L. Huff has set a limit of three weeks, and about 25 hours for each side, as the trial’s duration. While the eight jury members are likely to have no more expertise in satellite telecommunications or patent law than a shoe salesman, Huff is sufficiently steeped in the subject to have appeared at legal conferences to speak on patent litigation.

SSL has sold other high-throughput satellites — notably to Australia’s NBN Co. — which, in ViaSat’s view, violated the same patents as those that are the subject of the lawsuit. Since the lawsuit was filed, SSL customers have placed into their satellite contracts indemnification provisions to avoid a financial liability in the event of a ViaSat victory.

Loral and MDA Corp. have agreed that, up to a certain amount, it is Loral and not SSL or MDA that will be responsible for settling any indemnification issues following the trial.

ViaSat has filed a separate lawsuit against SSL, and Loral has said it has no responsibility for that. MDA and SSL disagree, saying the second lawsuit is a copy of the first and should be treated as such with respect to indemnification issues. The two sides have agreed to await the outcome of the first lawsuit before settling this issue.