ViaSat’s Latest Lawsuit May Have Driven Wedge Between SSL’s Current and Former Owners

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PARIS — ViaSat Inc. may have succeeded in driving a wedge between the current and former owners of satellite builder Space Systems/Loral (SSL) by filing a fresh patent-infringement lawsuit that lists only SSL as the defendant.

The new lawsuit covers much of the same ground as the February 2012 claim, which is being adjudicated in a California District Court and is scheduled for trial in March. It alleges that SSL illegally used ViaSat proprietary information, gleaned during SSL’s construction of the ViaSat-1 high-throughput satellite, to sell satellites to other customers including EchoStar Corp.’s Hughes, which is ViaSat’s direct consumer broadband competitor in the United States.

But unlike the first lawsuit, in which SSL and its then-owner, Loral Space and Communications of New York, were both named, the second is aimed solely at SSL.

MDA Corp. of Canada purchased SSL in a billion-dollar transaction that closed in November 2012. As a condition of the sale, MDA obliged Loral to, in effect, retain possession of the lawsuit and its related costs, up to an undisclosed ceiling, by indemnifying SSL and MDA for any litigation costs incurred.

In MDA’s view, the second ViaSat lawsuit, filed Sept. 5, is a twin of the first and should be covered by the same indemnification agreement.

In a Nov. 12 filing with the U.S. Securities and Exchange Commission (SEC), Loral said it disagrees.

“Loral has rejected MDA’s assertion that it is obligated to defend and indemnify SSL on the basis that the new lawsuit does not fall within its defense and indemnification obligations under the Purchase Agreement,” Loral said. “SSL is defending the new lawsuit.”

Loral said it has agreed with MDA to defer any judgment on who is responsible until either Oct. 25, 2016, or following a court ruling or a settlement of the initial lawsuit, whichever comes first.

“There can be no assurance that a dispute will not arise as to whether Loral is obligated to defend and indemnify [Space Systems/Loral] for the new ViaSat lawsuit or if such a dispute were to arise that Loral would prevail,” Loral said.

ViaSat warned investors on Nov. 11 that its litigation costs would be climbing this year as the case moves to trial. In an Oct. 30 court filing, SSL asked the court to reject ViaSat’s second lawsuit as a waste of court time and the companies’ money.

SSL said studies show it costs on average $8 million to defend a large patent-violation case.

“ViaSat appears to have filed this new case as a hedge in the event its original lawsuit is unsuccessful,” SSL said in its court filing.

The new allegations say SSL continues to violate ViaSat’s patents in building satellites for several customers. It mentions NBN Co. of Australia and several other contract awards for which SSL has not yet delivered the satellites and seeks an injunction “prohibiting further acts of infringement.”

Once it decided to attack SSL, ViaSat eliminated the satellite manufacturer from consideration for ViaSat’s ViaSat-2 high-throughput Ka-band satellite and eventually contracted with Boeing Space and Intelligence Systems of El Segundo, Calif.

Boeing and ViaSat, as part of the ViaSat-2 contract, struck a partnership in which the two companies will jointly approach other potential customers interested in similar spacecraft.

That being the case, ViaSat finds itself competing with SSL for large satellite telecommunications satellite contract awards.

ViaSat’s SSL-directed lawsuit says SSL “has irreparably harmed ViaSat” by giving ViaSat technology to competitor Hughes, and “obstructed ViaSat in its efforts to market and sell its own satellite designs incorporating the patented technology.”

It remained unclear whether Loral would be able to dissociate itself from the first lawsuit by concluding a separate settlement with ViaSat that did not include SSL.

Since it sold SSL, Loral has slashed its workforce in New York as its principal remaining asset is its 62.8 percent economic stake in satellite fleet operator Telesat. Loral and Canadian pension fund PSP, which owns most of the remaining economic interest in Telesat but has majority voting rights, have been discussing the sale of Telesat.

A Telesat sale could trigger the dissolution of Loral.

“With the goal of maximizing shareholder value, we have previously explored and expect to continue to explore potential strategic transactions involving the possible disposition of Loral’s interest in Telesat,” Loral said in its SEC filing. “The exact structure of any such transaction has not yet been determined and may include a disposition of Loral itself.”