Commentary | The ViaSat-SSL Patent Case: Lessons Learned

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The recent settlement of the patent infringement lawsuit brought in California by ViaSat against Space Systems/Loral (SSL) is undoubtedly a positive development for the two companies. Litigation is always expensive, not just in legal and consulting fees but also in terms of the huge amounts of time that must be devoted by senior management. And patent litigation can be particularly expensive and time-consuming.

For ViaSat, a provider of satellite ground systems and satellite services, including a high-speed Internet service, the settlement vindicates its view that aspects of SSL’s designs for certain high-throughput satellites infringed upon ViaSat’s proprietary, patented technology. ViaSat will be compensated for the infringements; it expects to receive a total of $100 million, plus interest.

For SSL, which primarily is in the business of manufacturing satellites, the settlement removes what could have been a significant impediment to its ability to book future business. Persuading customers to buy satellites built by SSL, especially the high-throughput kinds that are becoming increasingly of interest, could have been difficult for SSL in the absence of a settlement. SSL’s parent, MDA Corp., emphasized that “[t]he settlement gives MDA/SSL and their customers protections against litigation in the future, allowing MDA/SSL to focus on the manufacture of all satellites, including SSL’s high throughput satellites.”

What do the ViaSat-SSL patent litigation and its settlement mean for the rest of the communications satellite industry? There are several conclusions one can draw, which basically all point toward a simple maxim well known to intellectual property lawyers and well known in other industries, but perhaps not always understood so well in the context of satellite manufacturing: When it comes to intellectual property matters, “handle with care.”

The business of building commercial communications satellites is still in its relative infancy; there effectively was not a commercial satellite industry before the 1980s. The companies that first began to build satellites, and that still play a large role in the business today, had their roots in defense and government contracting, in selling satellites either to national governments or to consortia of nations known as intergovernmental organizations (such as the pre-privatization Intelsat and Inmarsat). Government buyers are typically not particularly focused on protecting intellectual property or proprietary technology (government buyers do, of course, often focus on protecting classified information).

The satellite manufacturing business’ roots in government contracting led to relative laxity in how the contracting parties, even in commercial arrangements, tended to approach intellectual property provisions. While the parties might negotiate intensely about price, schedule, changes during construction and the like — plus technical specifications, of course — they tended to give short shrift to the intellectual property provisions of the contract. Each of the manufacturers had its own form contract, typically derived from its government contracting experience, and their customers by and large accepted the manufacturers’ proposals on intellectual property, with perhaps a few tweaks to deal with intellectual property indemnification and the customer’s license to use intellectual property associated with the operation of the satellite for its useful life.

During satellite construction, the buyer and the manufacturer are united in working together to make sure that the satellite is built correctly, so that it will function as designed once in orbit (unlike a car, when a mistake is made, a satellite in orbit can’t be “recalled” for repairs). This unity of purpose usually leads to close collaboration between the operator’s engineers and the contractor’s engineers, and indeed the operator often stations its own engineering team full time at the manufacturing facility to ensure continuous, unimpeded collaboration. The last thing on the minds of these engineers, as they work through the issues that come up on an almost daily basis during manufacturing, is who owns what intellectual property, or who is disclosing what to whom.

In recent years, however, and particularly with the advent of high-throughput satellites and other innovative satellite solutions, this idyllic picture of close operator-manufacturer engineering collaboration has begun to change, particularly in cases where customer intellectual property is being incorporated in the satellite and/or related ground segment design. It is not that every engineer needs an intellectual property lawyer perched at his elbow, but rather that — as satellite operators come to the table with their own ideas and their own intellectual property — the parties have started to pay more attention upfront to the intellectual property provisions of the contract, and in particular to which party owns what intellectual property at the outset, and how that intellectual property is to be shared with and used by the other side. As lawyers know, clarity about rights and responsibilities at the outset of a contractual relationship is the best means of avoiding later unhappiness and litigation.

There is still a long way to go. Many satellite manufacturers reflexively revert to their form agreements, and are not as willing as they should be to engage with customers and their expert counsel on the intellectual property issues. On the other side, many of the operator customers, especially the smaller ones, believe that they can economize — in projects costing hundreds of millions of dollars — by avoiding or minimizing the involvement of their lawyers to analyze the boilerplate intellectual property provisions of the manufacturers. And when either the manufacturer or the customer believes it is bringing to the project some form of special intellectual property (its own “secret sauce”), they both need to recognize the heightened intellectual property stakes and bring in counsel who can craft provisions protecting both parties’ legitimate interests.

From the perspective of the satellite industry as a whole, the ViaSat lawsuit was a wake-up alarm to pay more attention to intellectual property. With the lawsuit now settled, there is a danger that the industry will hit the snooze button, and soon go back to sleep on critical intellectual property issues. That would be unfortunate, particularly as the innovative developments in satellites in recent years demand that more attention be paid to the allocation of rights and responsibilities with respect to intellectual property.

 

Phillip L. Spector is of counsel in the Washington office of Milbank, Tweed, Hadley & McCloy LLP. Neither the author nor his law firm participated in the litigation involving ViaSat, SSL and related parties, but Milbank represents ViaSat on matters unrelated to the litigation. Prior to joining Milbank, Spector was executive vice president and general counsel of Intelsat. The views expressed are solely those of the author.