PARIS — A patent-mining company that owned much of the intellectual property supporting theconstellation of low-orbiting mobile communications satellites has sold these and other patents to satellite builder in a transaction that Thales Alenia Space said was crucial for Iridium’s future development.
The transaction was completed June 1, just hours before the satellite manufacturer signed a $2.1 billion contract to build 81 satellites for Iridium’s second-generation constellation. Cannes, France-based Thales Alenia Space embedded the value of the Iridium patents into its contract with McLean, Va.-based Iridium Communications.
Also included in the contract was a license giving Iridium rights to use the patented technology not just for the 15-year life of the Iridium Next second-generation constellation, but for the third-generation system as well, according to Marc Borello, Thales Alenia Space’s general counsel.
Borello declined in a June 25 interview to disclose the value of the patents but said it is not a materially important sum in the context of the overall Iridium contract.
Thales Alenia Space’s counterpart in the patent transaction is Intellectual Ventures, which specializes in assembling a large bank of unused, often overlooked patents and then fitting them together into packages of potential value.
Vincent Pluvinage, general manager for strategic acquisitions and private equity at Bellevue, Wash.-based Intellectual Ventures, said the company acquired the Iridium patents from Motorola Inc. in June 2008. Schaumburg, Ill.-based Motorola was Iridium’s founding sponsor in the late 1990s and built the original Iridium satellites.
Motorola had long since distanced itself from Iridium, whose original business model collapsed, forcing Iridium into Chapter 11 bankruptcy reorganization. Motorola itself left the satellite manufacturing business in the wake of Iridium’s collapse.
But the patents, the fruit of the work of dozens of engineers in the 1990s, remained.
“What we saw was that the product of a lot of hard work by a lot of brilliant people was basically sitting on a shelf,” Pluvinage said in a June 25 interview. “We also saw that Iridium had turned itself around and was making a successful business out of the constellation, and we added the Motorola patents to our estate. There is always a leap of faith when you deal with patents, and nine out of 10 patents are worthless. Our strategy is similar to what others do when they invest in start-up companies: You invest in enough of them so that your winners more than make up for your losers.”
In the months after the Intellectual Ventures purchase of several hundred Motorola patents, Iridium began organizing a competition to build its Iridium Next constellation.
Iridium eventually narrowed the competition to two finalists: Thales Alenia Space and Lockheed Martin Commercial Space Systems of Sunnyvale, Calif. Pluvinage said both manufacturers were approached about the patents.
Pluvinage said an outright sale of the patents was viewed as preferable from the buyer’s perspective to a licensing arrangement because licenses appear on a company’s profit-and-loss accounting statements as something similar to a tax that reduces earnings. A purchase of patents, in contrast, is viewed as an investment.
By mid-2009, Borello said, Thales Alenia Space had concluded that it could not sign the Iridium Next contract until the patent ownership issue was resolved.
“We spent some time evaluating the extent of the problem and we concluded that we, as a manufacturer, would be subject to legal challenge if we began the work,” Borello said in a June 25 interview. “We informed Iridium that if we were selected, we could not sign the deal until we had settled the IPR [intellectual property rights] aspect.”
Iridium is designing its second-generation system to be fully compatible with the existing constellation. That means anyone building the new satellites must use many of the technologies of the original constellation and cannot avoid the patents supporting it.
Borello said that several weeks before the Iridium contract was signed, Iridium informed Thales Alenia Space that it should accelerate its negotiations with Intellectual Ventures.
Intellectual Ventures insisted that Thales Alenia Space purchase not only the Iridium-specific patents, but others unrelated to Iridium. In addition, Intellectual Ventures, which also has purchased patents related to two proposed satellite constellations that were never built — Teledesic and SkyBridge — has retained some satellite-related patents for future transactions, Pluvinage said.
“The patents we had, some of which we have kept, relate to satellite beam-forming, signal hand-off, augmented-GPS technologies, laser [communications] links and ancillary terrestrial components for hybrid satellite-terrestrial wireless networks,” Pluvinage said. “We think the package we sold to Thales Alenia Space will make them more competitive in areas that go well beyond Iridium.”
Borello said the transaction gives Thales Alenia Space and Iridium all the technology needed to build the second-generation constellation.
It is not clear whether the settlement of these patents’ ownership will have an effect on a legal dispute between Motorola and Iridium.
Motorola is demanding $24.7 million in cash from Iridium, saying Iridium’s purchase last September by GHL Acquisition Corp., and the company’s subsequent stock market listing, constitute a change in control under the terms of a December 2000 loan Motorola made to Iridium. Motorola has filed suit in the U.S. Circuit Court of Cook County, Ill., demanding payment from Iridium.
Iridium has insisted that the GHL purchase does not constitute a change in control of Iridium.
Iridium had said in a filing with the U.S. Securities and Exchange Commission that the dispute, if resolved in Motorola’s favor, would permit Motorola to “terminate certain intellectual property licenses … [covering] substantially all the company’s system technology.”