In the News Law360

Bankrupt LightSquared Says GPS Makers Cost It Billions

 LightSquared Inc. hit Garmin International Inc. and other GPS companies with a lawsuit in New York bankruptcy court Friday, claiming breach of contract and the withholding of crucial spectrum-usage information, which cost LightSquared billions of dollars and ultimately drove it to bankruptcy.

Wireless startup LightSquared says Garmin, Deere & Co., Trimble Navigation Ltd., the U.S. GPS Industry Council and the Coalition to Save Our GPS kept it from using the spectrum that the Federal Communications Commission approved LightSquared for and caused the company to suffer enormous losses on the endeavor.

Reston, Va.-based LightSquared says it worked with the defendants in securing part of the wireless spectrum, making sure it would not interfere with their GPS devices. LightSquared alleges that it was not until after it had invested billions of dollars into acquiring the spectrum that the defendants revealed that use of the spectrum would cause their GPS devices to malfunction. This led the FCC to suspend LightSquared’s use of the spectrum and cost LightSquared owner Harbinger Capital Partners LLC billions in investments and contracts, the complaint says.

“Whether motivated by a desire to hide the truth about their own faulty products, an attempt to lay claim to valuable spectrum assets they do not own, or a drive to augment their bottom line at the expense of others, the defendants engaged in a calculated effort to block the deployment of a new wireless broadband network that would serve millions of underserved consumers at lower prices while increasing competition and innovation in the wireless industry,” the complaint says.

LightSquared, which is developing a 4G wireless broadband communications network using a technology called Long Term Evolution, says it would provide wireless service to many who are currently underserved and be a major competitor in the AT&T Inc.- and Verizon Communications Inc.-controlled wireless broadband market, according to the complaint.

LightSquared alleges that the defendants are liable for its investment because it reasonably relied on the defendants’ representations that there would not be interference when using the spectrum.

“For over 10 years, LightSquared invested billions of dollars in its nationwide wireless network with the understanding that all GPS concerns had been or could be resolved. Throughout that period, defendants wrongfully withheld from LightSquared critical information regarding their GPS receivers — namely that those receivers were deliberately designed to work only if they could receive signals outside of defendants’ assigned spectrum,” the complaint says.

LightSquared also alleges that the defendants breached contracts and engaged in a conspiracy to “prevent LightSquared from successfully launching and operating its network."

The lawsuit alleges the defendants purposefully withheld facts from LightSquared and made misrepresentations about the GPS devices’ compatibility with LightSquared’s use of its network.

LightSquared is currently in bankruptcy and up against a restructuring deadline imposed by the bankruptcy court. The lawsuit was filed before the bidding period for the company so that potential investors can take it into account when placing bids.

LightSquared Chairman and CEO Doug Smith said Friday that the company had a fiduciary duty to file the lawsuit before the impending auction date so that all the assets of the company can be better understood.

“The unfortunate reality is that this company unnecessarily lost billions of dollars, and this lawsuit provides for interested bidders the factual background between LightSquared and the GPS industry, a deeper understanding of the alleged abuses that led to the filing of these Chapter 11 cases and the value of losses and damages. Our primary focus continues to be FCC approval of our revised, GPS-compatible proposal,” Smith said.

LightSquared’s lawsuit is similar to the $1.9 billion suit filed in August by Harbinger against the same defendants. Last month, LightSquared won a stay of that lawsuit, giving the company 60 days to assess its own claims against the defendants.

Philip Falcone-controlled Harbinger brought the suit alleging Deere and the GPS makers withheld critical information related to spectrum usage that ultimately drove LightSquared into bankruptcy.

LightSquared entered bankruptcy in May 2012, hours before time ran out to renegotiate terms of its $1.7 billion debt.

The wireless startup listed $4.5 billion in assets and $2.3 billion in liabilities in its voluntary Chapter 11 petition, in the face of a congressional probe and an investor suit after its plans to build a nationwide 4G network ran afoul of telecom regulators.

Representatives for Garmin, Deere and Trimble were not immediately available for comment Friday.

Counsel information for the defendants was not available Friday.

LightSquared is represented by Eugene F. Assaf, K. Winn Allen, Rebecca L. Taibleson, Devin A. DeBacker, and Nathaniel D. Buchheit of Kirkland & Ellis LLP.

The bankruptcy case is In re: LightSquared Inc., case number 1:12-bk-12080, in the U.S. Bankruptcy Court for the Southern District of New York.