Philips and Lighting Science Group Settle Litigation and Continue LED Relationship

Sept. 10, 2009
Lighting Science Group Corp. (LSG), Dallas, and Royal Philips Electronics of the Netherlands have settled all of their commercial and intellectual property disputes by way of a comprehensive agreement that revives their former commercial alliance

Lighting Science Group Corp. (LSG), Dallas, and Royal Philips Electronics of the Netherlands have settled all of their commercial and intellectual property disputes by way of a comprehensive agreement that revives their former commercial alliance. The agreement provides that trade in LED lighting products between the companies will be intensified, that LSG takes out a royalty-bearing license to the Philips LED-based luminaires and retrofit bulbs licensing program, and that Philips will make a limited equity investment in LSG.

Zach Gibler, a lighting industry veteran who became LSG’s CEO in June, said Philips made a limited investment of about $5 million in Lighting Science and does not have a controlling investment in the business. “We buy LEDs from them and we sell products to Philips,” he said. “We had been doing that even in the course of the lawsuits. We maintained that commercial relationship, and one of the elements of the settlement is to strengthen that relationship. We are thrilled to have the lawsuits behind us. It was a distraction for the company and didn’t really allow us to focus on our primary mission — developing very high-efficiency solid-state lighting technologies.”

Gibler said LSG will now be able to focus on developing new solid-state lighting products for the market segments that offer the most compelling financial return on investment. These applications include but are not limited to street lighting, parking garages, industrial facilities and other applications with high maintenance costs and where the lighting is on 24/7 or for long periods of time.

“We have a significant focus on maintaining and building our intellectual property,” he said. “We have a very nice of portfolio with patents issued and patents pending. LSC is a relatively young company, although it is made up of companies that have been in the lighting space for quite some time. What makes us unique is that we acquired four companies over a 14-month period starting in June 2007 with unique technological expertise in certain parts of the LED value chain — thermal management, microelectronic devices, semiconductor optimization and optics. Those four companies had different expertise from a technology standpoint and we coupled that with people who had significant expertise in the lighting industry in terms of application and understanding the market space itself.”

Before coming to LSG, Gibler was most recently a senior executive with Acuity Brands and is familiar with the challenge that traditional lighting companies face with developing what for them is a foreign technology in solid-state lighting. But he said that on the flip side, the technologists that come from the semiconductor side of the LED market really don’t know much about applications or market structure.

“We have hired a lot of people form Philips, Acuity and GE and married them with the technologists,” he said. “That gives us a very unique capability to develop products that have a pretty compelling value proposition. The proof is in the pudding. We tend to have the highest performance and the lowest cost per delivered lumen in the categories we focus on. Our entire approach to this market is that we don’t focus that significantly on the other lighting companies. Our focus is on incumbent technology and how we can have a compelling economic story that puts us in a position to replace that incumbent technology with solid-state lighting.”

Gibler believes LEDs are providing the proper economics in an increasing array of applications, but says they still have a way to go before they can offer a better financial payback than most conventional light sources in recessed cans or fluorescent lighting in basic 2x4 troffers for office applications.

“It’s not right for everything,” he said. “The 2x4 troffer is a pretty damn good light fixture. It’s pretty inexpensive to put up, it’s very efficient in how it converts energy into photons and maintenance costs are not that high. That’s a long putt for the LED industry. I think we will eventually get there, but that’s not the application from a pure economic perspective that is that compelling. There may be other things that drive you to do that.”

Gibler said LSG goes to market with the same lighting reps used by lighting manufacturers such as Acuity, Genlyte and Cooper Lighting but will occasionally sell direct to some select strategic accounts. He added that LSG is also doing “a fair amount of work” with ESCOs. “Their value proposition and ours is highly aligned,” he said.

Lighting Science Group is a publicly held company with 2008 sales of $20.8 million.

—Jim Lucy