For Kodak, New Risks In Auction Of Patents
By DANA MATTIOLI
Wall Street Journal
Updated July 22, 2012, 6:32 p.m. ET
Bids for patents being auctioned by Eastman Kodak Co. could become less generous now that the company has lost a key intellectual-property case against Apple Inc. and Research In Motion Ltd.
The International Trade Commission dismissed the onetime film giant's complaint against the iPhone and BlackBerry makers late Friday, after concluding that a patent that has been highly lucrative for Kodak was invalid.
While the patent—governing the way images are previewed by digital cameras—is only one of 1,100 Kodak has put on the block, the high-profile loss could make it harder for the company to raise the billions of dollars it is counting on to help it emerge from Chapter 11 as a viable company.
"Any time one of your prime assets is considered invalid, it hurts the overall value of your patents in a major way," says Dean Becker, chief executive of ICAP Patent Brokerage, which is advising clients with interest in the portfolio. Mr. Becker says future bids, which are due July 30, are likely to come in lower. More than 20 bidders have signed nondisclosure agreements with Kodak, and most of the interested parties are expected to make bids very close to the deadline, according to a person familiar with the auction.
Kodak said the validity of its patent in the ITC case had been upheld previously and that it would appeal the ruling. RIM welcomed the decision. Apple declined to comment.
The loss at the ITC comes at a crucial time for Kodak, which just kicked off the much-anticipated patent sale this month. Bidders are coming up with offers now, and the auction itself is expected during early August. Kodak has said the patents on the block could be valued at $2.6 billion.
On the plus side for Kodak, the ITC ruling only affects one of the two portfolios the company is selling—the one dealing with image-capturing technologies. The second portfolio involves other technologies, including one for sharing images. Moreover, the patent at issue can't be litigated after the end of 2014 and as such isn't crucial to the value of the patents on the block. Potential bidders have yet to raise Friday's ITC ruling with Kodak, a person familiar with Kodak's thinking said.
"We wouldn't expect the ITC decision to have a significant effect on potential bidders, because there is an understanding that this was always going to be decided by the federal court, regardless of who brought the appeal, and the federal court has great latitude in this respect," the person said.
The ITC setback is just the latest for a sales process that began about a year ago, when Kodak first put the patents on the block.
Prior to Kodak's filing for bankruptcy protection in January, potential bidders feared making offers due to the risk the sales could be undone in bankruptcy court if the company became insolvent. The inability to complete the sale contributed to a cash crunch that pushed the company into Chapter 11.
For the bankruptcy-court auction, Kodak wasn't able to attract a stalking-horse bidder, one that agrees ahead of time to purchase the assets for a certain price, a tactic that tends to push prices higher in patent auctions.
The market for patents that could be used by makers of smartphones has heated up in recent years, with Nortel Networks selling a portfolio of patents to a consortium including Apple, Microsoft Corp. and RIM for $4.5 billion, and Google Inc. buying patent-rich Motorola Mobility for $12.5 billion.
But patent experts have been less enthusiastic about the value of Kodak's portfolio, which involves patents related to imaging—a key function of smartphones, but not related to core mobile-communication technologies. Kodak's patents have also been heavily licensed, diminishing their future value, patent experts said.
Continuing litigation at the ITC with Apple and RIM also has made suitors reluctant to bid, people familiar with the matter say. The patent at issue—No. '218—is one of Kodak's crown jewels, having been litigated and settled successfully by the company more than 30 times, helping bring in billions of dollars. It is the focal point of the more valuable of Kodak's two portfolios up for sale.
Patent '218 was crucial to Kodak's strategy in recent years of using intellectual-property suits to fund development of new consumer and commercial printers while the company's film business declined. Kodak has signed image-preview licenses with 32 companies in recent years, raising nearly $1 billion from just two of them: Samsung Electronics Co. 005930.SE -0.33%and LG Electronics Inc. 066570.SE +1.41%Kodak had also hoped the patent would appeal to companies making tablet computers and other devices with built-in cameras. "The ones that have been litigated are the most valuable ones," Kodak Chief Executive Antonio Perez said in an interview last year.
Patent proceeds kept Kodak afloat until last year, when the stream of patent income largely dried up.
Write to Dana Mattioli at dana.mattioli@wsj.com
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