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Kodak sues Apple over patent dispute

by Aviva Gat | Published June 19, 2012 at 3:21 PM

Eastman Kodak Co. has sued Apple Inc. in its latest attempt to end the ownership dispute over 10 patents it hopes to sell later this summer.

Kodak filed an adversary complaint against the Cupertino, Calif.-based maker of computers and digital media players in the U.S. Bankruptcy Court for the Southern District of New York in Manhattan on Monday, June 18, seeking a declaration of its ownership of the patents, a sanction of its ability to sell the patents and an injunction baring Apple and spinoff FlashPoint Technology Inc. from further asserting ownership.

The 10 patents are related to the capture, manipulation and sharing of images.

The adversary complaint was filed after Judge Allen R. Gropper shot down a motion Kodak filed in its bankruptcy proceeding seeking a determination of its ownership of the patents. On June 13, Gropper said he did not have the power to make that determination, but said Kodak could either schedule a trial on the issue in an adversary case, sell the patents and give Apple and FlashPoint a cut of the profits, or allow the patents' purchasers to inherit the dispute.

In a May 14 motion, Kodak said Apple and FlashPoint "are trying to delay and derail" the sale of its patent portfolios and therefore it wanted the court to determine the patents are assets of Kodak's estate.

Apple responded June 1, calling Kodak's request a "disguised declaratory judgment action" and said the bankruptcy court is not equipped or legally permitted to address federal patent law. Apple requested the case be moved to U.S. District Court, which has more authority over patent law.

A civil case was opened on June 6 in the U.S. District Court for the Southern District of New York on Apple's request to move the case, but no hearings had been scheduled as of Tuesday.

The latest lawsuit comes after Gropper shot down a request from Apple seeking relief from stay to file complaints against Kodak with the International Trade Commission -- a quasi-judicial federal agency -- and the U.S. District Court for the Southern District of New York regarding Kodak's alleged use of Apple's patents in daily operations postpetition. Gropper denied the motion on March 8.

The patents were developed by Kodak and Apple through collaborations in the 1990s, Apple has alleged. (Kodak acknowledges the collaboration but asserts it developed the patents on its own.) The parties ceased collaborating in 1996, documents show.

One of the patents in the middle of the dispute was deemed invalid on May 21 by the ITC due to its "obviousness."

The ruling, by Administrative Law Judge Thomas B. Pender, notes that the Apple iPhone 3G may infringe on the patent, but the claims may be moot due to the patent's invalidity.

Kodak is hoping to sell the patents at an Aug. 8 auction. Under the proposed bidding procedures, preliminary bids would be due July 16 and final offers would be due July 30. Kodak will notify all bidders whether their bid qualifies for the auction by Aug. 2. Kodak would announce any increments for competitive bidding during the auction. The winning bid, or bids, would be announced Aug. 13 and the sale hearing would be on Aug. 20.

Gropper will consider the approval of the bidding procedures on July 2.

The digital capture portfolio includes 744 U.S. patents, 374 foreign patents, 155 pending U.S. patent applications and 244 pending foreign patent applications covering image capturing, processing and transmitting technologies used in digital cameras, as well as in camera-enabled smartphones and tablets.

The imaging systems and services portfolio has about 435 U.S. patents, 349 foreign patents, 163 pending U.S. patent applications and 171 pending foreign applications covering image analysis, manipulation and storage.

Kodak's patents have generated more than $3 billion since 2001 from licenses used by 37 parties, including Samsung Group, LG Electronics, Motorola Inc. (now Motorola Solutions Inc.) and Nokia Corp.

Rochester, N.Y.-based Kodak was founded in 1880 by George Eastman and was once the world's leading producer of film and cameras.

Kodak filed for Chapter 11 on Jan. 19 after a long-term transformation and other restructuring moves failed to reverse a protracted decline.

Andrew G. Dietderich, John J. Jerome, Michael H. Torkin and Mark U. Schneiderman at Sullivan & Cromwell LLP and Pauline K. Morgan and Joseph M. Barry at Young Conaway Stargatt & Taylor LLP are debtor counsel. James A. Mesterharm of AlixPartners LLP is Kodak's chief restructuring officer. Matthew J. Hart of Lazard is Kodak's investment banker.

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Tags: Apple Inc. | Judge Allen R. Gropper | Kodak Co. | U.S. Bankruptcy Court

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