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Judge allows Kodak to go ahead with patent sale

by Aviva Gat | Published June 14, 2012 at 8:00 AM

A New York judge on Wednesday denied Eastman Kodak Co.'s request for a ruling that Apple Inc. and FlashPoint Technology Inc. have no interest in 10 of its patents, but said the bankrupt photography company can move forward with selling that intellectual property, anyway.

Judge Allen R. Gropper of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan said on Wednesday, June 13, that he didn't have the power to make the determination Kodak requested, but said Kodak can 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, according to Kodak spokesman Christopher Veronda.

Veronda said Kodak is pleased with Gropper's decision.

"The court outlined a path to ensure Apple and FlashPoint's claims will not delay a sale," said Veronda. "It is a good outcome for Kodak and its stakeholders."

On May 14, Kodak asked the court to rule that Apple and FlashPoint, a spinoff of Apple, have no interest in 10 patents that it wants to sell.

Kodak said Apple and FlashPoint "are trying to delay and derail" the sale of its patent portfolios and therefore wants the court to determine the patents are assets of Kodak's estate.

Apple responded on 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 the issue in the U.S. District Court for the Southern District of New York on June 6, but it is unclear how this case ties in to Wednesday's ruling.

The patents were developed by Kodak and Apple through collaborations in the 1990s. 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 U.S. International Trade Commission -- a quasi-judicial federal agency -- due to its "obviousness."

The ruling, by 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 filed bidding procedures to sell all of its patents, divided in two portfolios, on June 11. Under the proposed bidding procedures, preliminary bids would be due July 16 and final offers would be due July 30.

Kodak would then notify all bidders whether or not their bid qualifies for the auction by Aug. 2.

The auction would then be held on Aug. 8. 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.

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 patent 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 has been unable to obtain any commitment from parties willing to lead the auction as the stalking-horse bidder. But the company believes that several parties are willing to participate in the sale process. Documents show that about 20 parties have signed confidentiality agreements and have been given access to an electronic data room.

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

Veronda stressed that Wednesday's ruling won't impact the sale process.

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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