Bloomberg News

Kodak to Sell Imaging Units as Patent Auction Continues

August 24, 2012

Bankrupt photography pioneer Eastman Kodak Co. (EKDKQ:US) said it will sell its consumer film, photo kiosks and commercial scanner businesses as it continues an extended effort to auction its digital-imaging patents.

Lazard Ltd. (LAZ:US) is advising on sales of the units, known as personal imaging and document imaging, which are targeted for completion in the first half of 2013, the Rochester, New York- based company said yesterday in a statement. The transactions would leave Kodak selling consumers only inkjet printers, and film only to commercial customers including the movie industry.

The patents for sale relate to the capture, manipulation and sharing of digital images while the kiosks include those used by consumers and by theme parks to capture passengers on rides. Kodak is selling the imaging units and patents to fund a turnaround after seeking Chapter 11 protection in January. At the same time, it’s pursuing a plan to shrink the company and focus less on photography and more on commercial, packaging and functional printing and enterprise services.

“We have to make some tough choices to build our future and this is one of those choices,” Chief Executive Officer Antonio Perez said yesterday on a conference call. “Kodak’s goal is not simply to emerge but obviously to emerge as a profitable, sustainable company and today’s actions are moving us decisively along that path.”

Perez is pushing ahead with the digital patents sale amid legal fights with device makers, including Apple Inc. (AAPL:US), over the ownership and validity of some of the patents. As bidding continued beyond initial deadlines, Kodak has said it may not sell the patents if retaining them is “in the best interests of the estate.”

Portfolio Decision

“The company reiterates that it has made no decision to sell the portfolio and Kodak may, in consultation with creditors, retain the portfolio as an alternative source of recovery for creditors,” Kodak said yesterday.

In court documents, Kodak has said the patents may be worth $2.21 billion to $2.57 billion, based on an estimate by patent advisory firm 284 Partners LLC. Kodak said it has generated more than $3 billion in revenue by licensing some of the digital- imaging patents to users, including Samsung Electronics Co., LG Electronics Inc. (066570), Google Inc. (GOOG:US)’s Motorola Mobility unit and Nokia Oyj. (NOK1V)

Path ‘Clearer’

“The path to emergence is becoming clearer for us,” Perez said on the call. “Our patent auction continues, and we are still engaged in discussions around the potential sale of our digital imaging portfolio. Going in we expected this to be a complex process and it has been all of that and more.”

Apple is appealing a bankruptcy judge’s ruling in favor of Kodak that blocked the iPhone maker’s claims to two patents.

Apple said in an Aug. 22 court filing that it’s challenging U.S. Bankruptcy Judge Allan Gropper’s decision that gave Kodak a partial victory in a lawsuit over ownership of 10 patents. Kodak sued Apple (AAMRQ:US) after the Cupertino, California-based company asserted claims to the patents.

Gropper ruled in favor of Kodak on two of the patents, saying Apple waited too long to assert its claims. The judge denied Kodak’s request for a pretrial ruling known as summary judgment on the eight other patents and said Kodak could renew its request.

“Apple believes a prompt appeal of this order is necessary in view of the prospect that Kodak will seek to sell the patents at issue free and clear of Apple’s interests prior to full adjudication of Apple’s appeal,” Brian Lennon, an attorney for Apple, wrote in a letter to Gropper.

Stefanie Goodsell, a Kodak spokeswoman, didn’t comment yesterday on Apple’s appeal.

Signed Agreements

Kodak said in June that 20 parties had signed agreements to view confidential information ahead of potential bids. The identities of unsuccessful bidders will be kept secret under auction rules.

Kodak and its creditors agreed to extend the auction deadline beyond Aug. 13 “in light of continuing discussions with bidders” without providing a revised target date.

Kodak filed for bankruptcy after years of burning through cash while digital photography eroded its film business. The company had spent $3.4 billion on restructuring before bankruptcy, including payouts to fire 47,000 employees since 2003, closing 13 factories that produced film, paper and chemicals, and 130 photo laboratories.

The bankruptcy case is In re Eastman Kodak Co., 12-10202, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Apple case is Eastman Kodak Co. v. Apple Inc., 12-01720, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Beth Jinks in New York at bjinks1@bloomberg.net; David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editors responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net; John Pickering at jpickering@bloomberg.net.


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