Bloomberg News

Apple, Google in Group Buying Kodak Patents

December 19, 2012

Apple, Google in Group Buying Kodak Patents for $525 Million

The Eastman Kodak Co. Kodak Hero 3.1 all-in-one printer at the 2012 International Consumer Electronics Show in Las Vegas. Kodak needed to sell the patents for at least $500 million under a November agreement to obtain $830 million in financing to exit bankruptcy in the first half of 2013. Photographer: Daniel Acker/Bloomberg

A group including Apple Inc. (AAPL:US), Google Inc. (GOOG:US) and Research In Motion Ltd. (RIM) agreed to buy patents from bankrupt Eastman Kodak Co. for about $525 million, gaining the right to use the digital technology to capture and share photos.

The group is led by Intellectual Ventures Management LLC and RPX Corp. (RPXC:US), Kodak said in a statement today. Google, Apple and RIM are among the 12 companies that will license the patents in the deal, according to a court filing. Under the terms, Intellectual Ventures will split the payment with the licensees.

Facebook Inc. (FB:US), Amazon.com Inc. (AMZN:US) and Microsoft Corp. (MSFT:US) also are part of the group, the court filing shows, along with Samsung Electronics Co., Adobe Systems Inc. (ADBE:US), Fujifilm Holdings Corp. (4901), Huawei Technologies Co., HTC Corp. (2498) and Shutterfly Inc. (SFLY:US) The auctioned patents -- more than 1,100 related to the capture, manipulation and sharing of digital images -- were previously estimated by advisory firm 284 Partners LLC to be worth as much as $2.6 billion.

“This is a fraction of our overall patent portfolio,” said Chris Veronda, a spokesman for Rochester, New York-based Kodak. “We retain ownership of about 9,600 other patents for our ongoing businesses.”

The agreement resolves all patent-infringement lawsuits between Kodak and the 12 licensees, Veronda said. That includes suits Kodak had against Apple, RIM, Fujifilm, HTC, Samsung and Shutterfly. In a May filing, Kodak had said Apple alone owed it more than $1 billion in patent royalties.

Competing Consortiums

Before uniting as one bidding group, Apple and Google had led competing consortiums bidding for Kodak’s patents, people familiar with the situation said earlier this year.

The two groups joined forces in August as the initial auction date approached, a person familiar with the process said today. Combining allowed each company to only pay for the patents and protection it needed.

Unlikely partnerships occur in patent sales because they allow competitors to neutralize potential infringement litigation. A group including Apple, Microsoft and RIM bought Nortel Networks Corp.’s more than 6,000 patents for $4.5 billion out of bankruptcy last year. Google lost the auction for those patents after making an initial offer of $900 million.

A May ruling against Kodak by the U.S. International Trade Commission dealt a blow to the company’s pursuit of a higher price for its patents. The decision, the result of a two-year legal fight against Apple and RIM over a patent for previewing digital images on cameras, was upheld in July. It dashed Kodak’s plans to pursue royalty payments from Apple and RIM it once estimated at more than $1 billion.

Lost Interest

After the ITC ruling, bidders lost interest in buying the patents to pursue infringers for compensation and licensing fees, the person familiar with the process said today, asking not to be identified because the details aren’t public. The sale became defensive as buyers offered to pay only enough to cover their potential exposure to litigation with Kodak, the person said.

Kodak needed to sell the patents for at least $500 million under a November agreement -- codenamed Komodo -- to obtain $830 million in financing to exit bankruptcy in the first half of 2013. That funding also requires progress in the sale of two business units and resolution of U.K. pension obligations. The patent sale had to be agreed upon by Jan. 31 and must close by Feb. 28.

In court documents, Kodak said it had generated more than $3 billion in revenue by licensing some of the patents to outside users, including Samsung, LG Electronics Inc. (066570), Google’s Motorola Mobility unit and Nokia Oyj. (NOK1V)

Selling Businesses

Chief Executive Officer Antonio Perez has been selling businesses to shrink Kodak and fund its shift into commercial printing and packaging after seeking Chapter 11 protection in January. The company is also selling its consumer-film, photo- kiosk and commercial-scanner businesses and shuttering its consumer inkjet-printer unit.

Kodak filed for bankruptcy after years of burning through cash while the rise of digital photography eroded its film business. The company has announced almost 4,000 job cuts this year and spent $3.4 billion on restructuring before bankruptcy, including payouts to fire 47,000 employees since 2003.

The 132-year-old imaging company listed $5.1 billion in assets and $6.75 billion in debt in its bankruptcy filing.

The bankruptcy case is In re Eastman Kodak Co. (EKDKQ:US), 12-10202, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editor responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net


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