August 7, 2012
Techs Compete For Kodak Patents, Auction Bids Start Low
Lawrence LeBlond for redOrbit.com - Your Universe Online
In hopes of climbing out of bankruptcy, Eastman Kodak Co. has opted to auction off some of its digital patents estimated to be worth upwards of $2.6 billion. But so far, opening bids have come in well below that valuation, with Apple and Google offering between $150 million and $250 million, according to people familiar with the matter.
But those bids could quickly increase if the two techs vie to keep the patents out of each other´s reach. A similar battle played out last year over Nortel Networks when Google started bidding at $900 million and lost out to a dual onslaught by Apple and Microsoft who won the auction at an unanticipated $4.5 billion.
Kodak is looking for a similar aggressive fight that will earn it enough money to repay creditors and have some money left over to reorganize its mainframe. However, if the bids remain low, it will be a difficult road ahead for the faltering photo and printer company.
According to the Wall Street Journal, a lawyer for Kodak said in January at a bankruptcy hearing that 1,100 patents the firm is trying to unload were worth between $2.2 billion and $2.6 billion. And while it is hard to predict how the bidding war will play out, some people familiar with the matter expect the company will raise around $600 million in the auction. Some Kodak bondholders agree with that estimate, with one expecting a slightly higher $700 million.
Apple had initially objected to the auction of some of Kodak´s patents it is trying to sell, alleging that it owned 10 of the patents in question. But a bankruptcy judge ruled that Apple waited too long to bring infringement claims on two of Kodak´s digital imaging patents. US Bankruptcy Judge Allan Gropper wrote that Kodak's ability to sell the patents would have been "cut off" if Apple had been allowed to bring the claims.
Kodak had also launched a suit against Apple and Research In Motion over one of its most lucrative patents. Yet, the International Trade Commission invalidated that patent last month. Kodak appealed the ruling, but a verdict isn´t due until next year, well after the patent sell-off is complete.
Kodak is selling the patents in two separate lots: one portfolio related to capturing and processing images on cameras, smartphones and tablets; while the other is tied to storing and analyzing images, as well as other things.
Kodak has kept quiet on the details of the patent auction, after a bankruptcy judge approved the company´s request to keep bids and results secret until a winner is selected on August 13, 2012.
“The auction process, including information about bids and the identity of bidders, is confidential pursuant to an order of the Bankruptcy Court,” a Kodak spokesman told WSJ. “Disclosure of submitted bids or the identity of bidders would violate the court´s order, and Kodak believes that speculation about the details and potential outcome of the auction is inappropriate.”
Once the auction is over, any monies received from the auction must first be applied to a $950 million bankruptcy loan Kodak has with Citigroup Inc. Kodak has drawn $700 million of the loan and has issued about $114 million in letters of credit under the facility. Additional proceeds would be split among so-called second-lien bondholders and the company.
Kodak´s printer business is continuing to lose money, with commercial and consumer business units losing $53 million in the second quarter. Overall, Kodak has posted a $299 million loss for the quarter, as sales fell 28 percent.
Data from market research firm IDC shows that Kodak held 8.2 percent of the commercial printer market in the first quarter of 2012, compared to 25 percent in the last three quarters of 2011. Consumer printer shares dropped from 3.4 percent to 3 percent for the same period, IDC reported.