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Auction of Kodak patent portfolios cleared

By MIKE DICKINSON - 7/6/2012

Eastman Kodak Co. is roughly 30 days from a critical point in its nearly 6-month-old bankruptcy.
 
The company said this week that it had received U.S. Bankruptcy Court approval to auction off two portfolios of digital patents. The court's OK means Kodak can move ahead with the planned auction to sell its digital capture and Kodak imaging systems and services patent portfolios.
 
That sale process is expected to begin Aug. 8, with a goal of announcing the buyer by Aug. 13.
 
Kodak, which filed for Chapter 11 protection on Jan. 19, is counting on the sale of the two patent portfolios to provide cash needed for its post-bankruptcy turnaround. Estimates have put the value of those patents at more than $2 billion. The auction is expected to attract interest from key players in the technology industry.
 
Kodak began the effort to sell its digital patents last year in hope of finding a buyer in 2011.
 
The company's motion for court approval of the auction was contested by Apple Inc.-which Kodak has identified as a potential purchaser of the patents-and FlashPoint Technology Inc. They have asserted ownership interests in a small number of the 1,100 patents in the portfolios, Kodak said.
 
Other firms that had lined up against the sale withdrew those objections in recent days, court filings show.
 
The Bankruptcy Court found that all of the patents in the digital capture and KISS patent portfolios are property of Kodak's estate, the company said. Since 2001, Kodak has generated more than $3 billion from licensing its digital imaging portfolio.
 
The court granted Kodak the right to sell these patents free and clear of Apple and New Hampshire-based FlashPoint's claims at the auction, subject to the applicable provisions of the U.S. Bankruptcy Code, Kodak said. The ruling provides a path to separate the auction process from continuing litigation about the Apple and FlashPoint claims, Kodak added.
 
The company maintains that the Apple and FlashPoint claims are without merit and is seeking a determination on summary judgment, with a hearing expected this month, that the claims are time-barred, officials said.
 
"Today's ruling provides a court-approved process allowing buyers to acquire the patents free and clear of all ownership allegations, regardless of the status of the dispute with Apple and FlashPoint at the time of closing," said Timothy Lynch, Kodak's chief intellectual property officer, in a statement.
 
Even if the dispute with Apple and FlashPoint has not been resolved by the closing of the patent sale, Kodak may still sell the patents free and clear of the claims by establishing "adequate protection" under the Bankruptcy Code for Apple and FlashPoint, Kodak said.
 
Adequate protection could take various forms, depending on the value of any remaining alleged interests, the amount of the sale proceeds and other factors, the company said. Alternatively, the Bankruptcy Court authorized Kodak to sell the patents subject to Apple and FlashPoint's claims, if mutually agreed between Kodak and the winning bidder.
 
"We are gratified that the court has enabled us to move ahead with our patent auction in a timely manner and with clarity on ownership for the winning buyer," Lynch said.
 
Kodak announced its plans for the auction in June. Those plans call for interested buyers to submit bids on a confidential basis, subject to review by Kodak, certain creditors and the Bankruptcy Court. The auction is expected to be held in early August. Kodak has said in court documents that it plans to hold the digital capture auction beginning Aug. 8.
 
Kodak officials have noted that the two portfolios being sold have different characteristics and might interest different buyers.
 
The digital capture portfolio includes more than 700 patents covering aspects of image capture, processing and transmission technologies related to the design and operation of digital cameras and multifunction devices, including camera-enabled smartphones and tablets, Kodak said.
 
The Kodak imaging systems and services, or KISS, portfolio includes more than 400 patents that cover technologies including image analysis, manipulation and tagging, and network-based services, including image storage, access and fulfillment, the company said.
 
Meanwhile, Kodak's operating results improved in May, its latest monthly report filed with the Bankruptcy Court indicates.
 
Last Friday the company reported a net loss of $88.3 million on $173.6 million in revenue for May. It listed cash and cash equivalents of $574.2 million on May 31.
 
That compares with a net loss of $91.3 million on $156 million in revenue in April. It listed cash and cash equivalents of $617.6 million on April 30.
 
Kodak reported revenue of $108.6 million and a net loss of $128.7 million for March. It listed cash and cash equivalents of $661 million as of March 31. Kodak had reported cash and cash equivalents of $682.8 million as of Feb. 29.
 
The financials are contained in monthly operating reports filed to show asset use and cash for the U.S. entities of Kodak that have filed for Chapter 11 protection. The company has said the reports include costs that Kodak is responsible for companywide but are not comparable with typical quarterly financial reports.
 
The company has not provided comparisons with the prior year on a comparable basis.
 
Kodak has cautioned that the reports are prepared solely to comply with the Bankruptcy Court's monthly reporting requirements. The reports have not been audited and were not prepared in accordance with generally accepted accounting principles.

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