That Kodak patent sale: a look at the transaction

Here's a third guest post from Mike Mireles who, we are pleased to say, will be joining the IP Finance team as a full-time member within the next few days.  Just to show his versatility, Mike's post below proves that he can tackle subjects that are unrelated to the Bayh-Dole Act, which featured in both his earlier posts (here and here).

Kodak Patents Sell for $527 Million

After an auction with four bidders, the bankrupt Kodak accepted a bid and sold its two portfolios of digital imaging related patents for $527 million to Intellectual Ventures Fund 83 LLC, apparently comprised of a group of companies organized by Intellectual Ventures and RPX. The sale is discussed here, here and here.

Originally, Intellectual Ventures and RPX represented separate groups of companies, but because both of their individual bids were judged to be inadequate the two groups consolidated to make the accepted bid.  The represented companies include some of the most well recognized technology companies in the world including HTC, Google, Amazon Fulfillment Services, RIM, Huawei Technologies, FUJIFILM, Shutterfly, Apple and Samsung. The transaction is relatively complicated and the eventual monetization of the portfolios required settling several patent litigation disputes.  The transaction included: a sale of the patent assets, a license of the patents, the assumption of patent cross license agreements with Fujifilm and the settlement of claims involving some of the patents. The motion for authorization of the sale provides:

(a) Kodak will grant licenses to the Assigned Patents (as defined in the Sale Agreement) to each consortium member pursuant to the Bidco DC/KISS Patent License Agreements; (b) IV [Intellectual Ventures Fund 83 LLC] and Apple (in its capacity as designee under the Sale Agreement; IV and Apple in such capacity, together, the "Purchaser/Designee”) will acquire the Assigned Assets subject to the Kodak Retained Rights and the Permitted Encumbrances, including the Bidco DC/KISS Patent License Agreements and Kodak’s rights under the Grant-Back License Agreements; (c) under the Grant-Back License Agreements, Kodak will retain a license to the Assigned Patents; and (d) pursuant to the Retained Patents License Agreements and subject to the exceptions therein, Kodak’s remaining patents (the non-Assigned Patents) will be licensed to the consortium members and Kodak and each Licensee will release their respective patent claims against each other (or as to certain Licensees, their respective intellectual property claims).

6. Further, as a necessary and integral part of the Transaction (as defined below), all litigation between Kodak and each of Apple and FlashPoint in respect of Kodak’s patents, including the ongoing Adversary Proceeding (as defined below), will be dismissed pursuant to the FlashPoint Settlement Agreement and the Retained Patents License Agreement between Apple and Kodak. Pursuant to the Conditional Sale Order, the Sale of the Digital Imaging Patent Assets would be subject to the adequate protection requirements of section 363(e) of the Bankruptcy Code with respect to Apple’s and FlashPoint’s claims to the Disputed Patents. The Transaction resolves Apple’s claims by virtue of Apple’s participation as a purchaser of certain Assigned Assets (in its capacity as designee under the Sale Agreement) and a licensee; and resolves FlashPoint’s claims under the FlashPoint Settlement Agreement between Kodak, FlashPoint, Apple and IV. The resolution of all pending claims by Apple and FlashPoint eliminates litigation risk and provides a substantial benefit to the Debtors’ estates and stakeholders.

7. Finally, Kodak and FUJIFILM, one of the twelve Licensees, will enter into a separate compromise, pursuant to which Kodak will assume certain Cross License Agreements (as defined in the Fuji Letter Agreement), as amended to grant Kodak the right to assign the agreements to its successor in bankruptcy and sublicense its rights thereunder to the Debtors’ divested businesses.

Notably, the $527 million sale amount is much lower than previous estimates of the value of the portfolios.