Kodak seeks court approval for confidential patent auction plan

BANGALORE, INDIA — Eastman Kodak filed Monday a court motion seeking approval for confidential bidding for the auction of its digital patent portfolio, that it expects will be completed by August.

Kodak, which filed for bankruptcy in January, entered into a US$950 million financing facility secured by its assets, including some of its digital imaging patents, which it is required to put up for sale this month.

Its attempt to use a “stalking horse” strategy for the customer accounts and images of Kodak Gallery online photo services business did not pay off, as online photo service Shutterfly’s $23.8 million bid, the stalking horse bid in this case, emerged as the only bidder. A stalking horse bid sets the minimum price for other bids for a business in an auction.

Kodak now plans to auction off its patents in a process where there will be no disclosure of unsuccessful bidders to other bidders and the public, it said in a statement on Monday. Only the winning bidder and the amount of the successful bid will be announced publicly at the end of the auction, Kodak said. About 20 parties have already signed confidentiality agreements and have been provided access to an electronic data room.

Interest in competitive bidding for the company’s digital imaging patent assets has been “chilled” by potential purchasers’ reluctance to act as a stalking horse bidder in a conventional, public auction, Kodak said in a filing to the U.S. Bankruptcy Court for the Southern District of New York. Instead a sales process tailored to sufficiently address possible buyer concern regarding confidentiality and certainty of closing, that a traditional auction process lacks, is necessary to obtain the highest and best price for the company’s digital imaging patents, it said.

Kodak is selling two separate portfolios, called the Digital Capture and Kodak Imaging Systems and Services (KISS) portfolios, as they have different characteristics and may interest different buyers, it said.

The Digital Capture Portfolio includes over 700 patents, covering key aspects of image capture, processing, and transmission technologies that are important to the design and operation of digital cameras and multi-function devices, including camera-enabled smartphones and tablets, Kodak said.

The KISS portfolio includes over 400 patents that cover technologies including image analysis, manipulation and tagging, and network-based services, including image storage, access, and fulfillment. Kodak said it has generated more than $3 billion since 2001 from licensing its digital imaging portfolio to companies like Samsung, LG, Motorola, and Nokia. It also has patent infringement cases against Apple, Research In Motion, and HTC.

Kodak, which faced challenges in making the transition to digital technology, has since July been “exploring strategic alternatives” including the sale of its digital imaging patent portfolios.

The company, which at one point said its portfolio was evaluated at up to $2.6 billion by a company interested in licensing the patents, is following in the footsteps of other technology companies who have raised funds through sales of patents.

Bankrupt Nortel Networks raised $4.5 billion through the sale of patents and patent applications to a consortium consisting of Apple, EMC, Ericsson, Microsoft, RIM and Sony. This auction used the stalking horse strategy, and illustrates the risk that a stalking horse bidder, having revealed important information to its competitors in the process, may still lose at the auction, Kodak said in its filing. Google made the stalking horse bid of $900 million in the Nortel auction.

Kodak expects the motion to approve bidding procedures to be heard by the court on July 2, the auction to be held in early August, and the winning bidders to be announced by Aug. 13. The proposed deadline for submitting preliminary bid documents is July 16.

The sellers propose to sell all or any portion of the digital imaging patents to successful bidders free and clear of all claims and interests, to maximize their value. Holders of claims and interests, if any, will be sufficiently protected by the availability of the proceeds of the sale, Kodak said in its filing.

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