Non-Practicing Entity Buys Kodak’s Digital Business Patent Portfolio, Licenses to Consortium
December 21, 2012 by Bierce & Kenerson, P.C.
In mid-December 2012, Eastman Kodak Co., a bankrupt photographic supply company, agreed to sell its patent portfolio to a consortium of buyers. The portfolio includes patents for digital photography, Web-based photo applications and other technologies critical to Internet-based e-business, social media and mobile computing. The deal (which is subject to bankruptcy court approval) represents a new approach to patent litigation, patent portfolio procurement and patent licensing from bankrupt companies in the United States.
Deal Structure. The company’s press release did not describe the details, but provided only an overview. Under the agreements, Kodak will receive approximately $525 million, a portion of which will be paid by 12 intellectual property licensees organized by Intellectual Ventures and RPX Corporation, with each licensee receiving rights with respect to the digital imaging patent portfolio and certain other Kodak patents. The portfolio includes about 1,100 patents. Another portion will be paid by Intellectual Ventures, which is acquiring the digital imaging patent portfolio subject to these new licenses, as well as previously existing licenses. In essence, a non-practicing entity (“NPE”, sometimes called a “patent troll”) will be buying the residual value of the patent portfolio and can demand that third parties (who are not part of the consortium) pay royalties for uses of the patented technologies.
Business Model. The business model of this transaction validates the role of non-practicing entities in transactions to acquire and license technologies. In this case, the model shows the value of “vulture capitalism” in finding undervalued intellectual property and buying it for resale (through licenses). The transaction sets a standard for corporate users of such technologies and the financial power of NPE’s.
Litigation Settlement. The transaction also includes an agreement to settle current patent-related litigation between the participants and Kodak, which avoids additional litigation costs. The licensees include Adobe Systems Inc., Amazon.com Inc., Apple Inc., Fujifilm Holdings, Google, HTC Corporation, Huawei Technologies (a Chinese company), Microsoft Corp., Research in Motion Ltd. (maker of Blackberry mobile phones), and Shutterfly Inc. (an online photo gallery).
Bankruptcy Exit. The deal allows Kodak to substantially pay off debt associated with its bankruptcy and pension obligations to retirees. It will continue its commercial printing operations.
Impact on E-Businesses; Prospects for Non-Licensees. The deal poses substantial barriers to entry, and operational risks, for companies that rely upon the processes covered by the patent portfolio. Such companies can expect an increase in costs due to licenses that could be forced upon them by RPX Corp. and Intellectual Ventures.