Judge Denies Kodak's Bid to Declare Apple Doesn't Own Patents
06/13/2012| 02:09pm US/Eastern
By Joseph Checkler
NEW YORK--Eastman Kodak Co.'s (>> Eastman Kodak Company) bankruptcy judge on Wednesday said he won't reject Apple Inc.'s (AAPL) ownership claims on certain Kodak patents but that his decision shouldn't hinder Kodak from including them in a planned sale of its patent portfolio that the company hopes will lead to a successful restructuring.
Judge Allan L. Gropper of the U.S. Bankruptcy Court in Manhattan found a middle ground in the fight between Apple and Kodak, which is auctioning off a portfolio of more than 1,000 digital patents possibly worth more than $2 billion, 10 of which Apple thinks it owns.
Judge Gropper said he must deny Kodak's "invitation" for him to declare that Apple and spinoff FlashPoint Technology Inc. don't have ownership in the patents, but the company could still sell them as part of the larger patent sale. Kodak could either notify potential buyers that Apple may have a claim on the 10 patents or put the portion of the sale money earmarked for the disputed patents into an escrow account that could go to Apple if it wins its case.
A spokesman for Kodak said the company hasn't provided an estimated value of the 10 patents in dispute.
Apple argued that a decision by the judge that Apple has no interest in the 10 patents at issue would hinder its ability to fight Kodak over the claims in a separate proceeding.
Sullivan & Cromwell LLP's Brian D. Glueckstein, a Kodak lawyer, said during the hearing, "The burden is squarely on Apple to show that they have a viable claim." Mr. Glueckstein said he thought the case against Apple would be an easy win for Kodak, a notion that an Apple patent lawyer disagreed with. A U.S. District Court proceeding over the patents, Mr. Glueckstein said, would take too long and hinder the sale.
Judge Gropper again suggested a compromise, saying an adversary proceeding in the bankruptcy court could move quickly. He said his decision wouldn't be "destructive of value" to Kodak. He said the portions of the Bankruptcy Code regarding asset sales appear to treat "ownership" issues such as those related to the patents similarly to liens.
In a statement, Kodak spokesman Jeremy Fielding said, "The court outlined a path to ensure Apple and FlashPoint's claims will not delay a sale," adding that "the court also outlined a path to proceed quickly with an adversary proceeding on an expedited basis in bankruptcy court and elicited assurances from Apple and FlashPoint that they will not seek to prevent this."
Kodak says Apple is the biggest infringer of the photography icon's portfolio of digital-camera patents, adding that it owes more than $1 billion in patent-infringement damages and loyalties for technology it uses in some of its most popular products. Its claim of ownership is simply a ploy to put off paying the money, Kodak said.
Apple is also a potential buyer of the patent portfolio. The company is counting on the sale of those patents to pay its creditors. Kodak earlier this week said an auction for its patents will be set for Aug. 8, although its procedures for the auction and sale must still be approved by Judge Gropper. Despite interest from many parties, Kodak hasn't named a lead bidder, or stalking horse, a common component of a bankruptcy auction.
The fight between the two iconic companies has been going on for some time. According to Kodak, its digital camera technologies have been an important factor in the success of Apple's iPhone, iPad and iPod Touch products. Its portfolio of digital patents, worth between $2.2 billion and $2.6 billion, includes one patent for a digital camera that can capture an image while a preview appears on an LCD screen.
That is one of the patents to which Apple now claims ownership, a move Kodak says comes nine years after the patent was issued and nearly 20 years after the companies' joint work on digital camera technology.
Kodak also asked the judge to declare that FlashPoint also has no ownership interest in the 10 patents, which FlashPoint argued with in court Wednesday.
Kodak, based in Rochester, N.Y., filed for Chapter 11 in January after failing to sell its patents outside of a bankruptcy. The company's once-central photography-driven business became marginalized by increased digital competition, and it also struggled with high labor and pension costs.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)
Write to Joseph Checkler at email@example.com. Follow him on Twitter at @JoeCheckler