Eastman Kodak Company has been in decline for some time, as is evidenced even by a casual glimpse of the company’s stock price. The problems started to negatively influence the stock price as early as 1999 when Kodak traded at $75 per share. It was less than 5 years later the company was trading under $21 per share. The company rebounded again going up to near $28 in 2007 before starting its final decline into bankruptcy, trading today in the OTC Markets at $.2355.
But now, the company many not be able to shed the 1,100 patents it was hoping to sell to raise cash, which could present a real hurdle for the company as it seeks to emerge from bankruptcy.
The Kodak patent story started just over 13 months ago. On July 21, 2011, Kodak announced that it had engaged Lazard Frères & Co. LLC for advice regarding strategic alternatives in relation to the Digital Imaging Patent Assets. As Lazard marketed various patent assets, Kodak continued with its patent licensing program and strategic litigation. As Kodak’s financial condition continued to deteriorate, a sale of patent assets, as well as new licensing transactions, became more difficult.
Ultimately, the hammer fell on January 19, 2012. Eastman Kodak Company, the once mighty technology company that invented the digital camera, filed a voluntary petition for chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York.
Once upon a time, Kodak had what seemed to be an insurmountable technological superiority. The story of Kodak will ultimately become another example of a once mighty technology company squandering its technological superiority by holding too tightly to an outdated business model in which they were too heavily invested. That story is not new, and this won’t be the last example of it in the technology sector, which makes the tragedy even more difficult to comprehend.
Now with Kodak on the bankruptcy path, the company embarked upon a course that would seek to strategically reduce the company’s overall patent footprint. That translates roughly into selling patents deemed non-essential in order to raise capital while in bankruptcy. These non-strategic patents made up roughly 10% of the overall Kodak patent portfolio. Bolstered by the several patent acquisitions of other portfolios in the many billions of dollar range (i.e., think Google acquiring Motorola, for example), the company hoped to fetch at least several billion dollars for these non-strategic patent assets.
On June 11, 2012, Kodak filed a motion seeking approval of expedited bidding procedures for a bankruptcy auction of the aforementioned non-essential patents, about 1,100 patents in total. The request, which was ultimately approved by the Bankruptcy Court, set forth the following timeline for the pending auction of patent assets:
July 16, 2012 at 5:00pm ET – Deadline for submission of preliminary bid documents.
July 30, 2012 at 5:00pm ET – Bid deadline.
August 2, 2012 at 5:00pm ET – Date by which potential bidders will be named as qualified bidders.
August 8, 2012 at 10:30am ET – In the event that Kodak receives more than one qualified bid, an auction may be conducted upon notice to all qualified bidders.
August 13, 2012 at 5:00pm ET – Final date for designation of successful bid.
August 20, 2012 – Anticipated date for final sale hearing with Bankruptcy Court.
This process was somewhat peculiar because there was no acceptable initial minimum bid to work off that Kodal found acceptable. In the industry, such an initial acceptable bid is referred to as a “stalking horse bid.” Without a stalking horse bidder there was no floor, an indication that the market was valuing Kodak’s patents far less than the company was.
As you can see from the timeline above, the dates have come and gone and Kodak still has not sold its non-strategic patents. According to the Wall Street Journal, moments before the deadline to designate the final bid, Kodak announced that it was extending the deadline and not selecting a successful bid, which they retained the right to do under the terms of the Bankruptcy Court Order. Kodak explained it was extending the deadline for announcing completion of the patent auction “in light of continuing discussions with bidders.”
Then, on August 23, 2012, Kodak issued a press release explaining that they were taking initial steps to emerge from bankruptcy, but did not identify a patent auction winner. In fact, Kodak signaled that they might not actually sell the patents at all. The press release explained: “[T]he company is continuing discussions with parties with respect to the potential sale of its digital imaging patent portfolio. The company reiterates that it has made no decision to sell the portfolio and Kodak may, in consultation with creditors, retain the portfolio as an alternative source of recovery for creditors.”
One week later, we still don’t know when or if Kodak will sell these non-strategic patents. As this process drags on it, can only be concluded that Kodak is being offered well below what they think these patents are worth, and well below what was hoped for initially. Having driven the company into bankruptcy, Kodak isn’t exactly in the best position to negotiate a favorable deal in terms of compensation for these 1,100 patents.
Time will tell what will become of Kodak, but it is sad to watch the company that invented the digital camera struggle.
Written by Gene Quinn of IPWatchdog.com