The Wall Street Journal has put the cat amongst the pigeons with a report it published last Thursday in which it claimed that sources close to the Kodak patent auction had stated that Google, Apple and others (including Intellectual Ventures and RPX) are thinking about getting together to bid up to $500 million for the portfolios on offer. This is a sum far below the $2 billion plus that Kodak has previously stated the patents could be worth. Initially, it had been thought that Apple and IV were in one consortium, along with Microsoft, and up against Google and RPX in another, along with the likes of Samsung and HTC.

The WSJ published its story just a few days after Kodak announced it was extending the deadline to get a result from the auction, while also stating that it was not certain the patents would be sold at all. This news came just before the release of a new business plan from the company which, among other things, identified aggressive IP monetisation as a key objective in order to provide “an additional source of funding for growth businesses and to pay for legacy costs”.

Reacting to the WSJ story, one Kodak investor is reportedly demanding that the US trustee overseeing the bankruptcy look at the auction. According to Bloomberg, Esopus Creek Value Series Fund LP is concerned that the integrity of the bidding process may have been compromised. Should the WSJ be correct, then Esopus and other Kodak investors would be right to have serious doubts: the best way for Kodak to maximise its returns from the auction is to ensure that there are rivals bidding for the patents. But if all interested parties are working together, then this is bound to keep the price lower than it otherwise would have been.

However, it is worth at least asking whether the WSJ is, in fact, correct. While it could be, there is also the chance that its reporters misheard. misunderstood or were fed duff information. Although working together to keep the price down may appeal to Apple, Google, IV, RPX et al (though that does stretch the imagination somewhat), it’s not really up to them. As is made clear in the Auction Procedures Motion filed in June, it is the debtors who get to call the shots about who can and cannot form consortia. The relevant passage (at page 12 of the Debtor’s Motion for Orders) states:

Prior to and during the Auction, the Debtors may employ and announce such procedures as they determine appropriate under the circumstances after consultation with the Reviewing Creditors, including, without limitation, any partnering of Qualified Bidders, any minimum incremental bid requirements and the amount of time allotted to make subsequent bids.

This is exactly what happened in the Nortel auction too. Speaking at the LES meeting in Chicago last October, David Descoteaux of Lazard, who ran that one and is also running the Kodak sale, made it very clear that the aim was to control who partnered with whom, so ensuring that companies could not just get together to kill the bidding process and freeze the price. The priority was only to permit partnerships that created the maximum competitive tension. This is how Google and Intel found themselves up against Apple, Microsoft and the other members of the Rockstar Bidco, with all the consequences that had for the bidding war that ensued. Clearly, allowing Google and Apple to come together with a number of other partners to make a joint offer for the Kodak patents would be the antithesis of that. So, why would Lazard allow it to happen? I suppose there may be reasons, but I can’t figure them out immediately.

An alternative scenario is that the bidders are talking to each other outside of the auction, so that while they are ostensibly rivals, in reality they are all working to a jointly agreed plan that, it is hoped, will end up with them all getting the patents they want/need for a relatively low amount. However, if that is happening it would run entirely contrary to the spirit of the auction process and may therefore have serious legal consequences: although I am not a lawyer, I would have thought that collusion is a word pretty much guaranteed to generate interest among anti-trust authorities, as well as Kodak investors and creditors.

What we do know for sure is that the auction process has now been running for around two weeks, which is a week longer than the Nortel sale took, and that it looks likely to carry on for a while yet. So something must be happening. Exactly what that is remains to be seen, but if it does turn out that supposedly rival bidders are working together to drive down the price of the patents, the most likely scenario may not be a deal at all. Instead, what could well happen is that, as Kodak intimated in its statement of 13th August and as the auction rules provide for, Kodak will keep the portfolios for itself. If that were to be the case, you can be certain that the company would seek to enforce them as part of its post-bankruptcy aggressive IP monetisation strategy. After all, there has to be a reason why so many parties were interested in them in the first place.

Sectors

Competition/antitrust, Patents, IP business, IP valuation

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