Kodak Fails in Attempting Quick Bankruptcy Sale of Apple's Alleged Patents

Kodak Fails in Attempting Quick Bankruptcy Sale of Apple's Alleged Patents

Last Friday, bankrupt Eastman Kodak was dealt a setback in its attempt to sell patents related to digital cameras. Ownership of these patents (ten digital imaging patents) have been put into dispute by Apple and Flashpoint Tech.

Kodak had requested an order to aid of its planned sale and finding that Apple and FlashPoint had no ownership interests. Kodak asserted that Apple's and Flashpoint's ownership/inventorship claims could be determined summarily because they were barred by the statutes of limitations or by laches. Apple and Flashpoint objected to Kodak's motion, asserting among other things that it was procedurally improper and that their ownership rights could not be summarily determined. They also disputed Kodak's assertion that their claims were time-barred.

In In re Eastman Kodak Co., 2012 Bankr. LEXIS 2746 (Bankr. D.N.Y. 2012) [enhanced version available to lexis.com subscribers], the bankruptcy court denied Kodak's motion, holding:

Since the relief Kodak seeks is, for all intents and purposes, an action for a declaratory judgment to determine an interest in property by excluding the claimed interests of Apple and Flashpoint, the plain meaning of Rule 7001 indicates that it must be brought as an adversary proceeding, not as a contested Rule 9014 motion. Although Kodak proceeds on the premise it can obtain the relief it seeks based on this Court's ability to authorize sales under § 363, it has not cited any authority that a bankruptcy court can determine ownership of property in connection with a sale motion, and the small amount of authority on point suggests the opposite.


Kodak and the Ad Hoc Noteholders' Committee contend that it would exalt form over substance to require the commencement of an adversary proceeding, and they cite a few cases in which the requirement of a separate adversary has been waived. It may be appropriate in some situations to grant such relief. In this case, the issues are sufficiently complex as to require them to be asserted in the context of an adversary proceeding. For example, Apple in its papers makes much of its right to a jury trial and has filed a motion asking the District Court to withdraw the reference in partial reliance on its alleged jury rights. An adversary proceeding would permit the litigation of any issues relating to rights to a jury trial, if one is demanded, and all of the issues can be decided in an orderly fashion that protects Apple's and Flashpoint's rights while avoiding delay. Thus, in an adversary proceeding, any party who believed that a statute of limitations or laches issue could be summarily determined could file an appropriate motion for such a determination. Since such a motion obviously is not decided by the jury, proceeding in an adversary proceeding would protect all parties' due  process rights and also prevent any party from obfuscating the issues and delaying a determination thereof.

(footnotes omitted)

However, the court went on to note:

Although some courts have not only required the opening of an adversary proceeding to determine the issue of ownership, but have also held that ownership must be determined prior to a sale of the property, this decision does not assume such a result. ... [i]t would appear that Kodak could sell the disputed patents under § 363 with the proceeds to be escrowed, awaiting a determination as to whether they should be paid to Kodak, Apple, or Flashpoint. In any event, this issue is not determined, except to allay Kodak's expressed fear that the need to litigate in an adversary proceeding will result in inordinate delay.

(citations omitted) 


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