IEEE Spectrum February, 2014 - 33

Left: david yeLLen; right: ssPL/getty iMages

tion, 50 to 60 percent of portfolios are now its patents. With so many variables to consold to PAEs. Some PAEs, like Intellectual
sider, he favored a purely financial approach.
Ventures, go after big manufacturers for large "You roll up your sleeves and create a busisums of money. Others target smaller compa- ness plan around the IP," he says.
Specifically, 284 Partners used what innies like podcasters with a deluge of threatening (and sometimes misleading) demand vestors call a discounted cash-flow analysis,
letters; small business owners anxious to which estimated the expected income from
avoid expensive litigation will often settle. monetizing Kodak's patents through licensing
One such campaign sent over 8000 letters. and, if necessary, legal action. Just as it had
A very few, like patent aggregator RPX, claim
done for the Nortel portfolio, 284 Partners
to use their patents only defensively, creating
interviewed Kodak managers, read claims
a pool of intellectual property for operating
and court filings, reviewed previous licenses
companies to dip into when sued. (A pool
and projections, checked royalty rates, and
like this, called the Sewing Machine Combi- examined key patents. Lasinski says his comnation, finally brought the sewing machine
pany also adjusted revenue expectations to
wars to a close in 1856.)
reflect the risks inherent in licensing the IP.
IP experts thought it unlikely that a portfolio
Ultimately, it projected cash flows from
as extensive and lucrative as Kodak's would
the patents of $3.07 billion from 2012 to
end up with a PAE, even one as well funded as 2020, giving the portfolio a present value of
Intellectual Ventures. Putting an exact value
$2.2 billion to $2.6 billion. Lasinski thought
on it, however, was a tricky business. "Pat- that estimate "very conservative" given
Kodak's existing licensing and future plans.
ents are unique and idiosyncratic assets," says
Robert Heath, senior vice president for corporate development at RPX. For example, com- With the estimate from 284 Partners
panies wishing to enter an established market in hand, Kodak began shopping its patents.
or boost their market share are often willing
Just days before it filed for Chapter 11, it
to pay a premium, as Google and Apple did
also filed a flurry of lawsuits, alleging patwith smartphone patents in 2011. Manufactur- ent infringement against Apple, Fujifilm,
ers or aggregators already sitting on a healthy HTC, and Samsung. Kodak already had an
outstanding complaint at the United States
portfolio, on the other hand, might pass up
International Trade Commission (USITC)
otherwise attractive patents.
against Apple and RIM. Both actions should
Michael Lasinski's firm, 284 Partners, was
hired by Kodak in July 2011 to value 1730 of have helped to move the Kodak IP: Selling

patents to alleged infringers is a quick way
to make such lawsuits disappear.
But the technology companies didn't bite.
Instead, Apple swiftly countersued Kodak
for infringement. It also tried to halt the sale
of 13 Kodak patents that had been filed during the two companies' joint development
of the QuickTake camera, alleging they belonged to Apple and a spin-off company
called FlashPoint. Kodak complained to the
court, "Apple and FlashPoint are seeking
to benefit from Kodak's difficult financial
position, which will be exacerbated if [we]
cannot obtain fair value for the patents."
The truth was that Kodak now desperately
needed money. Securing a restructuring
loan of nearly $1 billion depended on the patent sale, and anything hindering that would
put the future of the company in jeopardy.
Fortunately, the bankruptcy court sided
with Kodak against Apple and allowed the
sale to continue. By early July 2012, Kodak
had lined up around 20 potential bidders
for an auction of the patents.
Then disaster struck. In late July, barely
two weeks before the auction was due to
commence, the USITC made its final ruling
in Kodak's case against Apple and RIM. It
found the Kodak patent in question, covering a way of capturing still photos while
previewing motion images, to be invalid.
That one patent, nicknamed "218" for the
last three digits | continued on page 59

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Table of Contents for the Digital Edition of IEEE Spectrum February, 2014