Boris Steffen's article "Intellectual Property: Issues & Opportunities in Bankruptcy" was published in the American Bankruptcy Institute Journal. The article delves into characteristics of Intellectual Property and the typical bankruptcy proceedings associated with IP. Find an excerpt below.
Some eight years after its bankruptcy filing, on Jan. 24, 2017, Nortel Networks Inc.’s chapter 11 plan received confirmation in both Canada’s and the District of Delaware’s bankruptcy courts. Essential to the plan was the settlement of an unprecedented cross-border dispute over how to allocate approximately $7.3 billion from asset sales, $4.5 billion of which was attributable to Nortel’s patent portfolio, which included more than 6,000 U.S. and foreign patents and patent applications for wireless, wireless 4G, data networking, optical, Internet search, semiconductor and social networking technology.
The winning bid — submitted in July 2011 by a consortium that included Apple Inc., Ericsson Inc., Microsoft Corp., Research in Motion Ltd. and Sony Corp. — represented a 400 percent premium to Google’s stalking-horse bid of $900 million. Google had said that it wanted the patents to protect itself from the increase in patent litigation in the tech world. However, as another bidder observed after being priced out of the auction and thereby prevented from purchasing the patents as a protective measure for its clients, while the winning bid was a “shockingly big number,” the patents held strategic value. “Each company had different reasons why they didn’t want Google to own the patents.... The value was driven by the desire to ensure [that would not happen].”
In contrast to the Nortel auction, consider the Eastman Kodak auction in December 2012. The $525 million winning bid for debtor Eastman Kodak’s portfolio of 1,100 digital-imaging patents, submitted by a group that included Apple Inc., Amazon.com Inc., Microsoft Corp. and Samsung Electronics Co., represented a discount of nearly 80 percent to the approximately $2.6 billion initially estimated by the company’s experts. Reasons given for the discount were the U.S. International Trade Commission’s ruling that Kodak’s “crown jewel” camera preview patent — for which it had sought damages of $1 billion for infringement — was invalid, and the encumbrances associated with Kodak’s licensing and cross-licensing practices. Complicating matters further, Apple had filed suit claiming ownership rights to 10 of Kodak’s patents, while its spinoff (FlashPoint Technology Inc.) claimed ownership to the patents claimed by Apple plus an additional three, which delayed the auction. As these two cases illustrate, understanding how the value of intellectual property (IP) is affected by the rights and economic benefits associated with its existence is crucial to maximizing the value of a related claim in bankruptcy.
For the full article, click here.