Kodak's Bankruptcy Plan Slugged by InterDigital Sale Failure

NEW YORK ( TheStreet) -- InterDigital ( IDCC) cancelled the sale of its patent portfolio throws into question Eastman Kodak's ( EK) bankruptcy filing, including Kodak' ability to sell patents, litigate infringement claims and draw in the funds to continue its 131-year history.

Both companies contain portfolios of patents that are encumbered by years of licensing agreements, which may make them harder to value and sell, according a patent expert. Kodak and InterDigital's common failure to sell patent portfolios may also mark a turning point in the patent M&A wars being waged in Silicon Valley, which yielded multiple billion dollar plus deals in 2011.

"It's very difficult to sell patents which have so many encumbrances," says Alexander Poltorak, CEO of General Patent about Kodak's patents in a January interview prior to the firms bankruptcy. Poltorak compared Kodak's patent portfolio to those at InterDigital and Tessera Technologies ( TSRA) in its size and previous monetization through licenses.

Heavily licensed patents are difficult to value because buyers would need to see how far partnerships travel and if infringement claims are already protected by previous settlements, said Poltorak. In contrast, Motorola Mobility's ( MMI) portfolio -- which was a key in its $12.5 billion sale to Google -- were much less burdened. " Motorola Mobility has been very careful about licensing their patent portfolio... That's why Google was interested in buying them," added Poltorak in an early January interview.

Nortel Networks was also able to sell a portfolio of assets to Research In Motion ( RIMM) and Apple ( AAPL), among a consortium of buyers for $4.5 billion in 2011.

InterDigital planned to fetch up to $3 billion in a sale to Samsung or Intel ( INTC), according to reports by the New York Times reports. InterDigital said it has earned $3 billion in royalties from licensing its 2G and 3G patents as of 2011, and it expects an additional $800 million of recurring licensing revenue over three to five years, according to a press release.

Shares of InterDigital plummeted nearly 16% to $37.23 in after-hours trading after the annoncement of the failed sale.

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In contrast to InterDigital, Kodak was looking to sell a portfolio of 1,100 patents, roughly 10% of its overall portfolio. However, in the third quarter of 2011, Kodak lost $210 million in non-recurring patent licensing revenue, adding to earnings stress. Kodak was looking to monetize digital camera patents against smartphone makers Apple, Sony ( SNE), LG and JVC, among others.

As the Rochester, N.Y. -based company came closer to bankruptcy, it continued on with patent claims filing a suit against Samsung the day before its filing. After Eastman Kodak filed for bankruptcy on Jan. 19, Apple countersued the company, claiming ownership of a key digital camera patent.

Eastman Kodak received an 18-month $950 million debtor-in-possession credit line with Citigroup ( C) to help it work through a restructuring.

To exit bankruptcy, Eastman Kodak is looking to monetize its intellectual property, fairly resolve legacy liabilities and continue with its most valuable business lines as it seeks to complete the digital transformation it had tried to make unsuccessfully for years under Chief Executive Antonio Perez.

-- Written by Antoine Gara in New York