GPC's Alexander Poltorak was featured in a Q&A session about why the initial bids for Eastman Kodak's widely-publicized patent auction were much lower than the company expected. ("IP Assets of Kodak May Be Overvalued" Mergers & Acquisitions - August 10, 2012)
Initial bids for the patents were reportedly between $150 million and $250 million. Why were they so much lower than the expected value of the patents?
Kodak’s expectations were widely out-of-whack with reality. They were looking at Nortel [Network Inc.]’s auction for comparison, and at Microsoft’s buying AOL, and measuring the value of their patents in comparison to these two sales. Those two sales were outliers and had to do with Google. Nortel was a perfect storm where the whole industry banded together and paid $4.5 billion to make sure that Google didn’t get those patents. The AOL patents weren’t particularly interesting, but AOL had acquired Netscape, and Netscape developed the first browser and had one of the earliest Internet browsing and searching patents. Microsoft wanted to make sure Google didn’t get the patent. Those sales were very specific, all having to do with Google and not really reflecting the intrinsic value of the patents sold.
Is there any way the auction could finish with bids close to the $2.6 billion level? What would have to happen?
Not a chance. Anything can happen if there is a bidding frenzy, but the intrinsic value of the patents is not close to $2.4 billion.
If Google and Apple are involved, could the final purchase price be driven up?
I don't think so. There are two consortiums that are bidding. On the one hand, there’s Google, Samsung, HTC and RPX. Apple, Microsoft and Intellectual Ventures are on the other. Apple already won a court case brought by Kodak at the International Trade Commission, so executives at Apple are not worried about the asserted patent, which had been considered the crown jewel of Kodak's portfolio. Samsung, HTC and some other Android cellphone manufacturers appear to be licensed under many Kodak patents. I don't see what would drive the bidding up.