Bloomberg news is reporting that a group of Kodak lenders has sent the company Board a letter warning them of their fiduciary duty on patent sales:
The second-lien lenders, who are being advised by Akin Gump Strauss Hauer & Feld LLP, cautioned the company it could face lawsuits if it sells patents for less than market value, said people familiar with the matter.
However, as Joff Wild points out in his blog, if the lenders have a $3 billion price tag in mind (which some have speculated on), they are likely to be disappointed:
Nobody I have spoken to about the sale -who could express an opinion on it - believes that the Kodak patents will fetch close to that amount (though to be fair, no-one thought that the Nortel portfolio would raise close to $4.5 billion either).He also references the recent report by M-CAM on the digital portion of the Kodak patent portfolio that found "at least 31% of the portfolio are impaired and unlikely to be of commercial value."
Such an over expectation by the lenders of the patents' "market value" could be the trigger for a massive lawsuit. That in turn would be a major wake-up call for all company Boards of Directors.
I have been saying for some time that intangibles will take center stage in Corporate America when a Board is first sued for failure to exercise their fiduciary duty on their intangibles. That day may be fast approaching.
This is an interesting issue but there is one element that is quasi-comical about it. From an economist’s perspective, it would seem that any open auction process would drive a result that clearly and unambiguously determines the ‘market value’ of a patent portfolio.
The only way this would not happen is if there is collusion among the bidders. But if that is the case, the seller cannot be held liable for the potentially criminal activities of potential purchasers. If anyone wants to sue, it would seem incumbent upon the allegedly aggrieved parties to sue the ‘winners’ of the auction and simultaneously pursue a criminal complaint in front of the appropriate authorities. Suing the seller would seem to be an action that makes no sense unless they can be proven to be part of a selling conspiracy, at which point they are added to the criminal complaint.
But threatening to sue based on a failure of a patent portfolio to reach an expected price would seem to make no sense. I can see it happening, but it seems to be a long and tenuous thread to pursue. It makes me wonder about what Kodak is supposed to do to gain ‘appropriate’ value. Do they keep a reserve price that they share with the board and other insiders where failure to meet the reserve ends the auction? (This assumes that the reserve would remain confidential knowledge - a questionable proposition in this environment.) But wouldn’t this expose the board to another potential suit for killing the sale and not doing their fiduciary duty to get the sale executed? Looks like a double edged sword here. Sued by some if you sell too low (in their opinion). Sued by others if the auction comes in too low and Kodak walks away from what they have pre-determined to be a low-ball bid.
Very complicated issue that, as usual, inures to no one’s benefit – except the legal teams, of course.