Microsoft And Apple Working Together: Patent Hysteria Returns Over Kodak Auction

by: Patrick Anderson

So perhaps not as antithetical as cats and dogs, and far from signaling the apocalypse, but former "enemies" Microsoft (MSFT) and Apple (AAPL) are reportedly teaming up with Intellectual Ventures ("IV") to oppose a consortium of Google (GOOG) and RPX (RPXC) in an effort to acquire Kodak's (EKDKQ.PK) patent portfolio at auction. Joff Wild reports that Google's rumored "falling out" with IV (after being publicly outed as an investor) seems increasingly plausible in the face of this new alliance. Of course, because Microsoft and Apple are simultaneously waging ongoing campaign to license (or destroy, respectively) Google's Android platform, the pairing represents a modern manifestation of the ancient proverb "the enemy of my enemy is my friend."

Opening bids were due Monday, July 30 ahead of an auction scheduled for August 8. The alignments resemble key pairings that collectively vied against one-another for the former Nortel portfolio last year. Tasked with organizing the auction, Lazard Capital's job will be to ensure that neither side will forget the consequences of losing out on the portfolio to the other side.

Meanwhile, the questionable analytics firm M-Cam announced an "analysis" of the Kodak portfolio, finding most of it "considerably impaired" and thus not very valuable. (See Q: Why Was MDB Capital Right, And M-CAM So Very, Very Wrong On AOL Patent Value? for a previous critique on M-Cam's analytical methodology.) Of course, M-Cam's report shies far away from actually suggesting a monetary value for the Kodak portfolio or predicting the final sale price, as they attempted to do with the AOL sale.

Realistically, any attempt to predict the Kodak auction outcome, or limit the auction price based on patent quality alone would be entirely pointless, considering Apple's "thermonuclear war" approach to Google and Android. If Google wants to walk away with the Kodak patents, given that it's opponents aligned themselves with a company whose former CEO vowed to "spend every penny of Apple's $40 billion" to defeat Android, it will need to reach into its own cash reserves. Unfortunately, RPX, Google's partner for Kodak bidding, offers little additional support, with only $100 M in cash on its most recent balance sheet.

Meanwhile, Intellectual Ventures and Microsoft, both companies that derive significant revenue from licensing, could not have picked a better partner than Apple. To get what it wants, expect Apple to contribute the largest share to the 3-way bidding consortium, while expecting little, if any, direct financial return. Recall that, out of a 5-way combination that formed Rockstar Bidco, Apple contributed more than half of the total purchase price. IV and Microsoft essentially picked a financial backer with ultra-deep pockets, a win-at-all-costs mentality, and goals that, for all practical purposes, are not financially measurable.

Watch for the Microsoft/Apple/IV combination to end up with the Kodak patents as they drive the bidding beyond Google's comfort level. Some combination of Microsoft and Intellectual Ventures will likely control a new patent monetization company, similar to the Rockstar Consortium. Google could take comfort in the fact that it forced Apple, again, to spend a large chunk of cash, but it's Android partners will likely face another round of patent assertions. Financial benefit to Apple really remains uncertain, provided it continues to insist on elimination of Android as its goal, rather than revenue generation.

Disclosure: I am long MSFT.

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