jorian rose, esq. hearing date: august 20, 2012, at 2:30 p.m. hostetler llp … · 1 jorian rose,...

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Jorian Rose, Esq. Hearing date: August 20, 2012, at 2:30 p.m.

BAKER HOSTETLER LLP Response Deadline: August 13, 2012 at 4:00 p.m.

45 Rockefeller Plaza

New York, New York 10111

T 212.589.4200

F 212.589.4201

Email: [email protected]

-and-

Elizabeth Green, Esq.

BAKER HOSTETLER LLP

Sun Trust Center, Suite 2300

200 South Orange Avenue

Orlando, FL 32801-3432

T 407.649.4036

F 407.841.0168


Counsel for ATLC, Ltd.

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

-------------------------------------------------------------- x

In re:

EASTMAN KODAK COMPANY, et al.1

Debtors.

:

:

:

:

:

:

Chapter 11

Case No. 12-10202 (ALG)

(Jointly Administered)

-------------------------------------------------------------- x

MOTION FOR DETERMINATION THAT (I) ATLC, LTD. IS A SECURED

CREDITOR WITH A VALID, PERFECTED, FIRST PRIORITY LIEN

ON CERTAIN PATENT LICENSING AGREEMENT PROCEEDS, OR

ALTERNATIVELY, THAT (II) EASTMAN KODAK COMPANY

ABSOLUTELY ASSIGNED SUCH PROCEEDS TO ATLC, LTD.

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification

number, are: Eastman Kodak Company (7150); Creo Manufacturing America LLC (4412); Eastman Kodak

International Capital Company, Inc. (2341); Far East Development Ltd. (2300); FPC Inc. (9182); Kodak (Near

East) Ine. (7936); Kodak Americans, Ltd. (6256); Kodak Aviation Leasing LLC (5224); Kodak Imaging Network,

Inc. (4107); Kodak Philippines, Ltd. (7862); Kodak Portuguesa Limited (9171); Kodak Realty, Inc. (2045); Laser-

Pacific Media Corporation (4617); NPEC Inc. (5677); Pakon, Inc. 3462); and Qualex Inc. (6019).

12-10202-alg Doc 1813 Filed 08/03/12 Entered 08/03/12 18:21:47 Main Document Pg 1 of 19

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1210202120803000000000011

Docket #1813 Date Filed: 8/3/2012

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TABLE OF CONTENTS

Page

Introduction ………………………………………………………………………………………5

Jurisdiction and Venue …………………………………………………………………………...5

Background …………………………………………………………………………………........6

Relief Requested ………………………………………………………………………………....9

Argument ………………………………………………………………………………………..10

I. ATLC Holds a Valid, Perfected, First Priority Lien on the Assigned Proceeds………...10

A. Kodak Granted ATLC a Security Interest in the Assigned Proceeds……………10

B. ATLC’s Security Interest Attached to the Assigned Proceeds

and Was Automatically Perfected.……………………………………………….14

II. Alternatively, Kodak Absolutely Assigned its Interest

in the Assigned Proceeds to ATLC....……………………………………………….......17

Conclusion ………………………………………………………………………………………18


3

TABLE OF AUTHORITIES

Page(s)

CASES

Advanced Testing Technologies, Inc. v. Desmond (In Re Computer Eng’g

Assocs., Inc.), 337 F.3d 38 (1st Cir. 2003) ……...…………………………………………….…17

Baxter Pharmaceutical Products, Inc. v. ESI Lederle Inc.,

1999 WL 160148, *5 (Del. Ch. 1999) …………………………………………………………..17

Commonwealth Financial Corp. v. DeWalt, 198 Ill. App. 3d 559 (Ill. App. 3d 1990) …………13

Delta-T Corporation v. Applied Process Technology International, LLC,

2012 WL 2792362 (Bankr. E.D. Va. 2012) …………………………………………………13, 15

Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228 (Del. 1997) ……………..10, 17

First Mortgage Co. of Pa. v. Fed. Leasing Corp., 456 A.2d 794 (Del. 1982) …………………..14

Hickman v. Capano Group, L.P., 1979 WL 4634 (Del. Ch. 1979) ……………………………..16

MBIA Insurance Corp. v. Royal Indemnity Corp., 426 F.3d 204 (3d Cir. 2005) …………...10, 17

In re Bollinger Corp., 614 F.2d 924 (3d Cir. 1980) ……………………………………..11, 12, 14

In re CPM Energy Systems, Corp., 116 B.R. 411 (Bankr. D. Del. 1990) ……………………….11

In re Wood, 67 B.R. 321 (W.D.N.Y. 1986) ……………………………………………………..16

Rhone-Poulenc Basic Chams. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192 (Del. 1992) …10, 17

PNC Bank, Delaware v. Berg, 1997 WL 527978 (Del. Super. 1997) …………………………..13

Street Search Partners, L.P. v. Ricon Intern., L.L.C.,

2006 WL 1313859 (Del. Super. May 12, 2006) ………………………………………………...14

Vigil Bros. Construction, Inc. v. Concrete Equipment Co., Inc.,

193 B.R. 513 (9th Cir. BAP 1996) ……………………………………………………………...16

STATUTES AND RULES

11 U.S.C. § 105 ………………………………………………………………………………..…6


4

TABLE OF AUTHORITIES

(continued)

Page(s)

STATUTES AND RULES

(continued)

11 U.S.C. § 506 …………………………………………………………………………………...6

11 U.S.C. § 1107 ………………………………………………………………………………….6

11 U.S.C. § 1108 ………………………………………………………………………………….6

28 U.S.C. § 157 …………………………………………………………………………………...6

28 U.S.C. § 1334 ………………………………………………………………………………….6

28 U.S.C. § 1408 ………………………………………………………………………………….6

28 U.S.C. § 1409 ………………………………………………………………………………….6

Fed. R. Bank. P. 1015 …………………………………………………………………………….5

Fed. R. Bank. P. 3012 …………………………………………………………………………….6

Fed. R. Bank. P. 9014 …………………………………………………………………………….5

Del. Code Ann. tit. 6 § 1-204 …….……………………………………………………………...14

Del. Code Ann. tit. 6 § 9-102 .…………………………………………………………………...13

Del. Code Ann. tit. 6 § 9-109...…………………………………………………………………..11

Del. Code Ann. tit. 6 § 9-108 ..…………………………………………………………………..15

Del. Code Ann. tit. 6 § 9-203 .…………………………………………………………………...14

Del. Code Ann. tit. 6 § 9-301 ….………………………………………………………………...15

Del. Code Ann. tit. 6 § 9-307 .…………………………………………………………………...15

N.J. Stat. Ann. § 12A:9-309……………………………………………………………………...16


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ATLC, LTD. (“ATLC”) seeks a determination that pursuant to the Representation

Agreement (as defined below), Eastman Kodak Company (“Kodak”) granted ATLC a security

interest in a certain percentage of the proceeds (“Licensing Proceeds”) flowing from patent

licensing agreements negotiated by ATLC on Kodak’s behalf. As a result, ATLC holds a valid,

perfected, first priority lien on such proceeds. Alternatively, ATLC seeks a determination that

Kodak absolutely assigned that portion of the Licensing Proceeds to ATLC.

ATLC files this Motion pursuant to an agreement with the Debtors. Both ATLC and the

Debtors believe this Court may properly decide the dispute introduced in this Motion pursuant to

a contested matter under Rule 9014 of the Federal Rules of Bankruptcy Procedure (the

“Bankruptcy Rules”). In support of the Motion, ATLC states as follows:

INTRODUCTION

Kodak retained ATLC to document patent infringing products and to negotiate patent

licensing agreements on Kodak’s behalf with the manufacturers of the infringing products.

ATLC was solely responsible for paying all reverse engineering costs and other out-of-pocket

expenses it incurred while negotiating the patent licensing agreements. In exchange, Kodak

assigned ATLC a percentage of the Licensing Proceeds (the “Assigned Proceeds”).

The Representation Agreement and the circumstances surrounding its execution

demonstrate that Kodak granted a security interest in the Assigned Proceeds to ATLC, or

absolutely assigned the Assigned Proceeds to ATLC. In either case, ATLC seeks this Court’s

determination of ATLC’s rights with respect to the Assigned Proceeds.

JURISDICTION AND VENUE

On January 19, 2012 (the “Petition Date”), each of the Debtors (the “Debtors”),

commenced with this Court a voluntary case under chapter 11 of the Bankruptcy Code. The

Debtors’ chapter 11 cases are being jointly administered pursuant to Bankruptcy Rule 1015(b).


6

Since the Petition Date, the Debtors have operated their businesses and managed their properties

as debtors-in-possession pursuant to Section 1107(a) and 1108 of the Bankruptcy Code.

This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334. This

matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). Venue is proper in this

Court under 28 U.S.C. §§ 1408 and 1409. The statutory predicates for the relief requested herein

are Sections 105 and 506 of the Bankruptcy Code and Bankruptcy Rule 3012.

BACKGROUND

As the Court is aware, Kodak owns or controls certain patents related to digital still

cameras, digital video cameras and integrated digital cameras (the “Patents”). Pursuant to the

Kodak/ATLC Representation Agreement, effective as of July 30, 1998, as amended2 (the

“Representation Agreement”), Kodak “retained ATLC as Kodak’s exclusive representative to

represent Kodak in patent license negotiations with respect to the licensing of [digital still

camera] Patents to third parties.” A redacted copy of the Representation Agreement is attached to

this Motion as Exhibit “A”.3

In the Representation Agreement, ATLC agreed “to use its best efforts to obtain patent

license agreements on terms satisfactory to Kodak.” The Representation Agreement also

provided that ATLC would pay all costs and expenses, including reverse engineering costs,

incurred in patent license negotiations on Kodak’s behalf. In exchange, and for the purposes of

securing ATLC’s right to receive its percentage of the future proceeds, Kodak assigned ATLC

2 The Representation Agreement was amended by (i) the First Amendment, executed by the parties on or

about April 10, 2001, (ii) the Second Amendment, executed by the Parties on or about May 29, 2003, (iii)

the Third Amendment, executed by the Parties on or about October 9, 2003; and (iv) the Fourth

Amendment, executed by the Parties on or about June 2, 2005. 3 Kodak consented to ATLC filing the attached redacted version of the Representation Agreement.


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the Assigned Proceeds, which were comprised of a percentage of the Licensing Proceeds from

future patent licensing agreements negotiated by ATLC:

Out of the “net proceeds” as defined hereafter, received by Kodak from

patent license agreements entered into pursuant to this Agreement with, or

from judgments against, a third party, a percentage of said net proceeds

is hereby assigned to ATLC.

Representation Agreement, Section 6 [emphasis added]. The Representation Agreement also

provided that ATLC was entitled to receive its Assigned Proceeds even if Kodak collected the

Licensing Proceeds after expiration or termination of the Representation Agreement. Finally, the

Representation Agreement provided that Kodak would not sell or transfer either the Patents, or

its right to collect Licensing Proceeds under the patent licensing agreements negotiated by

ATLC, unless the buyer agreed to provide the Assigned Proceeds to ATLC.

For the next eight years, from 1998 to 2006, Kodak and ATLC operated under the

Representation Agreement without dispute. ATLC successfully negotiated at least twenty-one

(21) patent license agreements on Kodak’s behalf, and regularly received its Assigned Proceeds

in accordance with the terms of the Representation Agreement.

Beginning in 2006, however, ATLC became aware that Kodak wrongfully retained

ATLC’s Assigned Proceeds. As a result, ATLC commenced litigation against Kodak in the

District Court for the Middle District of Florida for breach of contract, declaratory judgment, and

accounting (the “Lawsuit”). Shortly thereafter, in May 2006, Kodak terminated ATLC’s right to

act as Kodak’s exclusive representative under the Representation Agreement and ATLC ceased

representing Kodak. In accordance with the Representation Agreement, Kodak’s obligation to

forward the Assigned Proceeds to ATLC continued despite Kodak’s termination of ATLC.

ATLC and Kodak resolved the Lawsuit pursuant to the terms and conditions of the

Settlement Agreement and Release, effective as of August 27, 2007 (the “Settlement


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Agreement”). A redacted copy of the Settlement Agreement is attached to this Motion as Exhibit

“B”.4 Under the Settlement Agreement, Kodak agreed to pay ATLC a lump sum plus thirty-four

(34) equal quarterly payments of a sum certain commencing on September 30, 2007, and ending

on December 31, 2015, in exchange for ATLC dismissing the Lawsuit with prejudice.

Consistent with the Representation Agreement, the Settlement Agreement reflects that

Kodak intended to assign the Assigned Proceeds to ATLC under the Representation Agreement,

and that ATLC’s right, title and interest in the Assigned Proceeds survived execution of the

Settlement Agreement:

Kodak will continue paying ATLC its assigned percentage of the net

proceeds received by Kodak from patent license agreements entered

between Kodak and third parties with whom ATLC had substantial

negotiations or provided substantial support services as of the date of the

execution of this [Settlement] Agreement and the expiration dates of those

agreements.

Settlement Agreement, Paragraph 6 [emphasis added].

On April 2, 2012, the Debtors filed a motion (Doc. No. 767) (the “Rejection Motion”) to

reject the Representation Agreement and Settlement Agreement. ATLC filed an objection (Doc.

No. 1094) (the “Objection”), arguing that both agreements were non-executory because ATLC

had performed all of its material obligations under the agreements, and other than restrictive

covenants, the only remaining obligation under either agreement was Kodak’s obligation to pay

ATLC. Prior to a hearing on the Debtors’ Rejection Motion and ATLC’s Objection, the parties

reached a consensual resolution and submitted to the Court an agreed order, which was entered

following this Court’s May 10, 2012 hearing. See Doc. No. 1155 (the “Agreed Order”). The

Agreed Order expressly reserved ATLC’s right to assert its ownership or secured status with

4 Kodak consented to ATLC filing the attached redacted version of the Settlement Agreement.


9

respect to the Assigned Proceeds or any other priority claim or right with respect thereto. See

Agreed Order, Paragraph 3.

Recently, the Debtors’ filed their motion for, among other things, an order conditionally

authorizing the sale of the Debtors’ patent assets (Doc. No. 1361) (the “Bid Procedures

Motion”). After negotiating with the Debtors regarding the Bid Procedures Motion’s potential

effect on ATLC’s rights with regard to the Assigned Proceeds, ATLC and the Debtors drafted

agreed language to be included in the Debtor’s proposed order granting the Bid Procedures

Motion. This Court’s order (Doc. No. 1590) (the “Bid Procedures Order”) specifically reserved

ATLC’s right to assert an ownership or secured interest in the Assigned Proceeds. See Bid

Procedures Order, paragraph 31.

In sum, since the Petition Date, ATLC and the Debtors have attempted to reach a

consensual resolution concerning ATLC’s rights with respect to the Assigned Proceeds, or at a

minimum, protect ATLC’s rights in the event the parties could not reach a consensual resolution.

Unfortunately, the parties have been unable to agree, necessitating the filing of this Motion.

Having reserved its rights, and in anticipation of the Debtors’ sale of its patents and related

patent licensing agreements, ATLC files this Motion seeking a judicial determination of its rights

with respect to the Assigned Proceeds.

RELIEF REQUESTED

By this Motion, ATLC respectfully requests entry of an order: (i) determining that ATLC

holds a valid, perfected, first priority lien on the Assigned Proceeds; or alternatively, (ii)

determining that ATLC owns the Assigned Proceeds; and (iii) granting all further relief that is

appropriate under the circumstances.


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ARGUMENT

I. ATLC Holds a Valid, Perfected, First Priority Lien on the Assigned Proceeds.

A. Kodak Granted ATLC a Security Interest in the Assigned Proceeds.

The Representation Agreement unambiguously provides that a percentage of the

Proceeds received by Kodak pursuant to the patent licensing agreements negotiated by ATLC “is

hereby assigned to ATLC”:

Out of the “net proceeds” as defined hereafter, received by Kodak from patent

license agreements entered into pursuant to this Agreement with, or from

judgments against, a third party, a percentage of said net proceeds is hereby

assigned to ATLC.

Representation Agreement, Section 6 [emphasis added]. Here, the parties agreed that Delaware

law would govern the Representation Agreement.5 Delaware law is clear that unambiguous

written agreements should be enforced according to their terms, without using extrinsic evidence

“to interpret the intent of the parties, to vary the terms of the contract or to create an ambiguity.”

MBIA Insurance Corp. v. Royal Indemnity Corp., 426 F.3d 204, 210 (3d Cir. 2005) (citing Eagle

Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d 1228, 1232 (Del. 1997)); Rhone-Poulenc

Basic Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992) (concluding that

words must be given their ordinary meaning and should not be “torture[d] to impart ambiguity

where none exists.”).

In fact, when Kodak and ATLC later executed the Settlement Agreement, they

acknowledged that the Representation Agreement assigned the after-acquired Assigned Proceeds

5 Kodak and ATLC agreed that the Representation Agreement “shall be subject to and governed by the laws of the

state of Delaware.” Representation Agreement, Section 13. New York courts routinely enforce contractual choice-

of-law provisions. See Freedman v. Chemical Construction Corp., 43 N.Y. 2d 260, 265 (1977); accord Turtur v.

Rothschild Registry Int’l, 26 F.3d 304, 310 (2d Cir. 1994); see also Cargill v. Charles Kowsky Resources, Inc., 949

F.2d 51, 55 (2d Cir. 1991).


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to ATLC by referring to ATLC’s interest in the Licensing Proceeds as “its assigned percentage

of the net proceeds”:

Kodak will continue paying ATLC its assigned percentage of the net

proceeds received by Kodak from patent license agreements entered

between Kodak and third parties with whom ATLC had substantial

negotiations or provided substantial support services as of the date of the

execution of this [Settlement] Agreement and the expiration dates of those

agreements.

Settlement Agreement, Section 6 [emphasis added]. The plain language of the Representation

Agreement and the unambiguous phrase “is hereby assigned to ATLC”, establishes that Kodak

assigned ATLC a percentage of the Licensing Proceeds flowing from the patent licensing

agreements negotiated by ATLC. Because the plain language of the Representation Agreement

conclusively demonstrates that Kodak assigned ATLC the Assigned Proceeds, the remaining

question is whether that assignment took the form of an absolute assignment, or an assignment as

security.

Article 9 of the UCC as enacted in Delaware governs “any transaction (regardless of its

form) which is intended to create a security interest in personal property.” Del. Code Ann. tit. 6 §

9-109 (Del. Code Ann. tit. 6 § 9-101 et seq. is referred to herein as the “Delaware UCC”).

Pursuant to Delaware law, “no formal security agreement is required [to create a security

interest] if there is a writing or writings signed by the debtor describing the collateral which

demonstrates an intent to create a security interest in the collateral.” In re CPM Energy Systems,

Corp., 116 B.R. 411, 412-13 (Bankr. D. Del. 1990) (citing In re Bollinger Corp., 614 F.2d 924

(3d Cir. 1980)) (discussing the “minimal formal requirements” for the creation of a security

agreement and concluding that transaction as a whole evidenced creation of a security interest).

Kodak intended to grant ATLC a security interest in the Assigned Proceeds. The

Representation Agreement is clearly a writing, executed by Kodak, that identifies the collateral,


12

and further plainly states that Kodak intended to assign a portion of the Licensing Proceeds.

More than once, Kodak states that “a percentage of said net proceeds is hereby assigned to

ATLC.” See J. White and R. Summers Uniform Commercial Code § 31-3 (5th Ed. 2006) (“Even

unorthodox documents containing words such as ‘collateral,’ ‘pledge,’ ‘to secure,’ ‘security,’

assignment language, and ‘lienholder’ are likely to be upheld as adequate security agreements,

even when not explicitly labeled as such.”) (internal citations omitted). As further evidence that

Kodak intended to grant ATLC a security interest - rather than merely promising to pay ATLC

for its expertise - the Representation Agreement also provides that in the event the

Representation Agreement was terminated, ATLC’s right to receive the Assigned Proceeds

would continue. Additionally, Kodak agreed in the Representation Agreement that in the event

Kodak sold or assigned a patent license agreement that was negotiated by ATLC, any future

buyer or assignee must agree to continue furnishing the Assigned Proceeds to ATLC in

accordance with the Representation Agreement.

Based on the plain language of the Representation Agreement, Kodak intended to grant

ATLC a security interest in the Assigned Proceeds - to conclude otherwise would render the

language of the Representation Agreement meaningless. Finally, it is important to remember that

for eight (8) years ATLC discovered entities that were infringing on Kodak’s patents and

thereafter successfully negotiated extremely profitable patent license agreements on Kodak’s

behalf with the infringers. In return, Kodak timely furnished ATLC the Assigned Proceeds. To

ignore the plain language of the Representation Agreement, and the course of conduct of the

Parties for eight (8) years, would be a violation of the general rule that one should not exalt the

form of the security agreement over its substance. See Bollinger, 614 F.2d at 929 (finding course


13

of dealing between the parties indicated intent to create a security interest.). In the instant case,

Kodak intended to, and did in fact, grant ATLC a security interest in the Assigned Proceeds.

The Assigned Proceeds qualify as an “account” or “payment intangible” under the

Delaware UCC. The Delaware UCC defines an “account” as “a right to payment of a monetary

obligation, whether or not earned by performance, (i) for property that has been or is to be sold,

leased, licensed, assigned or otherwise disposed of… .” Del. Code Ann. tit. 6 § 9-102(a)(2). To

the extent a security agreement includes accounts receivable, contracts, or contract rights, they

are subsumed within the definition of an account. See PNC Bank, Delaware v. Berg, 1997 WL

527978, *8 (Del. Super. 1997) (finding assignment of attorneys’ hourly billing and contingency

fee contract constituted assignment of contract rights and therefore “accounts” under Delaware

UCC). In the instant case, Kodak granted ATLC a security interest a portion of its right to

receive payment from future patent licensing agreements to ATLC. And Kodak’s contractual

right to monetary payment, whether due now or in the future, and whether contingent upon some

action or inaction on Kodak’s part, constitutes an “account” under the UCC. See Delta-T

Corporation v. Applied Process Technology International, LLC, 2012 WL 2792362, *15 (Bankr.

E.D. Va. 2012) (quoting Commonwealth Financial Corp. v. DeWalt, 198 Ill. App. 3d 559, 561

(Ill. App. 3d 1990)) (both interpreting standard UCC definition of “account”) (stating that it does

not matter whether payment is due immediately or in the future, the right to payment is still an

“account.”). Alternatively, if the Assigned Proceeds do not qualify as an account, they qualify as

“payment intangibles”. See Del. Code Ann. tit. 6 § 9-102(a)(61) (defining payment intangible as

“a general intangible under which the account debtor’s principal obligation is a monetary

obligation.”). Therefore, under Delaware law, the Assigned Proceeds are either an “account” or a

“payment intangible”.


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B. ATLC’s Security Interest Attached to the Assigned Proceeds and Was

Automatically Perfected.

ATLC’s security interest in the Assigned Proceeds attached upon execution of each of the

individual patent licensing agreements. Under the Delaware UCC, a security interest attaches to

collateral “when it becomes enforceable against the debtor with respect to the collateral, unless

an agreement postpones the time of attachment.” Del. Code Ann. tit. 6 § 9-203. A security

interest becomes enforceable when:

(1) value has been given;

(2) the debtor has rights in the collateral or the power to transfer rights in

the collateral to a secured party; and

(3) one of the following conditions is met:

(A) the debtor has authenticated a security agreement that provides a

description of the collateral…

Del. Code Ann. tit. 6 § 9-203(b). All three elements must be satisfied for a security interest to

attach. In re Bollinger Corp., 614 F.2d at 926.

ATLC gave value to Kodak. Under Delaware law, value has been given when a person

acquires rights “generally, in return for any consideration sufficient to support a simple

contract.” Del. Code Ann. tit. 6 § 1-204. Delaware courts have consistently found that the

consideration needed to make a contract enforceable may “consist[] of a benefit to the promisor,

or detriment to a promisee.” Street Search Partners, L.P. v. Ricon Intern., L.L.C., 2006 WL

1313859, *4 (Del. Super. May 12, 2006); First Mortgage Co. of Pa. v. Fed. Leasing Corp., 456

A.2d 794, 795-796 (Del. 1982). In accordance with the terms of the Representation Agreement,

ATLC used its expertise to locate entities infringing on Kodak’s patents and thereafter negotiate

patent license agreements on Kodak’s behalf. Furthermore, ATLC was required to pay all out of

pocket expenses related to the licensing agreements without reimbursement from Kodak. See


15

Representation Agreement, Sections 3 and 4. As a result of ATLC’s efforts, Kodak reaped the

benefit of at least twenty-one (21) patent licensing agreements.

Kodak had rights to the Assigned Proceeds and the power to transfer its rights in those

proceeds upon execution of each of the patent licensing agreements. Here, Kodak’s contractual

right to payment – its accounts or payment intangibles – arose at the when Kodak agreed to

license its Patents to third parties in exchange for the Licensing Proceeds. See Delta-T

Corporation, 2012 WL 2792362, *30 (Bankr. E.D. Va. 2012) (finding security interest attaches

to account when account comes into existence). Additionally, nothing in the patent licensing

agreements restricted Kodak’s rights to the Licensing Proceeds.

Finally, it is undisputed that Kodak authenticated the Representation Agreement, which

provides a description reasonably identifying the Assigned Proceeds. Section 9-108 of the

Delaware UCC provides that a security agreement need only provide a description that

“reasonably identifies what is described.” Del. Code Ann. tit. 6 § 9-108. Here, the Representation

Agreement defines the terms “substantial negotiations” and “substantial support services”, and

provides that ATLC’s security interest would attach to the Assigned Proceeds if either of those

conditions were met.

Upon attachment, ATLC’s security interest in the Assigned Proceeds was automatically

perfected. Pursuant to the Delaware UCC, New Jersey law governs perfection of ATLC’s

security interest.6 Under New Jersey law, a security interest automatically attaches to an

“assignment of accounts or payment intangibles, which does not by itself or in conjunction with

other assignments to the same assignee transfer a significant part of the assignor’s outstanding

6 See Del. Code Ann. tit. 6 §§ 9-301 and 9-307(e).


16

accounts or payment intangibles.” See N.J. Stat. Ann. § 12A:9-309(2). ATLC has been unable to

locate any cases under New Jersey law interpreting what qualifies as a “significant part” of an

assignor’s accounts or payment intangibles.

Other courts considering this issue have applied the following three tests in order to

determine whether a “significant part” of assignor’s accounts or payment intangibles were

assigned: (1) the “percentage of accounts test”, under which a court determines what percentage

of the total accounts of the assignor were assigned and whether that percentage constitutes a

significant part of the whole; (2) a “casual and isolated transaction” test, under which a court

considers whether the assignee is in the business of commercial financing and whether the

assignee regularly takes assignments of debtor’s accounts or payment intangibles as part of its

business; and (3) a combination of the two. See Vigil Bros. Construction, Inc., v. Concrete

Equipment Co., Inc., 193 B.R. 513, 518 (9th Cir. BAP 1996).

In the instant case, Kodak’s assignment of the Assigned Proceeds, which, as stated herein

are either an “account” or “payment intangible” under the Delaware UCC, meets both the

“percentage of accounts test” and “casual and isolated transaction” test. At most, Kodak assigned

ATLC a fifteen (15) percent interest in the Licensing Proceeds. That fifteen (15) percent interest

represents an insignificant percentage of Kodak’s overall accounts and payment intangibles,

which were at all relevant times in the billions of dollars. Additionally, ATLC did not regularly

take assignments of accounts or payment intangibles in the course and scope of its business.

Accordingly, because Kodak did not assign a significant part of its accounts or payment

intangibles to ATLC, ATLC’s security interest in the Assigned Proceeds was automatically

perfected upon execution of the patent licensing agreements. See In re Wood, 67 B.R. 321, 323

(W.D.N.Y. 1986); Hickman v. Capano Group, L.P., 1979 WL 4634, *5 (Del. Ch. 1979).


17

II. Alternatively, Kodak Absolutely Assigned its Interest in the Assigned

Proceeds to ATLC.

If Kodak did not grant ATLC a security interest in the Assigned Proceeds, then Kodak

absolutely assigned the Assigned Proceeds to ATLC; to interpret the plain language of the

Representation Agreement in any other way renders the language “hereby assigned to ATLC”

meaningless.

Under Delaware law, it is axiomatic that unambiguous written agreements should be

enforced according to their terms. See MBIA Insurance Corp. v. Royal Indemnity Corp., 426

F.3d 204, 210 (3d Cir. 2005) (citing Eagle Indus., Inc. v. DeVilbiss Health Care, Inc., 702 A.2d

1228, 1232 (Del. 1997)). Furthermore, words such as “assigned” should be given their ordinary

meaning and not “torture[d] to impart ambiguity where none exists.” Rhone-Poulenc Basic

Chems. Co. v. Am. Motorists Ins. Co., 616 A.2d 1192, 1196 (Del. 1992) Moreover, Delaware

courts have found that “assignment” is “a legal term having an unequivocal, accepted

definition.” Baxter Pharmaceutical Products, Inc. v. ESI Lederle Inc., 1999 WL 160148, *5

(Del. Ch. 1999) (adopting Restatement (Second) of Contract § 317 definition of assignment). In

the instant case, the Representation Agreement, and the Settlement Agreement that memorializes

Kodak’s intent to assign a portion of the Licensing Proceeds to ATLC, were heavily negotiated

documents and the word choice was intentional, not haphazard. Advanced Testing Technologies,

Inc. v. Desmond (In Re Computer Eng’g Assocs., Inc.), 337 F.3d 38, 46 (1st Cir. 2003)(holding

that for an assignment to be effective, no specific or magic words are necessary.)

To be an absolute assignment, the assignor must divest itself of all rights, title and

interest to the property being assigned. An act or words that show an intention to transfer all

interests to the assignee are sufficient for a valid assignment. Id. Here, the Representation

Agreement’s words plainly show that Kodak “assigned” a portion of the net proceeds. Further,


18

the Representation Agreement acknowledges that because Kodak was divested of its interest in

the Assigned Proceeds as a result of the assignment, Kodak was expressly prohibited from

selling or transferring either the Patents - or the right to collect the Licensing Proceeds - unless

the buyer agreed to provide ATLC the Assigned Proceeds as they were collected. See

Representation Agreement, Section 8. Coupled with this contractual language is the fact that all

patent licensing agreements negotiated by ATLC included provisions requiring Kodak and the

licensee to copy ATLC on all notices and royalty reports. As a result of the foregoing, it is

reasonable to conclude that if Kodak did not grant ATLC a security interest in the Assigned

Proceeds, then it absolutely assigned its interest in the Assigned Proceeds to ATLC.

CONCLUSION

For the foregoing reasons, ATLC, Ltd. respectfully requests entry of an order: (i)

determining that ATLC holds a valid, perfected, first priority lien on the Assigned Proceeds; or

alternatively, (ii) determining that ATLC owns the Assigned Proceeds; and (iii) granting all

further relief that is appropriate under the circumstances.


19

Dated: August 3, 2012

New York, New York

Respectfully submitted,

/s/ Jorian Rose_______

Jorian Rose, Esq.

BAKER HOSTETLER LLP

45 Rockefeller Plaza

New York, New York 10111

T 212.589.4200

F 212.589.4201


-and-

Elizabeth Green, Esq.

BAKER HOSTETLER LLP

Sun Trust Center, Suite 2300

200 South Orange Avenue

Orlando, FL 32801-3432

T 407.649.4036

F 407.841.0168


Counsel for ATLC, Ltd.


Case 6:11-cv-00855-GAP-GJK Document 61-1 Filed 09/15/11 Page 19 of 51 PageID 814EXHIBIT "A"

EXHIBIT "A"

12-10202-alg Doc 1813-1 Filed 08/03/12 Entered 08/03/12 18:21:47 Exhibit A - Representation Agreement Pg 1 of 15


EXHIBIT "A"


Case 6:11-cv-00855-GAP-GJK Document 61-1 Filed 09/15/11 Page 2 of 51 PageID 797EXHIBIT "B"

EXHIBIT "B"

12-10202-alg Doc 1813-2 Filed 08/03/12 Entered 08/03/12 18:21:47 Exhibit B - Settlement Agreement Pg 1 of 50


EXHIBIT "B"


jorian rose, esq. hearing date: august 20, 2012, at 2:30 p.m. hostetler llp … · 1 jorian rose,...

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