Kodak wins court OK to modify stay to allow Shutterfly patent lawsuit

By Caroline Salls

Pittsburgh, May 10 - Eastman Kodak Co. received court approval Thursday to modify the automatic stay imposed by its bankruptcy filing to allow a patent infringement case against Shutterfly, Inc. and Tiny Prints, Inc. to proceed, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Specifically, judge Allan L. Gropper's order said the automatic stay "is modified, including with respect to the affirmative defenses and counterclaims asserted by Shutterfly, Inc. and Tiny Prints, Inc. against Kodak, to permit the parties to proceed to judgment or other resolution."

The company said in a motion filed on May 2 that the patent infringement lawsuit would result in $100 million or more in damages for the benefit of its stakeholders.

According to the motion, Shutterfly and Tiny Prints filed a motion with the Delaware district court seeking a stay of the lawsuit in its entirety, primarily on the basis that their defenses and identical counterclaims are stayed by Kodak's bankruptcy filing.

Kodak said defendants Shutterfly and Tiny Prints "have improperly sought to use the bankruptcy automatic stay as a shield against the debtors' claims."

"Moving these claims to prompt resolution is important to protect the value of the debtors' intellectual property and demonstrates the value of the patents at issue in the Delaware action, which the debtors have offered for sale," Kodak said in the motion.

"The automatic stay is a fundamental protection afforded to debtors under the Bankruptcy Code - the Shutterfly defendants should not be permitted to hide behind section 362 to indefinitely delay resolution of the debtors' valuable patent infringement claims."

Shutterfly objection

On Wednesday, Shutterfly objected to the stay modification motion.

According to the objection, the parties are involved in two separate patent litigations that have run parallel to each other, with discovery and motions set on the same timeline.

Shutterfly said allowing Kodak to not only circumvent the Delaware District Court's authority, but to force the continuation of only one of two patent proceedings "will lead to piecemeal litigation, frustrate the possibility of settlement and waste judicial resources."

Shutterfly said "the underlying patent case and the issue of the automatic stay have been well briefed and submitted to the Delaware District Court, who has had the patent case for over a year."

In addition, Shutterfly said the briefing on the issue of the automatic stay and the impact on the defense and counterclaims of Shutterfly and subsidiary Tiny Prints was completed months ago and is scheduled for argument on May 10.

"Now, at the very last minute, the debtors have filed this motion before this court," Shutterfly said in its objection.

"This eleventh hour filing is based on the debtors' assertion that absent a ruling from this court on the exact same issues pending in Delaware, that the 'Delaware District Court is much more likely to stay the entire case.'"

Kodak is a Rochester, N.Y.-based imaging technology products and services provider to the photographic and graphic communications markets. The company filed for bankruptcy on Jan. 19. Its Chapter 11 case number is 12-10202.

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