April 5, 2013, 1:46 PM

Shutterfly wants a Kodak moment in court

Shutterfly sues Kodak for violating terms of last year’s Kodak Gallery asset sale.

Lead Photo

A federal judge in Manhattan will decide if Eastman Kodak Co. violated agreements it made when it sold digital imaging technology to Shutterfly Inc.

Online photo services e-retailer Shutterfly, No. 53 in the 2012 Internet Retailer Top 500, last year acquired the assets of Kodak Gallery, Kodak’s digital photo-sharing business, for $23.8 million at a federal bankruptcy court auction in New York.

As the winning bidder, Shutterfly acquired Kodak’s digital photo technology, customer database and photo collections of its more than 75 million U.S. and Canadian Kodak Gallery users. Kodak filed for bankruptcy reorganization in January 2012.

But last week Shutterfly filed a complaint alleging Kodak’s development of a mobile app—My Kodak Moments—violates non-compete and other commitments Kodak made when it sold Kodak Gallery’s assets. The app lets users create personalized photo books using images from their Facebook accounts. Shutterfly filed the complaint in U.S. Bankruptcy Court for the Southern District of New York

“The app allows consumers to utilize Kodak’s smart fit technology previously used with the Kodak Gallery business and purchase photo books directly from Kodak,” the complaint says. “The business activities are explicitly prohibited by the transfer agreement.”

In its complaint Shutterly said it has sent Kodak several warning letters, but is now asking for a federal judge to issue a cease and desist order and award unspecified damages. “Shutterfly paid $23.8 million for the acquired assets and an additional $2.8 million under the transfer agreement for storage and infrastructure costs attendant to the migration of the Kodak Gallery business to Shutterfly,” the complaint says. “A significant driver of the purchase price that Shutterfly was willing to pay was the non-compete covenant.”

The court has yet to schedule a hearing date. Kodak and Shutterfly also aren’t talking publicly about the case. “We can’t comment on pending litigation,” a Shutterfly spokeswoman says.

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