Can Kodak rescue itself via a patent bonanza?

Oct 30, 2011 By BEN DOBBIN , AP Business Writer
In this Oct. 3, 2011 file photo, Kodak headquarters is shown in Rochester, N.Y. Kodak _ the company that invented the first digital camera in 1975, and developed the photo technology inside most cellphones and digital devices _ is in the midst of the worst crisis in its 131-year history. (AP Photo/David Duprey, file)

Picture this: Kodak - the company that invented the first digital camera in 1975, and developed the photo technology inside most cellphones and digital devices - is in the midst of the worst crisis in its 131-year history.

Now, caught between ruin and revival, Co. is reaching ever more deeply into its intellectual treasure chest, betting that a big cash infusion from the sale of 1,100 digital-imaging inventions will see it through a transition that has raised the specter of bankruptcy.

Kodak popularized photography over a century ago. It marketed the world's first flexible roll film in 1888 and transformed picture-taking into a mass commodity with the $1 Brownie camera in 1900. But for too long the world's biggest film manufacturer stayed firmly focused on its 20th-century cash cow, and failed to capitalize quickly on its new-wave know-how in .

As a result, Kodak has been playing catch-up. Pummeled by Wall Street over its dwindling - and its stumbling attempts to reinvent itself as a profitable player in digital imaging and printing - Kodak has been hawking the digital patents since July. Many foresee the portfolio fetching $2 billion to $3 billion.

But others think Kodak can haul in far more than that - and carry it off within a few months. That's because patents have become highly valuable to digital device makers who want to protect themselves from intellectual property lawsuits. In July, an alliance made up of Apple and Microsoft purchased a raft of patents from for $4.5 billion. A month later, Google bought Motorola Mobility for $12.5 billion, in part, to gain hold of the company's 17,000 patents.

"The size of the (Kodak) deal could blow your socks off," predicts Los Angeles money manager Ken Luskin, whose Intrinsic Value Asset Management owns 3.8 million Kodak shares.

"It's pocket change for and Apple to go pay $3-or-$4-or-$5 billion for these patents," concurs Christopher Marlett, chief executive of MDB Capital, an investment bank based in Santa Monica, Calif., that specializes in intellectual property. "There is an all-out nuclear war right now for global dominance in smartphones, tablets and mobile devices, and Kodak has one of the largest cache of weapons sitting there." Marlett says he owns Kodak stock, but wouldn't disclose how much.

Even a hefty return, skeptics counter, won't solve Kodak's struggle to close out a nearly decade-long transformation and return to profitability in 2012 after running up losses in six of the last seven years.

"All the extra cash does is give you a lifeline for a short period. And then, poof, you're back in the same position without the assets to sell," says analyst Shannon Cross of Cross Research in Livingston, N.J. "If you're burning cash and not finding a way to generate recurring earnings, it doesn't matter."

Kodak's grim financial picture should become clearer when it reports third-quarter results Thursday.

Agitated investors will likely focus on the company's latest borrowing activities and cash woes - it had $957 million in cash in June, down from $1.6 billion in January. They will also want to know what kind of progress Kodak made in the July-September period in building up a high-margin ink business to replace shriveling film sales.

Kodak has poured hundreds of millions of dollars into new lines of inkjet printers that are finally on the verge of turning a profit. Home photo printers, high-speed commercial inkjet presses, workflow software and packaging are viewed as the company's new core. Kodak projects that sales from those four businesses will double to nearly $2 billion in revenue in 2013, accounting for 25 percent of all sales.

In the meantime, Kodak needs to tap other sources of revenue before those areas have time to pay off - and mining its inventions has become indispensable.

Kodak's chief executive, Antonio Perez, has signed confidentiality agreements with potential buyers but hasn't given a time frame for a deal. The patents for capturing, storing, organizing, editing and sharing digital images do not apply to the four core businesses, Kodak spokesman Gerard Meuchner says.

"One thing I would stress is: It is our intention to retain a license to any of the intellectual property we sell," Meuchner says. "It's like you sell the property but still get to live in the house."

A sale represents a sharp tactical shift. Kodak picked up just $27 million in patent-licensing fees in the first half of 2011 after amassing nearly $2 billion in the previous three years.

In the heated environment for patents, "it makes more sense for us to sell the portfolio than it does to license it company by company, which takes lots of time and expense and can involve litigation," Meuchner says.

Michael Fitzgerald, chief executive of Next Techs Technologies, a patent buying-and-selling intermediary in Houston, says that while the portfolio is valuable, "I just don't view it necessarily as a `strategic' acquisition that multiple players will fall all over themselves on."

Investor fears sent Kodak stock tumbling to an all-time closing low of 78 cents a share on Sept. 30 after it hired Jones Day, a major restructuring law firm, as an adviser. Kodak insisted it had no intention of filing for bankruptcy protection.

Kodak is also involved in a royalty dispute with iPhone behemoth Apple and BlackBerry maker Research in Motion Ltd. The case centers on a 2001 patent now on the auction block - a method that enables a camera to preview low-resolution versions of a moving image while recording still images at higher resolutions.

The 21-month-old battle before the U.S. International Trade Commission, a trade-dispute arbiter in Washington, D.C., was due to be revisited on Monday, but was recently shelved until December 30.

Chief Executive Antonio Perez thinks a favorable ruling could enable Kodak to draw up to $1 billion in fees from its deep-pocketed rivals. In 2009, the commission ruled that South Korean mobile phone makers Samsung Electronics and LG Electronics infringed the same patent, resulting in $964 million in payouts.

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Vendicar_Decarian
1.6 / 5 (7) Oct 30, 2011
Kodak has nothing and is nothing of value.

Further Kodak can not compete in an era in which cameras are given away free in boxes of children's cereal.

Kodak is just another failed American company that has been out-innovated by the Asian corporations.

Humpty
1 / 5 (2) Oct 31, 2011
My big fight with Kodak centered around the use of their camera - and their shitty encoding with Apples video codec - that gave good quality pictures, but incredibly huge and bloated file sizes.

Then add in "Oh I want to register my camera with them for warranty" and the bastards then USE your information for sharing amongst themselves and ALL their affiliates, for marketing etc... something like 80 Kodak subdivisions and then ALL their affiliates.

Naaa not just registering for warranty - the company is filled with fucking arseholes who turn a simple transaction as an opportunity to bend you over and gang rape your arse...

After experiencing such bare faced marketing department scumbag antics - I never ever ever, have considered any Kodak product ever again.

The management are idiots and their marketing departments are filled with scum.

I still hate them to this day.
Vendicar_Decarian
1 / 5 (2) Oct 31, 2011
American Capitalism at it's best.

"Naaa not just registering for warranty - the company is filled with fucking arseholes who turn a simple transaction as an opportunity to bend you over and gang rape your arse..."

wiyosaya
not rated yet Oct 31, 2011
In order to understand Kodak's current predicament, look to George Eastman's biography and how he stole many ideas from his competitors. What goes around comes around.

As someone who has seen some of the inner workings of the company, Kodak has forgotten that innovation in and of itself is a valuable asset. However, when George stole ideas from his competitors, he planted the seeds for what the company is now, except that it is much harder to steal ideas these days, and, unfortunately for the company, it is not always possible to buy the next innovation off the shelf. I would bet there are still lots of smart people in the company, but "Don't invent it here" is the SOP.

If they succeed in raising $$$ this way, you can bet that they will wind up in the same place they are now in a short while.

IMHO, they need to learn what innovation is and let their employees innovate.
Mezrael
5 / 5 (1) Oct 31, 2011
American Capitalism at it's best.

"Naaa not just registering for warranty - the company is filled with fucking arseholes who turn a simple transaction as an opportunity to bend you over and gang rape your arse..."


You could have communicated your displeasure with out the use of profanity. People like you make me ILL... And you would have Nothing without America Past and Future.
Nerdyguy
not rated yet Oct 31, 2011
This is the type of parasitic behavior at the heart of the relatively new "industry" that has sprung up around patent law.

In general, if the company has literally nothing new to add, and finds its only method to grow revenue is through the route of lawsuits, it is intellectually bankrupt at that point and a drain on all of society.
El_Nose
1 / 5 (1) Oct 31, 2011
Companies are not destined to be here forever... Amatrak one of america's oldest is only alive due to huge government subsidies... GE.. will be around only until electricity is generated in the home or business and there is no need for a delivery company... companies rise and they fall ... change happens and the bigger you are the harder it is to change -- Apple while dominate in the first 15 years of the 21st century will probably fail in the next 15-25. Most companies don't make it 50 years.
Mezrael
not rated yet Oct 31, 2011
@ El Nose

Exactly.
Nerdyguy
not rated yet Oct 31, 2011
Companies are not destined to be here forever... Amatrak one of america's oldest is only alive due to huge government subsidies... GE.. will be around only until electricity is generated in the home or business and there is no need for a delivery company... companies rise and they fall ... change happens and the bigger you are the harder it is to change -- Apple while dominate in the first 15 years of the 21st century will probably fail in the next 15-25. Most companies don't make it 50 years.


Superb examples. Having spent time at Amtrak -- as a supplier of technical services -- and having watched the absurd process by which they are funded by the U.S. government, I agree wholeheartedly. It was interesting doing "business" with an entity that literally has so little understanding of management, finance, profitability, etc. They are in existence because certain members of Congress want them to be, period.
dschlink
1 / 5 (1) Oct 31, 2011
Haven't owned a Kodak product in over a decade. Last one was a digital camera that failed due to a poorly-designed mechanical part. They refused to repair the camera under warranty. By contrast, my Canon camera was the subject of a recall/repair program for a bad CCD after the warranty ran out. They even paid the shipping.