Kodak Pushes Patent Value With Apple, HTC Lawsuits as It Seeks Turnaround

By Susan Decker - Jan 11, 2012 12:00 PM GMT+0700

Eastman Kodak Co. (EK), seeking to sell or license a portfolio of more than 1,100 patents, sued Apple Inc. and HTC Corp. (2498) in an expansion of a legal strategy that may help boost the value of its inventions to fund a turnaround.

Two infringement lawsuits filed yesterday in federal court in Rochester, New York, accuse the smartphone makers of using without permission Kodak technology for image transmission, including a way for users to share images directly from cameras. Kodak also claims HTC is infringing an additional patent for a preview feature, which is at the center of a U.S. International Trade Commission case against Apple and Research In Motion Ltd. (RIM)

“They’re trying to generate value for their patent portfolio,” said Ron Epstein, chief executive officer of patent brokerage Epicenter IP Group LLC in Redwood City, California.

Kodak, which is predicted by analysts to report its fourth straight annual net loss, has put the Rochester-based company’s digital-imaging patents up for sale to help fund changes to its business. CEO Antonio Perez, who is now betting on digital printers for publishers, packagers, advertisers and households to lift Kodak, has said that the Apple-RIM trade commission case could generate $1 billion in new revenue from settlements.

Kodak, which didn’t say how much the new Apple and HTC cases could be worth, also filed companion complaints at the trade commission yesterday in Washington, seeking to block imports of products including Apple’s iPad and iPhone, and HTC’s Flyer tablet and Wildfire S phone.

Bankruptcy Risk

“This is an important part of ongoing operations to get them through the transition,” said Erin-Michael Gill, chief intellectual property officer for MDB Capital Group LLC, a Santa Monica, California-based investment bank. “A bad sign would be them sitting on their hands and waiting for these to sell.”

Kodak said last year it hired Lazard Ltd. to help it sell the patents and retained Jones Day among advisers helping on strategic options.

The Apple-RIM trade commission case filed in 2010, involving the single image-preview patent, has met with delays including the retirement of the judge handling the case, and a final decision isn’t scheduled until September.

Moody’s Investors Service on Jan. 5 cut ratings on about $1 billion of Kodak debt with a negative outlook, citing “a heightened probability of a bankruptcy over the near-term” as liquidity deteriorates, making a patent sale more challenging.

Portfolio Perceptions

Adding four new patents into the mix “helps, even without litigating any of the issues, to counteract the impression that there’s only one good patent” in the portfolio, said Ron Laurie, managing director of Inflexion Point Strategy LLC in Palo Alto, California, which counsels companies on intellectual property purchases. Kodak “wanted to defuse that impression.”

The four patents asserted against Apple and HTC have as co- inventor Kodak researcher Kenneth Parulski, who has more than 190 patents and is “recognized as a pioneer in numerous digital camera technologies,” according to the complaints.

Kodak claims infringement by Apple’s iPad 2, iPhone and iPod Touch, and by HTC’s tablets and phones, including the Flyer, EVO View 4G, Jetstream, Vivid, Amaze 4g, Desire, Hero S, Rezound, Rhyme, Sensation 4G and Wildfire S.

“We’ve had numerous discussions with both companies in an attempt to resolve this issue, and we have not been able to reach a satisfactory agreement,” Laura Quatela, Kodak’s chief operating officer, said in a statement. “Our primary interest is not to disrupt the availability of any product but to obtain fair compensation for the unauthorized use of our technology.”

HTC, based in Taoyuan, Taiwan, had no comment on the complaints. Officials with Cupertino, California-based Apple didn’t reply to a request for comment.

Stock Market Value

Selling patents and debt will help determine “the company’s ability to continue its operations” in the next 12 months, Kodak said in a quarterly regulatory filing in November. Kodak said then it would pursue licensing opportunities for the patents if unable to sell them at “an appropriate price.”

Kodak, which lost 88 percent of its stock market value last year, has struggled since demand for photographic film began evaporating as the world embraced digital cameras. Kodak’s cash and equivalents fell to $862 million at the end of its third quarter from $1.4 billion a year earlier. The company is scheduled to report fourth-quarter results Jan. 26.

Management Changes

Kodak rose 50 percent yesterday, to 60 cents, after saying it was adjusting its management structure and creating a chief operating office to reduce costs as its sales decline and cash reserves dwindle. The chief operating office will be led by Quatela and Philip Faraci, both presidents at Kodak. Faraci will focus on the commercial segment and sales and regional operations, and Quatela will lead the consumer segment and certain corporate functions, Kodak said.

The company’s $162 million market value “is lower than the potential damages” the company could generate from litigation, Epstein said.

“They’re looking at the mobile device companies and saying, ‘The brilliance of your user interface and product integration does not detract from the fact that you have integrated my innovation into your product and you owe me something for it,’” Epstein said.

The new case against Apple is Eastman Kodak Co. v. Apple Inc. (AAPL), 12cv6020, and the case against HTC is Eastman Kodak Co. v. HTC, 12cv6021, both U.S. District Court for the Western District of New York (Rochester).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story: Michael Shepard at mshepard7@bloomberg.net