Bloomberg News

Kodak’s Latest Apple, HTC Lawsuits May Boost Patent Value

January 13, 2012

(Updates with closing share price in seventh paragraph.)

Jan. 11 (Bloomberg) -- Eastman Kodak Co., seeking to sell or license a portfolio of more than 1,100 patents, sued Apple Inc. and HTC Corp. 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.

“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, predicted by analysts to report its fourth straight annual net loss Jan. 26, has put the company’s digital-imaging patents up for sale to help fund changes to its business. CEO Antonio Perez, who is betting on digital printers for publishers, packagers, advertisers and households to lift Kodak, has said the Apple-RIM trade commission case may generate $1 billion in new revenue from settlements.

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

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 rose 22 cents, or 36 percent, to 82 cents at 4:15 p.m. in New York Stock Exchange trading. That follows a 50 percent jump in shares yesterday after the company reported a restructuring of its management.

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 civil suits may be put on hold while the ITC conducts its investigations. The agency seeks to complete investigations in 16 to 18 months, though it’s been forced to extend that target in many cases because of the deluge of litigation over mobile devices.

Portfolio Perceptions

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.

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.

Infringement Claims

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 and a president, 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.

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.

Management Changes

Kodak said yesterday 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, who had been the company’s chief intellectual property officer, will lead the consumer segment and certain corporate functions, Kodak said.

The company’s $162 million market value at yesterday’s close “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., 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).

The ITC case is In the Matter of Electronic Devices for Capturing and Transmitting Images, Complaint No. 2869, U.S. International Trade Commission (Washington).

--With assistance from Beth Jinks in New York. Editors: Romaine Bostick, Steve Walsh

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


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