Kodak’s Final Gasp? Intellectual Property Analysis of Kodak v Apple, HTC
Not much has changed for Kodak since news first circulated last quarter about their pending bankruptcy. Well, nothing changed except that Kodak has continued to burn cash at a ferocious rate, its digital imaging portfolio still has not sold, and its latest reorganization plan reminds us of Research in Motion’s redundant management structure.
Kodak is still hoping its saving grace will be a last-minute sale of its digital imaging patent portfolio, though there has yet to be a buyer for the patents. The lack of a buyer isn’t surprising. In our September 2011 report on the digital imaging portion of Kodak’s portfolio, we suggested that the $3 billion asking price was substantially over-inflated. Our commercial analysis in this report concluded that only 69% of Kodak’s digital imaging patents have sufficient quality to support commercial enforcement. Doing the math, that leaves 31% of the Kodak patents as impaired, representing a high litigation potential for either Kodak or those who would purchase the portfolio.
Don't believe impaired patents make a difference? Shortly after Google's announcement to buy MMI, we revealed that 48% of MMI's portfolio was impaired. This month, MMI announced it missed the mark for its fourth-quarter 2011 sales, blaming increased competition and “higher legal costs associated with ongoing intellectual property (IP) litigations.” Thankfully Google has some money left over, after buying these patents for $12.5 billion, with which to pay the inherited legal bills.
In addition, Kodak’s situation is reminiscent of the dilemma Ampex Corporation faced in 2008. Both Ampex and Kodak, at or near bankruptcy respectively, believed their patents to be worth far more than what the market seems willing to pay. In the Ampex case, their digital imaging patents predated Kodak's and had a bona fide offer of $7 million (that’s right, million with an M) to be bought out of bankruptcy by hedge fund ValueVest in 2008. By the way, we advised ValueVest with respect to that right-sized offer.
So given its recent history, it's no surprise that Kodak requested another ITC action and filed patent infringement suits this week against Apple and HTC over digital imaging technology. We wonder though: do these patents fall into the commercially viable category, representing a valid market-differentiating position in the digital imaging arena for potential buyers? Or do these patents fall into the impaired pile, leading to increased legal expenses for Kodak and accelerating their cash burn? Let’s take a look into potential issues that buyers might face.
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