Kodak: An Example of What Not to do With Your Patents.
Kodak has recently announced that it is on the verge of bankruptcy, which raises many questions. Kodak is a name known for 35mm camera film as well as cameras themselves. They have had considerable success but seem to be caught in a downward spiral that they have been unable to correct. Back in 2004 they were removed from the Dow Jones Average with a stock price of $25.38. It recently hit as low as $0.36 a share. This was a long way down from its high price of $94 a share in February 1997, and it should have been a sign to them that times were changing and that they needed to get their act together.
It is reported that Kodak owns over 10,000 patents and is considering a Chapter 11 filing that could result in the sale of 1,100 patents. They have lawsuits in progress against Apple and RIM, but who doesn’t nowadays? These lawsuits have not been going well, and even the rocket docket of the ITC has announced a delay in reporting the results of a review of the lawsuit against Apple and RIM. I can only question what Kodak is doing in the ITC; if you’re going bankrupt why try and fight a battle to stop Apple and RIM importing phones if you cannot survive the fight? Even if Kodak wins, they will still have to seek damages in a standard court or negotiate royalties, adding more delays that they do not appear to have the capital to survive. Kodak is claiming to need $1 billion in financing to survive bankruptcy proceedings. I think they were playing a game to increase the value of their patents, seeing the doom on the horizon and relying upon the belief that a court ruling of validity would substantially increase its patent portfolio value.
In a last-ditch effort, Kodak fired off some lawsuits against HTC and Apple on Tuesday, January 10, 2012. They have filed in the Western District of New York and the ITC. Kodak’s first smart move so far is seeking some damages and money from its patent portfolio to give Kodak some operating income. This strategy all depends upon whether they can get the money to survive the length of the legal battle in order to actually earn some money to save the company.
It appears as though Kodak has held on to these patents to their own death. They have been trying to sell a number of their patents since last summer, but delays at the ITC have prevented an auction from taking place. Now with Kodak’s additional lawsuits against Apple and HTC, there will be further delays in valuing what their patents are worth. In August 2011 Bloomberg reported that the portfolio could be worth $3 billion. With all these lawsuits pending no one knows what the patents are worth.
To put into perspective how much of the patent slice Kodak owns, it is said that over 85% of digital cameras use some of Kodak’s patent technology. Kodak has been buying up digital imaging patents, yet exploring strategic alternatives to marketing or making products based on those patents. I remember seeing some ads for a new printer by Kodak. It is spending money in two directions, buying patents it does not want to use and spending money to develop new technology.
Why spend money to buy patents for a technology that you are no longer pursuing? The best answer seems to be a two-fold reason. First by holding on to patents it created an asset to ensure Kodak’s value as a company. Second, it allowed Kodak to prohibit others from growing into and replacing its film market which is getting eliminated by technology. This only works as long as the patents are valid and this is not a permanent solution because eventually the patents’ terms will expire. Kodak made tons of money by making film, but film is a thing of the past. I bet few of us have picked up a film camera in a long time. I use my phone for almost every picture I take. By owning the patents Kodak was able to restrict the growth of digital camera technology. As we can see, this strategy has not been working out well for Kodak.
What did Kodak forget? It forgot that patents are meant to promote technology, not just a property right or investment. If you want an investment buy stocks, bonds or the like. You cannot just buy a patent and hold onto it like a house. You need to do something with it; take advantage of the technology you have, make an excellent product, and enrich society. Holding patents only to make your company worth more and then only enforcing those patents to increase the company’s value is not the purpose of the patent system.