Eastman Kodak Co. (EKDKQ) lost a ruling in a two-year legal fight against Apple Inc. (AAPL) and Research In Motion Ltd. (RIM) over a patent for digital image-preview technology, a decision that may hurt the value of assets Kodak is selling.
RIM and Apple didn’t violate Kodak’s rights because the patent is invalid, U.S. International Trade Commission Judge Thomas Pender said in a notice posted on the agency’s website. Kodak said it will appeal the findings with the six-member commission in Washington, which has the power to block imports of products that infringe U.S. patents.
Kodak, which filed for Chapter 11 bankruptcy protection in January, contends Apple already owes it more than $1 billion in damages for infringement of this and other digital capture patents, according to a bankruptcy court filing this month. Kodak has said a victory in the case may force RIM and Apple to pay for licensing and bolster the value of patent portfolios the company is seeking to sell.
“It adds another risk factor, or concern, for anybody who’s looking at the value of the IP portfolio, because Kodak is still looking to sell it,” said Shannon Cross, an analyst who follows Apple and Kodak at Livingston, New Jersey-based Cross Research.
Bonds, Stock Drop
Kodak shares, which have traded over the counter since the bankruptcy, fell 27 percent, to 19.5 cents today on the news. Apple gained 5.8 percent to $561.28 in New York, and RIM added 4.6 percent to close at $11.50. Kodak’s $400 million of 7 percent bonds in default, originally due April 2017, dropped 8.625 cents to 16 cents on the dollar at 3:07 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The company’s two digital patent portfolios may be its most valuable assets. The patent in today’s ruling is part of a portfolio of more than 1,100 related to digital capture that the Rochester, New York-based Kodak is selling. The other collection covers imaging systems and services.
The judge’s recommendation “represents a preliminary step in a process that we are confident will conclude in Kodak’s favor,” Timothy Lynch, Kodak’s chief intellectual property officer, said in a statement. “Kodak has invested billions of dollars to develop its pioneering digital imaging technology, and we intend to protect these valuable assets.”
Together, the technology is valued at $2.21 billion to $2.57 billion, based on an estimate by 284 Partners LLC, a patent advisory firm cited in a debtor’s motion it filed before a U.S. bankruptcy court in January.
The disputed patent, which Kodak claims is used in all modern cameras, covers a feature that previews low-resolution versions of a moving image while recording still images at a high resolution. Higher resolution requires more processing power and storage space. Samsung Electronics Co. and LG Electronics Inc. (066570) have already paid $964 million in settlements to Kodak for using the technology.
Pender said that the aspect of the patent that was in the case covered an obvious variation of earlier inventions. He did say that, were it valid, BlackBerry devices and the Apple iPhone 3G would infringe it, while the iPhone 3GS and iPhone 4 do not.
A different judge at the agency found the patent valid and infringed by Samsung, “whose products are similar to those offered by Apple and RIM,” Lynch said. The U.S. Patent and Trademark Office also took a second look at the patent and upheld it in December 2010, Kodak said.
The case looked only at older versions of BlackBerry phones, said Tom Sanchez, vice president of licensing and standards, in charge of all aspects of patents at Research In Motion. The company hasn’t seen the judge’s full determination. While pleased with the finding that there was no violation, RIM will ask the commission to review his finding of infringement, he said.
“This patent is about one thing -- it’s about using multiple processors to do what a single processor couldn’t do in 1994,” Sanchez said in an interview. “That was all made obsolete when single processors a few years later became strong enough to do what multiple processors were doing before.”
The patent is the subject of a patent suit pending between RIM and Kodak in federal court in Dallas. The judge in the case offered an early non-jury trial on both liability and damages, and Kodak declined the offer, RIM said. The company filed notice with the judge in Dallas about today’s findings.
Kristin Huguet, a spokeswoman for Apple, said the company had no comment.
Kodak has been trying to charge for the use of its digital- imaging patents, and suing in instances where that strategy failed. The company sought Chapter 11 protection in January after years of burning through cash as digital technology hurt its film business.
Chief Executive Officer Antonio Perez, who took the helm in 2005, is selling photography and patent assets as part of a plan to shrink the 131-year-old imaging company into a digital- printing specialist that sells faster, more flexible commercial and consumer printers to profit from ink sales.
The commission is scheduled to complete the investigation by Sept. 21. The case targets Apple’s iPhone and BlackBerry devices including the Tour, Storm, Bold, Curve and Pearl. Kodak had lost its fight before another ITC judge, only to have the commission revive the case last year.
Apple sold 152.1 million iPhones and iPads in fiscal 2010 and 2011, data compiled by Bloomberg shows. RIM shipped 102.6 million BlackBerrys and PlayBook tablets in its last two fiscal years.
Other Case Pending
HTC Corp. (2498) and Cupertino, California-based Apple were named in a second ITC case brought by Kodak that accuses the two device makers of infringing four patents related to image transmission. HTC also is accused of violating the image-preview patent that’s in the case against Apple and RIM. That trial is scheduled to begin in February.
Kodak has another case pending against Samsung over its Galaxy tablet computer, which wasn’t covered by the earlier agreement. It also has patent-infringement claims pending against Fujifilm Holdings Corp. (4901), and a breach of contract case against Ricoh Company Ltd. over a patent license.
Apple has claimed in civil suits that it holds rights to the Kodak patents because of a past work agreement, an issue the ITC rejected. The iPhone maker lost the patent-infringement case it filed at the ITC against Kodak and was barred by a bankruptcy judge in March from filing a second one.
“We never thought that they were going to get much money out of Apple, or RIM for that matter,” Cross, the analyst, said in a phone interview. “This makes the litigation they’ve got outstanding against all these companies for IP violations on the tablets much less likely to go through.”
The patent case is In the Matter of Certain Mobile Telephones and Wireless Communication Devices Featuring Digital Cameras, and Components Thereof, 337-703, U.S. International Trade Commission (Washington).