Eastman Kodak Co., the 130-year-old company that popularized film photography, is trying to gain ground lost in the digital revolution by using its collection of patents to target Apple Inc. and Research In Motion Ltd.
Among its more than 1,000 digital-imaging patents is one Kodak says entitles it to royalties on every Apple iPhone and RIM BlackBerry with an image-preview camera feature. In a case that started today, Kodak is betting the U.S. International Trade Commission in Washington will back its complaint and block imports of the smartphones if a payment agreement isn’t reached.
Chief Executive Officer Antonio Perez is using Kodak’s history of innovation to help fund a shift to digital devices as a drop in demand for traditional film products cut revenue by almost half since he took over in 2005 to $7.6 billion last year. Perez has said the Rochester, New York-based company expects revenue from its intellectual property to average $250 million to $350 million a year for the next several years.
“It’s been an important component in getting some cash on the balance sheet,” James Kelleher, director of research at Argus Research in New York, said in a telephone interview. “They don’t treat intellectual property as a sidebar, they treat it as a core competency.”
Steven Sasson, a retired Kodak engineer who was called as the company’s first witness today, said at the hearing that the preview feature is used in every digital camera and phone with a camera. Kodak contends it invented the digital camera and has picked other patent fights over the technology with Sony Corp. and Panasonic Corp.
“The patent battles in digital are going to seem like pillow fights compared with what they’re going to face against deep-pocketed companies like Apple and RIM,” said Kelleher, who has a “hold” recommendation for Kodak shares.
The Kodak patent in the Apple and RIM case, issued in 2001, is for an electronic camera that can preview low-resolution versions of a moving image while recording still images at a high resolution. Higher resolution requires more processing power and storage space on the electronic device.
“We have had discussions for years with both Apple and RIM in an attempt to resolve this issue amicably, and we have not been able to reach a satisfactory agreement,” said David Lanzillo, a Kodak spokesman.
Marisa Conway, a RIM spokeswoman, said the Waterloo, Ontario-based company doesn’t comment on pending litigation. Amy Bessette, a spokeswoman for Cupertino, California-based Apple, also declined to discuss the case.
Samsung, LG Electronics
The ITC judge is scheduled to release his findings in January. The ITC only has the authority to block imports of products that violate U.S. patents. The iPhone is made in China and imported into the U.S., while the BlackBerry is made in Mexico and Canada, according to the Kodak complaint.
“These are typically settled out of court, where there’s some form of monetary exchange, or in some cases cross-licensing,” said Shaw Wu, an analyst with Kaufman Bros. in San Francisco who recommends buying Apple shares.
Suwon, South Korea-based Samsung Electronics Co., the world’s second-biggest maker of mobile phones, said in January it would pay $450 million to end a patent dispute with Kodak. Seoul-based LG Electronics Inc., the world’s third-largest, agreed in December to pay $414 million to end its case.
It’s unlikely Kodak would get that kind of money from Apple or RIM because Samsung and LG make more phones. Samsung sold 63.8 million phones worldwide in the second quarter, and LG sold 30.6 million, according to El Segundo, California-based market research firm ISuppli Corp. RIM sold 11.2 million phones, and Apple sold 8.4 million.
Apple Strikes Back
Apple and RIM are also striking back. Apple filed its own patent-infringement case at the ITC against Kodak products, and RIM has a civil lawsuit in federal court in Texas challenging the validity of Kodak patents, including the one in the ITC case.
Kodak, which popularized mass photography with the Brownie and Instamatic cameras, has lost about 86 percent of its stock market value in the past three years. It rose 28 cents to $3.78 at the 4 p.m. close today of regular New York Stock Exchange composite trading.
The invention at issue in the ITC case builds on the in-camera display of a digital camera to let a person see what the image would look like before they take the picture, said Sasson, the former Kodak engineer.
The feature furthers the vision of Kodak founder George Eastman to “make photography easy for the everyday person,” Sasson said at the hearing. “People find it useful and it helps them make better pictures, easier.”
Bees and Bears
The Kodak case is the first of several involving Apple that will be ramping up at the ITC. Apple has pending fights with smartphone makers HTC Corp. and Nokia Oyj, Taiwanese integrated circuit maker Elan Microelectronics Corp., and patent owner S3 Graphics Co.
Companies are eying the $45.8 billion in cash and securities Apple had as of June 26, said Wu, the Kaufman Bros. analyst.
“Honey attracts bees and bears,” he said.
The 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).