July 1 (Bloomberg) -- Eastman Kodak Co. fell 14 percent in New York trading after a trade panel failed to reach consensus on the camera company’s claims that Apple Inc. and Research In Motion Ltd. infringe its image-preview technology.
The U.S. International Trade Commission case, which Kodak is counting on to help extract $1 billion in licensing fees from Apple and RIM, was extended until Aug. 30, marking the second delay by the Washington-based agency in determining an outcome.
The full six-member ITC was reviewing Rochester, New York-based Kodak’s appeal of a January decision by Administrative Law Judge Paul Luckern, in which he said Apple’s iPhone and RIM’s BlackBerry don’t violate Kodak’s patent on a way to preview digital images using less processing power and storage space. The ITC said in a notice late yesterday that it modified its interpretation of some aspects of the patent, requiring time for a second look at the case by the judge.
Kodak tumbled 51 cents to $3.07 at 4:02 p.m. in New York Stock Exchange composite trading, the biggest percentage decline since Jan. 26. The shares have dropped 43 percent this year.
“Traders who bought on the prospect that Kodak was going to win sold out,” Mark Kaufman, an analyst at Rafferty Capital Markets in New York. Traders “will be back in August before the next milestone.”
Kaufman, who recommends buying the shares, predicted a ruling favoring Kodak and a settlement among the companies.
In a three-page notice on its website, the commission said that the Apple iPhone 3GS and iPhone 4 don’t literally infringe the patent when they are in non-flash modes, while remanding the question of whether they infringe in other ways. The commission also said Luckern must review other infringement issues of both the iPhone and BlackBerry, based on the revised interpretation.
“The ITC made a partial and inconclusive ruling,” Mike Abramsky, an analyst with RBC Capital Markets in Toronto, said in a note to clients.
Part of Kodak’s argument was that Luckern should have used the interpretation of the key terms that were set by the judge in a case against South Korean phonemakers Samsung Electronics Co. and LG Electronics Inc. that involved the same patent. Kodak had won the judge’s ruling in that case, which settled before the commission had a chance to look at the patent.
Whether the ITC agreed to adopt those earlier definitions won’t be known until the commission releases the full opinion.
Kodak said in a statement the decision favors the photography company because it had asked for the commission to alter the judge’s interpretation and the judge’s invalidity finding was remanded.
“The commission has decided to modify in our favor the judge’s initial recommendation,” said Kodak General Counsel Laura G. Quatela. “As we have said from the start, we remain extremely confident this case will ultimately conclude in Kodak’s favor.”
Officials with Cupertino, California-based Apple and Waterloo, Ontario-based RIM didn’t return messages seeking comment.
The patent 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. Kodak, which generated $838 million from patents last year, contends the image-preview feature is used in every digital camera and phone with a camera.
Samsung, LG Settlements
Apple and RIM denied infringing the patent and argued it was invalid. Luckern on Jan. 24 agreed on both issues. Kodak challenged that finding and the commission reviewed to see whether Luckern should have considered the interpretation from the Samsung and LG cases. The commission also weighed that the patent was given a second review by the U.S. Patent and Trademark Office and upheld by the agency.
Kodak Chief Executive Officer Antonio Perez in March estimated the company could make $1 billion from Apple and RIM because the phonemakers would be forced to settle rather than risk having their best-selling products shut out of the U.S. market. Kodak received a combined $964 million from Samsung and LG in settlements over the same patent.
Perez, CEO since 2005, has said he is using proceeds from intellectual-property licensing to invest in the company’s inkjet printing, packaging and software units to blunt falling revenue from camera film. The company has told investors it expects to gain $250 million to $350 million a year in revenue on average from intellectual-property licensing through 2013, which didn’t include potential Apple and RIM royalties.
The iPhone is projected to have 18.2 percent of the global smartphone market this year, while BlackBerry will have 14.2 percent, according to a June 9 report by Framingham, Massachusetts-based researcher IDC.
Apple has its own patent case against Kodak at the ITC. A judge in May sided with Kodak in that dispute, saying the camera company wasn’t infringing two Apple patents. The commission is considering whether to review that decision.
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).
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