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Kodak Explores Options for Digital-Imaging Patent Portfolio

Kodak Explores Options for Digital-Imaging Patent Portfolio
Eastman Kodak Co., the 131-year-old camera company, said it’s exploring “strategic alternatives” for its digital-imaging patent portfolio. Photographer: Jacob Kepler/Bloomberg

July 20 (Bloomberg) -- Eastman Kodak Co., the 131-year-old camera company, may sell more than 1,100 digital-imaging patents to raise money for operations amid a booming market for intellectual property.

The company is exploring alternatives for its portfolio, which includes patents for processing, editing and storing digital images, Rochester, New York-based Kodak said today in a statement. They represent 10 percent of Kodak’s total U.S. patent portfolio, the company said.

Kodak’s patents may be worth $2 billion or more and could attract bids from Apple Inc., Samsung Electronics Co. and LG Electronics, Mark Kaufman, an analyst at Rafferty Capital Markets LLC in New York, said today in an interview.

“If you are a large consumer-electronics manufacturer, you’ve got to sit up and take notice,” said Kaufman, who has a “buy” rating on the shares. “The patents are for cameras, and as a manufacturer you’re not going to the market today with a smartphone without a camera.”

Demand for intellectual property has been advancing. Last month, a group including Apple, Microsoft Corp. and Research in Motion Ltd. agreed to pay $4.5 billion for a patent portfolio from Nortel Networks Corp, outbidding Google Inc. for the rights to technologies for mobile phones and tablet computers.

Boost Revenue

David Lanzillo, a spokesman for Kodak, declined to comment beyond the statement. Steve Dowling, a spokesman for Cupertino, California-based Apple, and Adam Yates, a spokesman for Samsung, didn’t immediately respond to telephone calls or e-mails seeking comment. John Taylor, a spokesman for Seoul-based LG, declined to comment.

Chief Executive Officer Antonio Perez has been trying to boost revenue by getting other companies to pay for the use of Kodak patents.

Earlier this month, the U.S. International Trade Commission failed to reach consensus on Kodak’s claims that Apple and Research in Motion Ltd. infringe image-preview technology used in cameras. It was the second delay by the Washington-based agency in a case from which Kodak aims to extract $1 billion in licensing fees from Apple and RIM. Apple and RIM deny infringing the patent.

“The ITC process is taking longer than it should have so they are looking to get started a competitive bidding process for the whole portfolio,” said Kaufman. “The company needs money,” he said.

‘Heightened Demand’

Kodak declined to say if the disputed patent is included in the ones under strategic review.

“Until we know what patents they are and whether they’ve been exploited, we don’t know anything,” said Shannon Cross, an analyst at Cross Research in Livingston, New Jersey. She recommends selling Kodak. “We don’t know what a buyer would get. That’s what the stock is telling you.”

A buyer would be more likely to acquire patents instead of all of Kodak even with a market valuation of $630 million, according to Peter Conley, managing director of MDB Capital Group LLC, an investment bank specializing in intellectual property.

Kodak’s U.S. and international pension plans were underfunded by a combined $1.21 billion at the end of 2010, according to a company filing.

Unfunded Liabilities

“If you start to get into the unfunded pension liability, particularly in Europe, it starts to get hairy,” said Conley, who is based in Santa Monica, California.

Conley estimated the patents would fetch about $1 billion. Buying them “doesn’t come with that baggage,” he said.

Credit default swaps on Kodak’s debt, which decline as investor confidence improves, eased 0.7 percentage points today to 41.4 percent upfront, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $4.14 million initially and $500,000 annually to protect $10 million of Kodak’s debt.

The contract’s levels imply an 85 percent chance that Kodak will default within five years, assuming a 37 percent recovery for bondholders, according to the CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Perez, who has led the company 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.

$1 billion

Those businesses, with about $1 billion in 2010 sales, may grow by as much as 40 percent in 2011 and generate operating income during the next two years, Kaufman said.

Analysts project Kodak will generate revenue of $6.17 billion in 2011, a decline of 14 percent from 2010.

Kodak, which traces its roots to 1880, was founded by George Eastman, who developed a method for dry-plate photography and introduced the Kodak camera in 1888, according to the company’s website.

Kodak rose rose 3 cents, or 1.3 percent, to $2.34 at 4:04 p.m in New York Stock Exchange composite trading. The shares have plunged 56 percent this year.

To contact the reporter on this story: Chris Burritt in New York at

To contact the editor responsible for this story: Robin Ajello at

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