Flailing photographic equipment giant Eastman Kodak (EK) is pursuing patent actions against iPhone maker Apple (AAPL) and Research in Motion (RIMM), the maker of the Blackberry. Kodak claims infringement of its image processing technology. In an interesting twist, Kodak has pressed its case against the two companies in different venues.
Kodak filed its complaint against Research in Motion with the U.S. International Trade Commission (ITC). Filing with the ITC would allow Kodak to block RIMM’s importation of the Blackberry into the United States, but not seek damages. What’s more, choosing to file an ITC claim rather than patent litigation precludes Kodak from subsequently seeking damages in a U.S. District court. On the other hand, ITC actions have the virtue of being adjudicated quickly, in general, because the commission has specialized judges for intellectual property matters (unlike the U.S. Courts) and streamlined processes. In its dispute with Apple, on the other hand, Kodak has filed normal patent infringement claims in the federal court system (the Western District of New York, specifically).
So why the different venues? One clue may be Kodak’s licensing settlement with Samsung in December, 2009. That settlement related to a camera-phone imaging technology similar to the technologies at issue in the recent filings. The agreement with Samsung was a result of an ITC judgment favorable to Kodak, which came less than a year after the original action was filed. Another ITC-prompted settlement transpired between Kodak and LG Electronics in December, 2009, stemming from a complaint a little more than a year old. Compare these swift adjudications with Kodak’s patent battle with Sony (SNE) in the U.S. District courts, which dragged out for three years from 2004 to 2007 before the two sides reached a cross-licensing settlement. It would seem, therefore, that Kodak is using the ITC as a more efficient way of enforcing its patents and turning them into licensing revenue.
Aiding Kodak in its patent strategy is the fact that it seems that its claims have some validity. Besides the favorable judgment by the ITC in the Samsung complaint, competitors Motorola (MOT) and Nokia (NOK) have previously established licensing agreements with Kodak, bolstering the argument that it has a legitimate patent. The Kodak patent that was found valid and enforceable in the Samsung case is the same one that Kodak is alleging infringement of in the Research in Motion filing. Kodak would thus seem to be safe from the accusation that it is a “patent troll.” Patent trolls usually do not produce any products or participate in the relevant market; sometimes they are failed entrepreneurs unable to market a product based on a shoddy patent, who sue in the hope of achieving any return on their patent. Instead, Kodak's actions appear to be the result of failed licensing negotiations.
If ITC actions are such an efficient way to capitalize on patents, why is Kodak going after Apple’s iphone in U.S. District court? The answer may lie in the size of the potential payout if it wins its case. Emboldened by its success with Samsung, LG and others, Kodak may be betting that it can get more from a court award than it can get from Apple in licensing negotiations armed with a possible ITC injunction.
Either way, its recent filings can only be positive for Kodak. In 2009 licensing agreements contributed 5.7% of consolidated revenue to gross profit dollars, compared to 2.4% in 2008. In the digital imaging unit, licensing revenue constituted 16.6% of gross profit in 2009, versus 7.4% in 2008. Company management explicitly states that this cash flow is being used to fund new research and development costs. Kodak has a long way to go to catch up to digital camera-giants Nikon, Sony, and Canon (CAJ) and a big settlement in the Apple case may well aid the firm in financing its efforts to capture market share.