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The U.S. International Trade Commission has granted Kodak's request to review a prior decision against it in a patent dispute with Apple and RIM. Over $2B USD hangs in the balance from this and previous suits.  (Source: Wikimedia Commons)

Kodak invented the world's first digital camera, the first color imaging sensor, the first 1+ megapixel sensor, and the first digital SLR camera (pictured). Unfortunately of late it has fallen on hard times. In sixth place in camera sales, it has turned to litigation to boost revenue.  (Source: Kodak)

As buyers flock to cheaper Japanese and South Korean cameras, Kodak's stock has sunk by over 90 percent since 2000.  (Source: TechShout)
Veteran imaging giant has fallen on hard times, has turned to IP litigation to try to maintain revenue

On Friday a panel of six U.S. International Trade Commission judges forced a review of a senior colleague's decision in a patent case worth over $1B USD.  

The case was brought by veteran imaging firm Eastman Kodak Comp. (EK) against Canada's Research in Motion (RIM) and Cupertino, California's Apple, Inc. (AAPL).  Kodak contests that features present in both companies' smartphones infringe upon patents it holds on digital image previews.

The review will force a second panel to reexamine the case and make a decision on whether to alter the initial judgment.

I. Picture of a Pioneer

Kodak wasn't always reduced to trying to fight for its meals in front a federal trade panel.  The company has a long history of innovation, stretching back one and a third centuries.  

The American imaging giant grew out of George Eastman's invention of rolled film.  Founded in 1888, the company struck gold with its Brownie black and white camera.  In 1930 it made it to the elite DOW Jones Industrial Average index.  And in 1936 it continued its film success with the introduction of the world's first 35 mm commercial color camera, the Kodachrome.

In the 1970s many giants of the photography industry like Japan's Nikon and Canon were examining what potential electronics could hold for the imaging industry.  But Kodak was the first company to truly envision a future of digital imaging.

Kodak engineer Steven Sasson invented the world's first true digital camera in 1975 (though it was predated by some earlier photodiode-based imaging work at Phillips Labs in the late 1960s).  In 1976 Kodak invented the Bayer Pattern color filter array (CFA) allowing digital imaging sensors to record color shots.

In 1986 Kodak invented the world's first megapixel or better resolution sensor.  At 1.4 megapixels the sensor could produce an equivalent 5-inch by 7-inch print to a film camera.  That device would find its way into the world's first commercial digital single-lens reflex (SLR) camera in 1991.  The Kodak DCS100 [PDF] had a 1.3 megapixel sensor, could store 156 uncompressed images on its 200 MB 3.5-inch SCSI hard drive, and carried $13,000 USD price tag.

II. The Price of Progress

For all its innovation and gains Kodak found itself on the wrong side of the digital imaging revolution it helped create at the turn of the century.  The company saw its new invention kill the lucrative film business.

And worse still, it saw its own digital sales fall behind its veteran Japanese rivals, and some fresh faces from South Korea like Samsung.

Even as it continues significant innovations, by 2010 Kodak had fallen to sixth place in digital camera sales, according to a report by market research firm DigiTimes.  That report indicated that in 2010 Kodak is projected to have shipped a mere 10.5 million units, placing it behind Canon, Sony, Nikon, Samsung, and Panasonic.

In 2001, Kodak made $13.2B USD in revenue [source] and was growing.  But the next few years saw growth slow, as the company peaked at $14.3B USD in revenue in 2005 [source].  An annual report released by Kodak in January showed revenue continuing a downward spiral, with the company making a mere $7.2B USD in 2010, approximately half of what it made five years prior.

That decline has been reflected in the company's stock price.  On the New York Stock Exchange stock shares reached $48.83 in 2001, but by 2005 had declined to a peak of $36.88.  In 2004 the company was removed from the DOW Jones Industrial Index after 74 years.  

By March 2011 share prices had reached a low of $2.90.  The stock was removed from Standard and Poor's S&P 500 index in December 2010.

III. The Turn to Litigation

Kodak began to sue major corporations.  It began to sue a lot of them.

In an effort to maintain revenues the company in recent years has desperately sought new cash streams.  And it found that by leveraging its vast intellectual property portfolio it could generate such a rich cash flow.

Over the year's Kodak's innovations have earned it a treasure trove of active patents.  And the company also over the last couple decades acquired numerous patents from start-ups and individual IP holders.

Armed with this IP arsenal, the company forced over 30 electronics makers into licensing agreements.

The most recent victims were South Korea's Samsung and LG Electronics.  Both companies produced phones that incorporated digital image previews, something covered by a Kodak patent.  

In December LG Electronics agreed to pay Kodak $414M USD in licensing royalties after receiving an unfavorable decision by the USITC.  That helped to boost Kodak's licensing haul to $838M USD in 2010, according to a report by Bloomberg.

In March 2011 Samsung followed in suit, agreeing to pay $550M USD in royalties.  Those settlements helped bring Kodak's estimated annual licensing haul to between $250M USD and $350M USD through 2013.

IV.  Apple and RIM -- a $1B+ Target

But Kodak was not done hunting big game.  Thirteen months ago it initiated [Press Release] a case against Canada's RIM, based out of Waterloo, Ontario, and Cupertino, California-based Apple.  Two of the smartphone industry's top five players, the pair sold millions of smartphones last year.  And according to Kodak, those phones contained digital imaging previews that were covered by its intellectual property.

In the Samsung and LG Electronics case USITC Judge Carl Charneski found that the Korean electronics makers violated Kodak's '218 digital imaging preview patent.  While the USITC cannot directly force financial compensation, it can block all imports and exports of parts and products.  Faced with being shut out of the world's most lucrative market, Samsung and LG Electronics settled before individual six-member USITC panels.

Kodak was hoping for more of the same in its case against RIM and Apple.

Instead it received a crushing blow that could cost it the gains from the Samsung and LG Electronics case.  

In January 2011 Judge Paul J. Luckern [blog], who happens to be the Chief Administrative Law Judge (ALJ) on the USITC panel, ruled that the patent that the case hinged upon was invalid[Press Release] due to obviousness. 

Kodak requested the USITC review that decision and reassess its ruling against Apple and RIM.  On Friday a panel convened to decide whether to grant that review.  Many expect that Kodak's desperate plea would fall on deaf ears, given Judge Luckern's experience and eminence.

V. Kodak Strikes Back

However, Kodak scored a surprise victory.  The USITC agreed to a review, scheduled for May 23.  

The review will be carried out by a full six-member panel and will examine whether Judge Luckern was correct in ruling Kodak's patent invalid.  If the decision is upheld it would be a huge loss for Kodak that could cost it not only the $1B+ USD in potential licensing from Apple and RIM, but also the $1B USD from Samsung and LG.  

A favorable ruling could yield it $1B+ USD more in settlements.  In short, $2B+ USD is hanging in the balance.

Investors reacted to news of the review with optimism.  At the opening bell Kodak's stock was at $4.01 USD per share, up 18 percent.  It has since fallen to around $3.80.  

Apple's investors reacted to the decision with relative disinterest, as the stock opened up $1.61 USD per share, a small 0.4 percent rise to $353.15 per share.  RIM, by contrast opened slightly up, but has since fallen to $55.27 USD per share, down on pessimistic analyst outlook and concerns about the decision. 

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RE: Patents
By lightfoot on 3/28/2011 12:56:25 PM , Rating: 5
I agree. I think Kodak has a strong case here.

...ruled that the patent that the case hinged upon was invalid due to obviousness.

The problem is that before there was the image preview, cameras either had a crappy viewfinder or they were a SLR. In comparison the real-time image preview is a significant improvement. Providing a preview image is not particularly obvious, although it may seem to be today. As an innovation it would have happened eventually regardless of who did it first, but that does not make it invalid.

What is remarkable is that nobody disputes that Kodak did this first. If it was so obvious wouldn't everyone have done it as soon as the technology was available?

RE: Patents
By Solandri on 3/28/2011 2:14:09 PM , Rating: 3
Boy does that bring back memories. Here's the first digital camera with an LCD screen (released 1995, reviews dating back from 1996 too):

My thoughts when it first came out were that it was going to be expensive, slower, and less accurate than a viewfinder. It wasn't until color LCDs (laptops were just making the switch from grayscale to color LCDs back then) started dropping dramatically in price that I thought it would be a common feature on all digital cameras.

Definitely one of those things which are obvious in retrospect (using current LCD technology and pricing), but not at all obvious back then.

RE: Patents
By tayb on 3/28/2011 8:11:02 PM , Rating: 3
Is this a joke? You seriously think the idea of an image preview should be something that is patentable? Cool, you had the idea and you took it to market. You were probably the first on the market and enjoyed some success because of that. Your exclusivity may last a certain length of time but it most certainly does NOT last 15+ years as image previews is a BASIC function of any modern device that takes pictures. It does not matter AT ALL who had the original idea for an image preview. Coming up with an idea should not grant you infinite exclusivity to any implementation of that idea. That is absolutely ridiculous and would hold back progress in any market.

Patenting something like that would be like patenting an individual key on a keyboard. Cool you came up with a new key but it's now an industry standard. Absolutely ludicrous.

RE: Patents
By lightfoot on 3/28/2011 8:40:27 PM , Rating: 3
You must consider the inverse. That someone could come up with the idea yet never put the idea into the public domain. Would the idea still be obvious if it wasn't already on your camera?

Cameras had existed for over a century without a true "preview" mode. At best you had to hope that what you saw in your viewfinder was what you would get with the film. The use of the actual image sensor to create a low res image prior to the actual image capture was actually a novel idea, and there are clear technical obstacles that needed to be overcome in order to do so.

Image preview is a vastly different concept than an image review which only allows you to view images that you have already captured. The two concepts should not be confused. Image review is an obvious concept; in fact, it is the whole point of a camera.

Consider also that canned foods were invented in 1813, but the can-opener wasn't invented until 1858. Such an invention would also be considered obvious today, but quite clearly was not back then.

RE: Patents
By PrinceGaz on 3/29/2011 11:26:04 AM , Rating: 2
If tinned foods were invented in 1813 but the tin-opener wasn't invented until 1858, what happened to all the tinned food for that 45 year period? Did they even bother making any, given that it would be impossible to eat?

RE: Patents
By lightfoot on 3/29/2011 1:17:51 PM , Rating: 2
The common instructions were to use a hammer and chisel. It isn't that people weren't able to open the cans, only that there were no purpose built tools for the job. The can opener was a tool that made it easier (and safer) to open the cans.

This is similar to the Kodak invention in the fact that the patent applies neither to the video screen nor the camera, but to a specific application of the two technologies when used together.

RE: Patents
By Fritzr on 3/29/2011 12:16:58 AM , Rating: 2
20 years after the fact, the telephone was an "obvious" invention...should it have been allowed a patent?

Same for radio-telegraphy, lightbulb, film photography and many other inventions that were broadly adopted once someone worked out a usable way to do it.

Bell actually documented radio broadcasting in his notes before the first world war and ignored the possibility. He was testing the radio-telephone which many years later was awarded a patent {we call it mobilephone/cellphone now}, what he documented, was that multiple receivers around the world simultaneously received the call...very bad for a phone call, very good for mass entertainment/advertising.

Sure mass broadcast was obvious after the fact...when first seen Mr. A. Bell ignored it as useless.

Windowed operating systems on personal computers...obvious today. When first demonstrated to corporate execs. it was cancelled due to a belief that there is no market for personal computers with a windows OS using a mouse to activate programs by clicking on icons (Look up Xerox PARC & Smalltalk)

Hindsight is often 20/20...the judge needs to read the literature from the years BEFORE live preview was demonstrated, not use the marketing literature of 2010 to judge the ideas present in 1990.

"We basically took a look at this situation and said, this is bullshit." -- Newegg Chief Legal Officer Lee Cheng's take on patent troll Soverain

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