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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 melgross on 3/28/2011 2:19:01 PM , Rating: 3
What lay people think is obvious after the fact, is often not obvious before the fact, even by most experts.

RE: Patents
By AraH on 3/28/2011 3:24:31 PM , Rating: 4
"It is a rare mind indeed that can render the hitherto non-existent blindingly obvious. The cry 'I could have thought of that' is a very popular and misleading one, for the fact is that they didn't, and a very significant and revealing fact it is too." - Douglas Adams (in the Hitchhiker's Guide to the Galaxy trilogy somewhere)

RE: Patents
By adiposity on 3/28/2011 5:06:14 PM , Rating: 3
Nice quote. However, there is a difference between an invention out of nowhere, and a slight tweak to something that already exists. Then, it is not "I could have thought of that," but "I didn't need to think of that."

RE: Patents
By melgross on 3/28/2011 9:40:51 PM , Rating: 2
And, you're an expert in this area, are you?

RE: Patents
By adiposity on 3/29/2011 1:30:23 PM , Rating: 2

I was speaking generally, not saying that I personally thought of digital previews. I personally have no stake in who holds the rights to digital previews. Sorry if that was unclear.

RE: Patents
By Fritzr on 3/29/2011 12:32:37 AM , Rating: 2
SLR has "Live Preview" of a see what the film sees...but what does the film capture???

Digital "Live Preview" on the other hand shows exactly what will be captured. Before digital imaging, Live Preview that is "obvious" today could not exist...very few people consider a science fiction concept obvious.

Murray Leinster wrote a story about the internet and an intelligent search engine in the 1940s...however "A Logic Named Joe" is an obscure almost forgotten story and internet and search engines were "novel" ideas in the 1980s.

By your standards patents for the ideas that Murray Leinster put in print should never have been awarded. There is even a precedent, the water bed patent was overthrown by Robert Heinlein's book "Stranger in a Strange Land" and Arthur C. Clarke "invented" the geostationary communications satellite before the first one was launched.

Clarke also "invented" the Space Elevator which he predicted would be built about 50 years after everyone stopped laughing and is now the subject of research needed to develop the materials that will make it work.

RE: Patents
By melgross on 3/29/2011 1:29:20 PM , Rating: 2
As we all should know by now, ideas aren't patentable. It's the production of some device or process that's patentable. Even if someone came up with the idea of image preview, it wouldn't have been patentable. Nor would it have been sufficient to prevent someone from patenting a way of doing it later.

This is an important distinction.

Someone could have said that it would be good to have tires that have an air bladder inside for a smoother ride. But it took years until it was figured out how to do it, and so was worthy of a patent. The first guy who may have mentioned it would be lost to history for good reason.

The same thing happened with Honeywell in the 1950's. They invented the first auto strobe, where it read the amount of light needed, and dumped the rest. They got a patent. Other companies used the design and were sued by Honeywell. They all lost, and had to pay royalties to Honeywell until the patent ran out. But a better way was discovered during the latter years of the patent as technology moved forwards, so few companies were still using Honeywell's patent by then anyway.

That's how it works. I can't understand why some people are against that.

RE: Patents
By adiposity on 3/30/2011 7:25:02 PM , Rating: 2
I think it's fair to patent and protect implementation, but when the implementation is "obvious," that's where it gets fuzzy.

For example TIVO clearly wasn't the first to think of time-shifting video. But their implementation of "a collection of video and audio objects" (I forget the exact text) was a little general and could practically describe an personal avi collection from 1995.

Hardware is a bit different, obviously, but there are "obvious" ways to do things in hardware based on past designs, and if you just build the hardware to decode video, for example, you are just moving a software job to the hardware. Is that patentable? In many cases, yes, but maybe it shouldn't be.

RE: Patents
By tayb on 3/28/2011 8:13:39 PM , Rating: 2
Who cares if it was obvious before the fact? It happened, what, 15 years ago? It's obvious NOW and if Kodak cared about people using its ridiculous patent it should have started this crusade over a decade again when the entire industry switched to image previews.

It's now an industry standard just as a touchpad, mouse, or keyboard is.

RE: Patents
By melgross on 3/28/2011 9:42:53 PM , Rating: 2
Obvious now? What does that have to do with it? Of course it's obvious now that they invented it.

RE: Patents
By Tanclearas on 3/29/2011 7:41:24 AM , Rating: 2
... but "live preview" or "instant preview" was recognized as desirable from the very early stages of "image capture". Whether video or still is hardly relevant. Should Kodak have to pay a license to preview video while recording on their digital cameras?

Also, it is obvious when millions of people are saying things like "I wish I could look at that right now" or "I can't wait to see how those turn out!"

"I mean, if you wanna break down someone's door, why don't you start with AT&T, for God sakes? They make your amazing phone unusable as a phone!" -- Jon Stewart on Apple and the iPhone

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