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
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
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
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
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
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
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