Thursday 31 March 2011

Patent Squatting

Shares in Eastman Kodak have risen 10% on the news that the company has persuaded the US International Trade Commission (ITC) to reconsider its patent infringement case against smartphone manufacturers Apple and Research In Motion. According to Bloomberg Businessweek, the company thinks that it can negotiate royalties worth $1 billion or more if its patent rights are recognised.

Investors have not given the news an unequivocal welcome, however. “Even if Kodak receives the $1 billion in cash, what could it possibly use it to do?” asks InvestorGuide, suggesting that “Kodak has no other game plan except to sit on its patents and sue violators to receive licensing fees to generate capital.” “There is a clear problem with the company’s current patent-squatting strategy – it simply cannot be sustainable,” it notes.

"However, if Kodak invests wisely in research and development to strike back at its currently crippled Japanese camera rivals, such as Sony, Fujifilm, Panasonic and Canon, it could reestablish itself as a formidable camera manufacturer. Kodak has a strong brand name which has been synonymous with cameras for decades, and it wouldn’t be too late to stage a late game comeback."

Does this mark a change in investor attitudes from the early noughties when books such as "Rembrandts in the Attic" and "Edison in the Boardroom" lauded the $4 billion in royalties earned by Texas Instruments (TI) from licensing its patent portfolio? Or is it an acknowledgement that, in 2010, the lion's share of TI's operating profit came from the design and manufacture of semiconductors, with patent royalties being lumped together with "smaller semiconductor operating segments", ASICs and calculators under the heading of "Other" in the 2010 accounts?

1 comment:

Anonymous said...

FYI- Kodak divested their camera manufacturing back in 2006 to Flextronics so I think that comeback avenue is effectively closed.

With a market cap of just north of $850M and $1B in negative equity - I don't think they will be making any bug acquisitions. I'm sure the vultures are looking at the value of the brand and future royalties from the IP portfolio and are watching this ITC case very closely.