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 user 2010-04-26 at 10:46:59 am Views: 84
  • #23614

    As Eastman Kodak Co.
    struggles to turn itself around, a patent countersuit brought against it
    by Apple Inc. highlights the camera and printer maker’s continuing
    reliance on income from its intellectual-property patents.In a claim
    filed Thursday, Apple charged that Kodak has been using the computer
    maker’s digital-processing technology. Kodak filed lawsuits against
    Apple and BlackBerry maker Research In Motion Ltd. earlier this year,
    and they are pending.

    Kodak moved late to digital technologies,
    and it has been trying to catch up under Chief Executive Antonio Perez, a
    former Hewlett-Packard Co. executive who joined Kodak in 2003 and
    became CEO in 2005. Amid restructuring and efforts to build new
    businesses, Kodak has reported only one full-year profit—in 2007—since
    2004.In recent years, aggressive litigation has become an increasingly
    important part of Kodak’s corporate strategy. Income from patent-suit
    settlements—including $550 million from Samsung Electronics Co. and more
    than $400 million from LG Electronics Inc. in the past 12 months—has
    helped to support Kodak as it struggles to complete the switch from film
    to digital technologies.

    But some analysts fear that Kodak is
    running out of companies to sue and that its intellectual-property
    income can’t cushion its operational turnaround much longer. The
    majority of the deals Kodak has struck have been nonrecurring, lump-sum
    arrangements.”At this point from the standpoint of type of [intellectual
    property], the low-hanging fruit has been picked,” said Shannon Cross, a
    Cross Research analyst.A Kodak spokesman responded that the company’s
    operational turnaround is succeeding and that its profitability is
    improving. He added that Kodak has a “rich patent portfolio” and has
    other licensing opportunities. He declined to be specific.Although Kodak
    invented the digital camera in 1975, it didn’t move quickly to
    commercialize it. But many of its patents are in digital imaging, and it
    began licensing intellectual property in 2000 under ex- CEO Dan Carp.

    Mr. Perez became CEO, he took a more aggressive approach. Thus, in
    2008, Kodak set a goal of generating an average of $250 million to $350
    million a year in intellectual-property licensing through 2011,
    including suit-related settlements. This year, Kodak extended that goal
    to 2012. Kodak has been able to meet the goal for the past two years and
    will do so again this year thanks to the Samsung deal. Kodak spokesman
    David Lanzillo said the company has 30 licensing agreements in place and
    both one-time and recurring deals.”This was a good bridge strategy”
    while moving to digital, said Robert Sethre, an analyst for Woodford
    Group.Indeed, since 2004, Kodak said, it has sued or struck deals with
    about a dozen electronics makers and tech companies over intellectual
    property, including Samsung, LG, Nokia Corp., Sony Corp. and Motorola

    With demand for film shrinking, Mr. Perez has also pushed
    Kodak more aggressively into digital cameras, digital picture frames and
    consumer ink-jet printers, but consumer spending has slowed amid the
    economic slump. In 2009, sales of Kodak’s Consumer Digital Imaging Group
    business fell 15% to $2.6 billion.

    Kodak also has high hopes for
    its consumer and commercial ink-jet printers, which compete against H-P
    and Canon Inc. on the higher end and Lexmark International Inc. on the
    lower end. Kodak believes it has an advantage because of its inexpensive
    ink cartridges, but it doesn’t expect its consumer and commercial
    ink-jet printer businesses to be profitable until 2011 and 2012,
    respectively. Its entertainment film business is also coming under
    pressure as more studios and theaters adopt digital cinema systems.”The
    problem is that excluding IP income generation, they are burning
    hundreds of millions of dollars in cash flow in operating businesses,”
    said Chris Whitmore, a Deutsche Bank analyst.

    Kodak’s Mr.
    Lanzillo said earnings could be higher, but the company is choosing to
    invest in technology for printers and printing-production software. He
    acknowledged that intellectual property helps to generate cash and
    earnings but said Kodak also uses it in its own products, which are
    attracting customers.

    The number of households with Kodak
    printers doubled last year to about two million on the consumer side,
    Mr. Lanzillo said. Excluding intellectual-property income, Kodak’s
    overall profitability improved by more than $100 million in the 2009
    fourth quarter compared with a year earlier, he added. For the fourth
    quarter, Kodak also swung to a profit of $443 million from a year-ago
    loss of $918 million, and sales grew 6% to $2.6 billion.”We continue to
    invest in building these new businesses,” the spokesman said “and
    customer response to these new offerings has been very strong.