Eastman Kodak (NYSE: EK) probably will declare bankruptcy this month. It has too little cash to operate with its current expenses and balance sheet. So far, it has been unable to license most of its patents to bring in capital. Kodak’s shares trade at under $0.60, which makes it nearly impossible for the firm to raise money through an equity sale. Kodak could sharply discount its patents, perhaps raising the money to continue as a going concern. A barrier to such an action is that the company’s board might rather kill common shareholders and some bondholders and hope to get full value for its patents through the courts.
The problem with a bankruptcy is that it does nothing to increase the value of Kodak’s patents. If they have a very large value, Kodak would have gotten that already. It has had months to complete a process to use its intellectual property to bolster its balance sheet. That has not happened.
A Chapter 11 filing would allow a court to auction off Kodak’s 1,100 patents. That, it is assumed, would get full value. That theory is flawed. Kodak should be able to hold an auction of its own. The court has no special power to get what the open market will not give.
Kodak’s problem may be that in a world of digital patent wars, its assets are not terribly valuable. Companies like Google (NASDAQ: GOOG), Apple (NASDAQ: AAPL), Samsung and HTC already have armies of lawyers in courts skirmishing to lay claims that their intellectual property should own the territory of certain technology and techniques. Some argue that Google bought Motorola Mobility (NYSE: MMI) because of its patent portfolio. Google says otherwise. It wants Motorola for its revenue and access to the wireless hardware markets. Google’s comments may not be misleading. There is a value in market share in one of the fastest growing portions of the global tech markets.
Dozens of American companies have digital patents that number into the thousands, and more are held by overseas firms. Shoppers may have looked at Kodak’s patents and decided that they are not worth much at all, either because of limited scope or fears that, once acquired, they will have to be defended in court.
The market has not given Kodak a premium for its intellectual property. It might as well auction its patents and get what it can.
Douglas A. McIntyre
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