Kodak Going After Apple & R-I-M, Yesterday's Trading Beware (EK, AAPL, RIMM)

Eastman Kodak Company (NYSE: EK) was a huge mover yesterday on no news.  The trading was actually muted, but it was the huge amount of options trading that came in the form of the FEB2010 $5.00 CALLS that got everyone into chasing the stock.  Then it closed up in the double-digits yesterday, yet there was no news and the message boards hadn’t even started to pick things up on any scale until after we had discussed the highly unusual options trading.  But then at 9:33 AM EST this morning came the news…. Eastman Kodak has announced that it filed lawsuits against Apple Inc. (NASDAQ: AAPL) and Research In Motion Limited (NASDAQ: RIMM).

Kodak is alleging at the International Trade Commission that both companies infringement Kodak patents and intellectual property about digital imaging technology.  The specifics claim that Apple’s iPhones and RIM’s camera-enabled BlackBerry devices infringe a Kodak patent that covers technology related to a method for previewing images.  Kodak is seeking from the ITC a limited exclusion order preventing the importation of infringing devices, including certain mobile telephones and wireless communication devices featuring digital cameras.

Separately, Kodak has filed two suits today against Apple in U.S. District Court for the Western District of New York alleging infringement of patents related to digital cameras and to certain computer processes.  In both District Court actions against Apple, Kodak is seeking to permanently enjoin Apple from further infringement as well as unspecified damages.

Kodak did note that it has had discussions for years with both companies in an attempt to resolve this issue amicably, yet no amicable agreement was reached.  Kodak also notes that it does not aim to disrupt the availability of any product, but it does want fair compensation for the use of technology.  Kodak further noted that has licensed digital imaging technology to about 30 companies and listed LG, Motorola, Nokia, Samsung, and Sony Ericsson as companies which all pay a royalty to Kodak.

This is an interesting play here from Eastman Kodak.  If this many other competing companies are paying royalties, it does lend at least some credibility to Kodak’s argument.  But at this point it is still only a one-sided event and the case filings do not instantly change anything.  It could also be pointed out that if the company is getting so much in royalties, then why is is still losing so much money.

These cases are never announced and then done.  They either get resolved or they go to court.  And it takes years and years.   But one thing is probably certain, the huge amount of options that traded yesterday morning are probably going to come under a high degree of scrutiny from market trading authorities.

Eastman Kodak is up almost 4% at $5.12, but shares did briefly trade as high as $5.44.  This was at $4.39 before the run started yesterday.  Apple is down 0.5% at $209.54 and R-I-M is up 1% at $66.23 this morning.

JON C. OGG
January 14, 2010