Kodak Patent Hopes, Mirage Versus Reality (EK, AAPL, RIMM, MMI, NOK, SNE, ERIC)

It is perhaps a truism that when all you have is a hammer, everything looks like a nail. That seems to be the thinking at Eastman Kodak Co. (NYSE: EK), once the giant in photography, but slow to get on the digital bandwagon.  The company’s patent infringement dispute with Apple Inc. (NASDAQ: AAPL) and Research in Motion Ltd. (NASDAQ: RIMM) will be reviewed by the US International Trade Commission.

In January, a commission administrative law judge rejected Kodak’s claim, but that ruling is now being reviewed by the full commission.  At issue is whether Apple and RIM infringed on Kodak’s patents for displaying preview images on the two companies’ smartphones.

Kodak reached agreements with two South Korean smartphone makers, LG Electronics and Samsung, in 2010, when the companies agreed to pay a total of nearly $1 billion to Kodak. Kodak has also agreed to licensing terms with Motorola Mobility Holdings, Inc. (NYSE: MMI), Nokia Corp. (NYSE: NOK), and Sony Ericsson, a joint venture between Sony Corp. (NYSE: SNE) and L.M. Ericsson Telephone Co. (NASDAQ: ERIC).

According to Reuters, Kodak owns more than 1,000 patents and earns about $630 million annually from licensing those patents.  That’s about 8% of the company’s 2010 revenue of $8.1 billion.

Kodak’s 2010 revenue was flat with revenue in 2009, but down 14% from 2008. The company has suffered an operating loss in each of the last three fiscal years as well. Kodak is expected to lose -$0.62 per share in the 2011 fiscal year, on revenue of $6.58 billion. Analysts expect losses to continue through 2012.

Compared with developing new and exciting products that will bring back customers and boost revenue, it’s relatively simple and cheap to file patent infringement cases and lawsuits. But even if Kodak wins them all, it’s unlikely that the cash the company receives will make much of a difference in Kodak’s overall revenues.  The good news is that it may be found money outside of legal costs if the firm wins or forces settlements.

That’s not the view of investors today though. Kodak shares rose about 17% after the market opened this morning, and have now settled to a gain of around 12%, at $3.80, within the company’s 52-week range of $2.90-$9.08.

Paul Ausick