Sale of Kodak's Patent Portfolio Could Help Fund Its Reinvention

G00247646

Analyst(s):

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Summary

Kodak's sale of its digital rights management patent portfolio could help its U.S. operations emerge from Chapter 11 protection. Any investment decisions should consider Kodak's ability to support and advance its technology.

News Analysis

Event

On 19 December 2012, news sources reported that Eastman Kodak has completed a series of agreements to sell licensing rights to a portion of its digital imaging patent portfolio to 12 intellectual-property licensees organized by Intellectual Ventures and RPX, and another portion solely to Intellectual Ventures. The licensees will include Adobe Systems, Amazon, Apple, Facebook, FujiFilm Holdings, Google, HTC, Huawei Technologies, Microsoft, Research In Motion, Samsung and Shutterfly. Intellectual Ventures will split the payment with the licensees, and Kodak will receive $525 million. Kodak said that Court approval could occur on 11 January 2013; if it does, the sale could close within about 45 days from approval.

Analysis

The sale is part of the conditions Kodak must meet to obtain financing that will help its U.S. operations to emerge from Chapter 11 protection from creditors. (Kodak’s subsidiaries in other countries never sought similar protection.) What is important now is whether one of the world's iconic brands has the resources to recover and whether enterprises' investments in Kodak equipment will be protected.

Assuming the court approves the patent portfolio sale and other arrangements necessary for it to emerge from Chapter 11, Kodak still has significant strengths:

  • Chapter 11 will restructure and reduce its debt and employee pension fund liability.

  • Significant material-science, imaging and deposition intellectual property and associated R&D capabilities will drive product development.

  • Digital-printing hardware and software will drive revenue as they continue to take market share from analog (including offset, flexographic and screen) print technologies while opening up new markets (for example, printed electronics, display technology and solar).

Kodak also plans to sell its document-imaging business (including scanning hardware, software and services) and its personalized-imaging business (consumer film, paper, kiosks, and event or souvenir imaging), but will retain its commercial film business (which serves the motion picture industry). If the sales occur, the reinvented Kodak will open with revenue of nearly $3 billion. Kodak plans to become a business-to-business company, focusing on what CEO Antonio Perez calls "functional print," such as printed electronics that are embedded in packaging paper or film, display and solar technologies, and other markets.

Kodak will still have solid lines of business and some promising technologies, but we are unable to say with certainty that the company will make the continued R&D and product development investments that buyers of digital presses costing into the millions of dollars expect to see over their five-year-or-longer life cycle. Further, Kodak is not the sole innovator in these markets. Canon, HP, Ricoh, Xerox and other competitors have significant and diverse investments in digital printing, functional printing and other deposition applications. Some of their products directly compete with Kodak’s digital presses and already have a sizeable installed base.

Recommendations

Enterprises:

  • Watch for indications that Kodak is emerging from Chapter 11, as the company will have significant technology and product resources if it does so.

  • Evaluate major digital press purchases based not only on print quality and ROI, but also on whether Kodak will be able to support and continually update its imaging technology.

  • When purchasing Kodak products for mission-critical uses, employ strong contract language to protect your investments.

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© 2012 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartners research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

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