Patent Ruling Leaves Kodak Stuck in Still-Frame

It's truly amazing how quickly Eastman Kodak (NYSE: EK  ) has declined in just 10 years. It was once the king of photography, but the emergence of digital cameras and the commoditization of most things digital has left Kodak strapped for cash and struggling to find its niche in a digital world. A company that was regularly profitable and once employed 70,000 people is now struggling to survive after turning only one full-year profit in the past seven years.

Nowadays, the only bright spots Kodak shareholders have to look forward to are its (for now) rapidly growing inkjet-printer business and its patent-infringement lawsuits. Well, last night another wheel fell off the wagon.

The U.S. International Trade Commission issued primarily bearish news for Kodak optimists after it agreed with a judge who previously dismissed claims that Apple (Nasdaq: AAPL  ) and Research In Motion (Nasdaq: RIMM  ) infringed on Kodak's patents. Although not a complete loss -- the commission did find that Apple and RIM partially infringed -- the chance that Kodak will recover $1 billion, which is what the company was aiming for, seems very unlikely.

In recent years, Kodak has become very reliant on its patent revenue to counteract its quickly dwindling cash position. Last year, the company received $964 million when Samsung and LG Electronics settled a lawsuit similar to the one Kodak currently has against Apple and RIM. In 2010, of the $7.19 billion Kodak had in reported revenue, $838 million came from patent revenue. Remove that anticipated revenue stream, and you'd see that the company may be in worse shape than initially thought.

Just last week, I proposed a few unconventional ideas to turn Kodak around, but after yesterday's ruling I'm not even sure they'd still work. Kodak has been late to the game at nearly every step. The company stubbornly held on to film when others had switched to digital. Then the company failed to anticipate that most digital photo products would be commoditized. By the time the company innovates, competitors have already moved onto the next step.

I still see value in the legacy of the Kodak name brand, and I think we'd be ignorant to assume that Kodak's thousands of patents are worthless. But I am beginning to rapidly lose faith in Kodak's ability to turn things around. Relying too heavily on patent revenue could wind up being another step toward Kodak's downfall.

For now, we'll watch and wait yet another two months for the ITC's final ruling on the Apple and RIM lawsuit, but I'd suggest you consider your contingency plans in the meantime if you're an Eastman Kodak shareholder.

Is Kodak a stock for the future or is the company stuck in still-frame? Share your opinion in the comments section below, and consider adding Eastman Kodak to your personal watchlist to keep up on the latest happenings with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that’s picture-perfect every time.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 01, 2011, at 7:06 PM, EnigmaDude wrote:

    I'm thinking that this might be a "blood in the streets" opportunity to pick up some shares at a great price! I don't see the company going away but they do need to seriosuly consider re-inventing themselves. I mean what would you rather own, Sears stock at $70 or Kodak for $3!

  • Report this Comment On July 01, 2011, at 11:54 PM, lucasmonger wrote:

    The real question is whether their research department has been decimated by cost cutting and disenchanted employees leaving, or whether they are at bat swinging away at pitches and trying to reinvent themselves. I remember years ago when George FIsher left Motorola as CEO to become CEO at Kodak, and the marketplace saw Kodak branded Christmas lights and crayons. That is not reinvention.

    The amazing reinvention would be something like Kodak paper in the form of picture picture from Mr. Rogers neighborhood where you wirelessly take a snapshot, and minutes later (it doesnt have to be instant like a an LCD) that paper shows your picture super sized.

  • Report this Comment On July 03, 2011, at 2:28 AM, rmiers wrote:

    bought one of their top line personal printers yesterday. HP and Canon have stayed too long. Ya gotta have fair value for fair value

    Wearing out my tires buying ink.

    Also bought a 26X digital camera last year, best on market for price. Sam's still sell them like popcorn

  • Report this Comment On July 04, 2011, at 1:52 AM, TMFUltraLong wrote:

    EnigmaDude,

    Sears or Eastman Kodak?...... pass!

    Clearly Eastman has to do something. The legacy name is definitely worth something, but its quickly looking like it may go the way of Circuit City.

    TMFUltraLong

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