Why Kodak Needs to Declare Bankruptcy

It's never a happy time when a cultural icon is brought to its knees. However, in the case of photography pioneer Eastman Kodak (NYSE: EK  ) , it's the only play left in the book. Long gone are the days of photographic film rolls, and with them the reputation of a once-great company. After frantic attempts to sell or license the company's vast portfolio of patents, it seems bankruptcy is the only option.

Enough's enough
It's not surprising that Kodak hasn't been able to lock down a buyer for its large collection of digital patents. With the company's grim financial condition all over the news, potential bidders would rather wait for a more favorable bankruptcy auction of the patents. For this reason, Kodak filing for protection under Chapter 11 is not only imminent, but also necessary.

Big names such as Apple (Nasdaq: AAPL  ) may be interested in Kodak's suite of patents, which could be valued between $2 billion and $3 billion. Apple buying the rights to these patents would be somewhat of a "Kodak moment," as Kodak once filed a suit against the Mac-maker for patent infringement.

Apple wasn't the only patent litigation filed by Kodak. In recent years it's seemed Kodak's new business model was to leverage their intellectual property by winning patent cases against industry peers. Unfortunately that strategy hasn't panned out that well.

Fading away
As my Foolish colleague John Maxfield discussed, Kodak's fall from grace is the result of the innovator's dilemma, a misfortune in which a company can no longer keep up with disruptive technologies in its industry. However, the lack of product innovation wasn't the only drain on the company. Failure to successfully reinvent itself in new industries like printers was also at fault.

By filing for bankruptcy, Kodak will undoubtedly sell its nearly 1,100 patents and close the final chapter in its more than a century-long history. Is seeking protection under Chapter 11 a card Kodak should have played years ago? Let us know your thoughts on the matter in the comments section below.

Foolish contributor Tamara Rutter owns shares of Apple. Follow her on Twitter, where she uses the handle @TamaraRutter. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.


Read/Post Comments (8) | Recommend This Article (9)

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  • Report this Comment On January 05, 2012, at 10:20 AM, jerr1 wrote:

    dont ya think we ought to wait till we hear kodaks side of story before we comment .Working on this

  • Report this Comment On January 05, 2012, at 10:43 AM, kodak1980 wrote:

    Its been a long and wonderful carrier with Kodak, although I am too young to retire quite yet, I still believe the Company can re-organize and build itself back to a profitable company. Yes we have made mistakes, but we have also brought many great products to the table.

    Have faith America.........please....

    dave

  • Report this Comment On January 05, 2012, at 10:55 AM, trickytom wrote:

    No one will touch Kodak's intelletual property outside of bankruptacy. With its sale in the $500-700M, can Kodak survive to establish as a inkjet printer co. with only 3-5% of a declining market?

    They have had office injket on the market for 5 yrs and made no inroads. Hype- 200% increase in sales- 1000 to 2000 units in a market that has 20-30M units sold by competitors? The warehouses are so full of Kodak printers, Kodak is dumping them to the junk stores such as Ollies, Big Lots (under $40 retail).

    Me thinks Kodak will be forced to sell the office printer to a competitor and attempt to establish commercial printing with less than 8K work force.

  • Report this Comment On January 05, 2012, at 11:17 AM, FM5 wrote:

    George Eastmen , As his young company grew, it faced total collapse at least once when dry plates in the hands of dealers went bad. Eastman recalled them and replaced them with a good product. "Making good on those plates took our last dollar," he said. "But what we had left was more important -- reputation."

    Early in his business, Eastman began planning for "dividends on wages" for employees. His first act, in 1899, was the distribution of a substantial sum of his own money -- an outright gift -- to each person who worked for him.

    Camera manufacturing in the 1890's.

    Later he set up a "Wage Dividend," in which each employee benefited above his or her wages in proportion to the yearly dividend on the company stock. The Wage Dividend was an innovation, and represented a large part of the distribution of the company's net earnings.

    Eastman felt that the prosperity of an organization was not necessarily due to inventions and patents, but more to workers' goodwill and loyalty, which in turn were enhanced by forms of profit sharing.

    In 1919, Eastman gave one-third of his own holdings of company stock -- then worth $10 million -- to his employees. Still later came the fulfillment of what he felt was a responsibility to employees with the establishment of retirement annuity, life insurance, and disability benefit plans. With these benefits, and the Wage Dividend, employees could confidently look forward to a more secure future.

    He began giving to nonprofit institutions when his salary was $60 a week -- with a donation of $50 to the young and struggling Mechanics Institute of Rochester, now the Rochester Institute of Technology.

    He was an admirer of the Massachusetts Institute of Technology because he had hired some of its graduates, who had become his best assistants. This admiration, after thorough study, was translated into a handsome gift to M.I.T., eventually reaching $20 million

    George help the people , where are the people to help his company now , buy the stock and help this company out , , its 130 years old, dont let it die, the next time you pull out a picture and look at it, remember,it would not be possible without him.

  • Report this Comment On January 05, 2012, at 12:24 PM, TMFSocialME wrote:

    Dear Kodak1980,

    Thanks for sharing, it's nice to hear from someone inside the company.

    -Tamara

  • Report this Comment On January 05, 2012, at 12:56 PM, trysson wrote:

    At this point in time, the Intelectual Property is a dead issue. No company or group is going to buy it this side of bankruptcy. The bankruptcy judge will only void the sale and award the I.P. to existing bondholders or to the pension funds. At that point in time someone could buy the I.P. from the next holder. You can bet money that the P.B.G.C., with a little congressional clout behind it, will be looking closely at what remains on the table. After all, when the PBGC is "trusteed" with the employee pensions, they are going to seek every dime they can from the judge, as well they should for the benefit of the employees. By the way, the ship has sailed for the present stockholders to emerge from bankruptcy with anything. A company that has fallen this far, this quickly, and has gone through this much money cannot emerge from bankruptcy with anything left for the stockholders. NEVER AGAIN WILL THERE BE A TIME TO BUY THIS STOCK. I do not own Eastman Kodak stock. A. Perez is the clever one who shot this company through the heart just like the founder did to himself.

  • Report this Comment On January 05, 2012, at 4:33 PM, prosperpress wrote:

    We constantly hear that the patents are worth anything from 1 billion to 4 billion, but even though they have been on sale no-one has bought them. My question is who put this valuation on them? if its Mr. Perez he hardly has a track record of being accurate with any financial projections in his time at Kodak. I would be very wary on the actual value of these patents, they are only worth what anyone will pay. The next big question is what will Kodak do with the cash once they have been sold, seem little point to me carrying on the same "restructuring" road they have been travelling since 2005. Its time to go Antonio, and please take Jerr1 with you, a match made in heaven no doubt.

  • Report this Comment On January 07, 2012, at 6:05 AM, edensedge wrote:

    Looking for EK utilize bankruptcy? This is a company that has followed the finest policies in the treatment of their employees and in being philanthropic. They cannot cut their pensions to reorganize and save themselves. Do the research from an ethical perspective. Wake up, and watch. Have faith, indeed! Investors are truly fools to follow the advice of the greedy.

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