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Tuesday, January 25, 2011

Kodak: Digital Camera War Refugee?

Kodak and Apple have been at war for some time on the intellectual property front.

The latest round started about a year ago when Kodak claimed that Apple was in violation of US Patent 6,292,218.  This patent relates to the process whereby you open up the camera and see sort of a low-res real-time video of what the lens is seeing in high-res and then you can grab a frame as a "still" shot from that stream.

Kodak developed a treasure trove of intellectual property to tide it over as its film operations dwindle down to nothing.  The idea being that it can sue others and collect payments and royalties in lieu of film revenue until its own digital imaging businesses can take up the slack.

In May Apple filed a counter suit against Kodak related to, among other things, US Patent 6,031,964.  This patent relates to processing images in memory and being careful to watch the amount of power left in the battery.  Images are processed in a way that should the battery power become low the images will not be lost - even if they are still incompletely transferred between the camera portion of the phone and the user picture software.  (The issue is that raw pixels from the camera are not directly stored in the phone's memory and require image processing before the user an see them.)

At stake are some big dollar amounts.

Kodak was able to squeeze payments of nearly a $900 million USD from Samsung and LG Electronics.

However, Kodak was dealt a setback when the ITC recently decided that Apple and RIM devices don't violate Kodak's patents.

Since 2005 Kodak's film revenue has fallen from about $8 billion USD to about $4 billion USD.  During this time Kodak has worked to replace that revenue with intellectual property revenue.  In 2009 Kodak claimed this revenue would amount to between $250 and $350 million USD per year.

While this is all well and good - and as new technologies like digital cameras and phones become ubiquitous - this sorting out of IP is bound to happen.

On the other hand from what I see Kodak is acting much more like a refugee than a winner when you look at the big picture.

I have seen a lot of ads from Kodak touting its cheap ink for desktop printers.  The idea seems to be that Kodak is telling customers that everyone but Kodak is ripping them off as far as replacement ink is concerned.  Kodak's solution is to offer you a printer that uses its ink - which is far cheaper.

However, this to me appears to be a "race to the bottom" tactic.  Everyone knows that desktop printers are merely loss-leaders to get customers to buy the highly profitable ink.  But Kodak selling printers to get customers to buy less profitable ink does not seem like such a good idea in the long run.

Thinking about cameras there is something of a problem for Kodak as well.  Apple and RIM sell phones with cameras as an option.  Kodak, on the other hand, is not selling phones but only cameras.

Now carrying around a camera and phone is mostly silly in today's world.  Five years ago I bought a nice SLR-type camera with 8 mega-pixels.  Since it has good lenses I can take decent pictures.  Today many phone has cameras with that much resolution.  Why carry both unless you really need to?

So again, without the cellphone aspect associated with its cameras Kodak seems to be facing kind of a dead end.  Apple, on the other hand, with its billions in cash, can afford to work the patent system around Kodak.  Apple's primary products are not cameras per se.  And "having a camera", while important, is not the primary purpose of all the devices it sells (iPads, iPods).

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