Kodak scores a patent win but shares fall anyway

July 1, 2011

By Alison Frankel
The views are expressed are his own.

Thursday night’s ruling by the full U.S. International Trade Commission in Kodak’s case against Apple and Research in Motion has to be counted as a litigation win for Kodak and its lawyers at K&L Gates. Remember, Kodak’s case had been completely wiped out by chief administrative law judge Paul Luckern, who concluded last January that Kodak’s crown-jewel patent on capturing, compressing, and storing digital images was invalid for obviousness. If the full commission had affirmed Judge Luckern’s invalidity finding, a patent that has brought Kodak hundreds of millions of dollars in licensing fees would have been rendered worthless.

The ITC commissioners didn’t affirm Judge Luckern. Nor did they overrule him. Thursday’s highly technical ruling revised Judge Luckern’s interpretation of certain elements of the Kodak patent and sent the question of the patent’s validity back down to him to decide again. Both sides will have a chance to submit additional briefs on whether the patent is valid. The commission said it will issue a final determination at the end of August.

Kodak emphasized the good news in its press release on the ITC ruling, noting that the commission found that Apple and RIM products infringe parts of the Kodak patents and that other parts will be re-examined by Judge Luckern.

But by the time Kodak put out its press release at about 7 p.m., two hours after the ITC ruling was published on the commission’s website, the company’s shares had already dropped 19 percent.

The market declared that Kodak had lost the ITC case within minutes of the ruling. Reuters was watching Google’s live scroll of Twitter tweets on the ruling; none considered the nuances of this complicated ruling, but many emphasized an ITC finding that Apple iPhones do not infringe one claim of the Kodak patent. Florian Mueller of FOSS Patents—one of the savviest tech bloggers out there—declared that the likeliest outcome of the case will be a cheap licensing deal that won’t bring Kodak anything close to the $1 billion it was hoping to get from Apple and RIM.

The disjunction between the market reaction to the ITC ruling and its legal implications highlights the fundamental (but not always visible) tension between the pace of litigation and the pace of business. It takes a long time to prosecute a lawsuit, even in a streamlined ITC proceeding. There are often ups and downs along the way.

Unfortunately, struggling companies like Kodak can’t always afford to spare the time or bear the risk of long-term litigation. It will be interesting to see whether Kodak and its lawyers are willing to wait until August to take their chances with Judge Luckern.

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