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There are several lessons that observers might draw from the decline and fall of Kodak. The usual lesson by now sounds jejune: digital continues to sweep all manner of analog before it. And although that's true (as Borders learned last year, as other “iconic” firms have learned or have yet to learn), Kodak is not an especially helpful vessel for that particular point.
Assets and Operations
Here are two meatier lessons. First, an impressive patent portfolio is at best a supplement to; it is not a substitute for, a viable operational company. In Kodak’s case, the fixed idea of the CEO, Antonio Perez, was the use of patent licensing and lawsuits as a way of keeping the company going until he could complete a switch into what he saw as the green pastures of commercial printing.
Perhaps Perez was encouraged when, in June 2011, Nortel's patent portfolio, put up for auction, fetched $4.5 billion from a consortium that included Sony Corp. (SNE), as well as Apple (AAPL), Microsoft (MSFT), Research in Motion (RIMM), and EMC. But he shouldn’t have been. After all, although all these high-tech titans agreed that Nortel's patents were a treasure trove, as did Google (GOOG), which served as the stalking horse at that auction, the auction took place because Nortel itself had proven incapable of exploiting that treasure.
Christopher Marlett, co-founder and chairman of MDB Capital Group, noted in an interview that Kodak’s patent portfolio isn’t as extensive as was Nortel’s, because it is concentrated in the digital imaging space. Nonetheless, he said, “it is potentially more valuable on a per-patent basis, and certainly it will attract interest in that space.”
The Courtroom and the Marketplace
This brings us to a second lesson: the roles of courtroom adversary and marketplace collaborator do not really mix well. If it is part of your strategy to make deals with other companies to exploit your patents, the best deal is neither the court judgment you hope to get after winning in protracted litigation, nor the settlement deal you might hope to make with an all-but-defeated courtroom adversary eager to cut losses on the courthouse steps. The best deals will be those you’ll make with collaborators, business partners. And you have to be willing to treat them as such.
Here I submit as an exhibit an important incident from the long and complicated relationship between Apple and Microsoft.
Walter Isaacson, in his recent biography of the late Steve Jobs, writes that in 1997, after the Apple board fired CEO Gilbert Amelio, as Jobs was still engineering his own comeback, Jobs called Bill Gates to talk about outstanding intellectual property issues. Jobs offered a settlement of Apples’ claims in return for a cash infusion and a promise that Microsoft would continue to make software for the Mac.
Jobs reportedly said, “If we kept up our lawsuits, a few years from now we could win a billion-dollar patent suit. You know it, and I know it. But Apple’s not going to survive that long if we’re at war.”
Jobs’ judgment is confirmed – not only by the subsequent successes of Apple – but by the bankruptcy of Kodak. Kodak did keep up the war against the various companies it thought had stolen its IP. But that sort of obstinacy requires a time horizon, as Jobs said, of “a few years,” and Kodak didn’t have that time.
It will be intriguing to follow developments and see what happens to Kodak down the road. If you believe that the only value it possesses is the value of that patent portfolio, then you will probably expect liquidation, not reorganization. But if you believe it may yet build upon its famous brand and become a player in the very competitive commercial printing business, then you’ll expect reorganization.
Personally, I'm hoping for reorganization and later success, though I'm wary of my own Kodachrome sentimentaility.
