This week, Eastman Kodak (NYSE: EK) announced that 1,100 of its digital imaging patents were up for sale.
Why? Well, for starters, it needs the cash.
As Bloomberg pointed out, the company has reported losses in five of the past six years. Heck, even legendary investor, Bill Miller, dumped all of his Kodak shares last month after holding them for more than 10 years.
You see, selling these patents could hand Kodak as much as $3 billion, according to MDB Capital Group. That’s more than three times its market cap of $820 million.
Besides, with Nortel Networks scooping up $4.5 billion after selling its trove of patents in July, “it looked like it was the perfect time,” Kodak Chief Executive Antonio Perez says.
That makes sense. Especially since all of them are neck deep in patent disputes right now.
But if you take a closer look at what’s up for grabs, it becomes clear that Google needs to make the winning bid. Here’s why…
~ Reason #1: Google’s IP Hunt is Just Beginning
As patent litigation continues to heat up, it’s more important than ever to bulk up on intellectual property. As my colleague, Louis Basenese, said on Wednesday, “In our idea-driven global economy, if you don’t have a solid patent portfolio protecting your products, it’s only a matter of time before the competition eats your lunch.”
And while Google might be cruising in terms of smartphone marketshare, it’s sucking wind in the patent arena right now. That’s the reason it purchased 1,030 patents from IBM (NYSE: IBM) last month and acquired Motorola (NYSE: MMI) – and its 17,000 mobile-related patents – this week.
But it’s still not enough. As MDB says, “Google is really in a bad position. They’re going to have to fight like hell.”
This portfolio would be a great place to start, considering that the patents Kodak’s peddling are ranked first in the world in digital imaging.
~ Reason #2: Leverage Against Android’s Nemesis
Back in January 2010, Kodak sued Apple and Research in Motion (Nasdaq: RIMM) for infringing on an image-previewing feature in camera phones.
The International Trade Commission still hasn’t given a final verdict on the case, but Kodak won a similar case against Android partners Samsung and LG (NYSE: LPL) in 2009. The ruling generated $946 million in settlement cash for Kodak.
So purchasing Kodak’s digital-imaging patents would not only hand Google instant leverage against its strongest competitor, Apple, but also will help support its loyal Android partners.
~ Reason #3: Strategic Value Google Cannot Afford to Pass Up
One of Kodak’s most appealing digital-imaging patents is based on sending camera images over a cellular network.
And with so many people using their mobile phones as cameras, it doesn’t take a genius to see how valuable IP like that could be.
As one analyst from Rafferty Capital Markets puts it, “You cannot go to market today with a mobile device that doesn’t have the ability to capture an image and transport it.”
Case in point: According to MDB, the patent’s been cited “over 340 times. Apple alone has cited it over 100 times, Samsung over 50 times… These are the sort of patents that have strategic value.”
Not to mention, Perez recently told The Wall Street Journal that these patents could be very attractive to tablet makers as well. And Google’s still struggling to gain a foothold in this market.
Bottom line: It would be a huge mistake for Google to pass on Kodak’s imaging patent portfolio. But since The Wall Street Journal reports that one of the companies sniffing around the bid is “a large, strategic buyer in the wireless industry looking to use the patents for defensive protection,” Google is likely preparing to make its move as we speak.