Bankrupt Kodak sells off patents to investors for $525M | Hacker News Reader

Bankrupt Kodak sells off patents to investors for $525M

bbc.co.uk

50 pointsdan123449 comments

IV and RPX are so-called "patent aggregators" which dedicate themselves to buying and then licensing out patent rights.

should be:

IV and RPX are so-called "patent trolls" which dedicate themselves to buying patents and then extorting money from genuine innovators while creating zero value themselves.

Exactly what I thought when I read that.

The value created by IV and RPX in this situation is of the same character as the value created by any transactionary middle-man: they create liquidity. They enable "genuine innovators" to quickly cash out their invention in a single transaction instead of either litigating themselves, or waiting to sell the patents piecemeal to someone who will "actually use them." In this case, Kodak isn't going to continue as an ongoing entity. It's better for Kodak, the original inventors, to sell the patent to an aggregator than to drag out the bankruptcy selling the patent portfolio piecemeal to companies that will "actually use it." In turn, IV and RPX aren't doing anything Kodak, the original inventors, couldn't already do. They are just taking advantage of Kodak's need for expediency, hoping to make a profit on the discount Kodak is willing to take in order to complete the transaction quickly.

Also, the use of the phrase "genuine innovator" is more than a bit editorial. Who is to say that they aren't just opportunists seeking to take advantage of the fact that Kodak can no longer practically enforce its rights? Kodak isn't a software company--the probability that IV and RPX will just be going after "innocent" third parties that just happened to stumble on the same invention is lower than it would be in say the software patent context.

Their patents are ideas, though--I can't imagine something with much more liquidity. Better to have simply found some way of assigning the patents to the public domain or somesuch.

How can you do much better for improving business than releasing the things to everyone to try and build a business on, instead of having to license or fight in court?

First, you can't just ignore the fact that the quick sale of the patents helps Kodak's pay off its creditors, etc. Facilitating that transaction has a certain value. Second, you can't just look at the situation post-facto. Kodak spent billions on research over the years, partly in reliance on the fact that it would book the resulting patents as assets. Simply assigning them to the public domain upon Kodak's dissolution doesn't protect that reliance.

We can have an argument about whether treating ideas as property creates value, but that's a separate argument. Once you decide to treat ideas as property, then as with any other kind of property there is a value created by entities that facilitate transactions of that property.

Those problems are the creditors' problems, and it matters not a hoot in hell how many billions Kodak spent previously--look where they are now. Better to make the world a better place than try and help some creditors recoup a percent of their investment.

EDIT: It doesn't matter to anyone who isn't on the Kodak board or a creditor that those patents aren't being wrung out for every penny they're worth. Let's not pretend that to everyone else in the market free access to those ideas wouldn't be somehow a preferable state of affairs.

None of your points are relevant to the issue at hand, which is that if you are going to treat patents as property, then entities that don't actually use that property directly, but exist to facilitate transactions regarding that property, have a place in the market.

There is a whole debate about whether you should treat patents as property, but I'm not really interested in getting into that debate in this thread.

If you aren't interested in the patents/ideas-as-property debate, my objections/observations here carry without complain. You haven't explained how, exactly, my points are incorrect--do you disagree that everyone would be better off if these patents unencumbered were available?

Entertain the assumption that patents as property is the right way to go. In that case, no, it is not better if the patents are simply freed up for the world to use in the case of bankruptcy. Companies count on being able to sell their patent portfolio if things go south, just like with any other asset. If the rules were such that the property right disappears as soon as the inventor stops being able to produce products based on the patents, then the patents become much more ephemeral property rights, and the incentive to invest in patents is reduced, because businesses don't like to deal with fragile rights.

I'll use a concrete example. I used to work for a startup where the only thing we really did was develop technology. We protected our technology with patents. We had no interest in getting mired in competing with big companies in producing actual products, because that wasn't a game we could win--whoever had the best supply chain/cheapest Chinese labor would win that battle. In the case of that company, if dissolution of the business meant losing the patents to the public domain instead of being able to sell them off, then we would have been very hestitant to invest in the technology in the first place. It would have meant that if we couldn't go forward as a successful business, we couldn't just sell off our assets and cut our losses. Rather, we would have done years of research with nothing to show for it. From a business point of view, there is a lot of value in being able to treat a patent like any other piece of property, which you can buy, sell, leverage in bankruptcy, etc.

You can't just consider the case where good patents get put into the public domain. You have to balance that against all the cases where people don't invest in technology because they consider the resulting patents too fragile. And I know on HN people develop technology just for the thrill of it (in their free time no less), but in most of the engineering field technology development is extremely capital intensive, and reducing the value of patents by making them ephemeral would discourage R&D investment.

Yes, but in assigning the patents to public domain, Kodak would have received on the order of $0.

(What rayiner said).

What's wrong with that? They failed to monetize their innovation now the rest of the market should have a chance.

It's their duty to shareholders and investors to return as much money as they can. No one would claim that they should give their factories and office furniture to the "Public Domain". They are going to liquidate that stuff.

Why would patents be different?

Factories and chairs have intrinsic value, and perform their duties as well as can be expected irrespective of the user if operated properly.

An idea or patent is utterly worthless without execution; a chair in the hands of a dullard or genius functions the same way.

This seems to be an arbitrary limitation you are applying. Most specialized machinery requires highly-skilled workers. They are effectively useless without the right person operating (executing) the machinery.

Regardless, my original point still stands: it is their duty to return as much money as they can to shareholders/investors. Someone is willing to buy their patent portfolio, therefore they are selling it.

Why are you trying to assign morals to something as simple as an exchange of assets in a market?

(This isn't arguing for or against the idea of patenting these technologies...that's a different can of worms. But as it stands, they A) have patents and B) are capable of selling said patents.)

  An idea or patent is utterly worthless without execution

No it's not. In this case it's worth $525m. Clearly other people assign value to them, even if you don't.

Worthless to society, not worthless to lawyers who will sue people doing useful work.

In a world where ideas weren't patentable, they'd be worthless. For better or worse, the current US system says that ideas don't have to be executed in order for patents to be granted. Patents are valuable only because the current system says they are.

Liquidity in the patent market isn't the issue. Building tangible things and pushing forward the pace of innovation is. Kodak would still innovate without the ability to liquidate their patent library during bankruptcy. Is the reduced risk to investors really worth having technology hoarded by non-practicing entities?

That's like saying we should assign real estate to the public domain on bankruptcy, because people will still develop land even if the can't liquidate that real estate in bankruptcy.

That's a poor example. Patents are almost always way more broad (and far-reaching) than real estate holdings.

Intellectual property is not the same thing as physical property. They serve entirely different purposes.

The point is that "Kodak would still innovate without the ability to liquidate patents in bankruptcy" isn't any more or less true when it comes to patents than when it comes to any other kind of property, because the mecahnism is the same, even if the purposes underlying the two kinds of property are different.

Patents expire. The ownership of your house does not. We already have different rules for governing each.

This is why, as an employee, you shouldn't buy a company's line on defensive patenting. Heartfelt as it may be, if the company's financials ever go sufficiently south, none of that will count for anything, least of all in the event of outright bankruptcy when vultures come to pick apart the corpse. This argument applies with proportionately greater force to businesses whose survival odds are slim. Like startups.

Why do you say "as an employee"? I understand the rest of your comment without that clause.

Because a dilemma often faced by programmers is that their employers want to patent their ideas for defensive reasons. It's a situation in which you as an employee might have leverage, so your stance isn't mere armchair ideology.

Do you think that twitter's innovators patent agreement fails at addressing your concerns about defensive patents?

> The Innovators Patent Agreement (IPA) is a new way to do patent assignment that keeps control in the hands of engineers and designers. It is a commitment from a company to its employees that patents can only be used for defensive purposes. The company will not use the patents in offensive litigation without the permission of the inventors. This control flows with the patents, so if the company sells the patents to others, the assignee can only use the patents as the inventor intended.

And the agreement text:

https://github.com/twitter/innovators-patent-agreement/blob/...

That looks like a great initiative!

My biggest concern is how individual employees are supposed to enforce this kind of agreement if the patent owner reneges. A random programmer is not going to have the financial means or a strong enough incentive to pursue violations.

Why do patents need to be transferable at all? The whole idea is to give the inventor time to bring her invention to market. Once the original innovator is out of the picture, what’s the point to granting a monopoly on the technology?

Because it facilitates division of labor, and competition based on competitive advantage. A product is more than just one piece of technology, and inventors should be focused on technology, instead of getting mired up in everything that is involved in developing a product.

If a friend and I invent something, it's in both our interests to assign it to a company we own, rather than trying to figure out which "half" he owns and I own, or if we own it in joint, or any other a thousand other crazy ways.

Or, what rayiner said.

So what mistakes did they make? It's obvious they are some sort of textbook case of failing to adjust to change in technology. There was a time when Kodak was synonymous with photography. Sad.

Their entire business model was based on selling film canisters at outrageous prices, so they didn't want to pursue digital cameras, since it would cannibalize their primary revenue source. The execs probably comforted themselves by saying that digital cameras would never become as cheap, as good, or as easy to use as film, yada yada yada. And while they were sitting on their hands, Sony, Nikon, and Canon ate their lunch.

Many people attribute this to "the innovator's dilemma" [1] - Kodak had a lead in digital camera technology, but they weren't as enthusiastic as they should have been to push digital as it would have made their chemical photography business obsolete.

When you've got a big, profitable film business, lots of film business employees and factories and machines, people right up to the boardroom who have dedicated their lives to building up the film business, and lots of customers like photo development firms who are saying they think film is just great - it's difficult to decide to consign all that to the scrap heap.

And by the time you don't have a profitable film business any more, you've lost the headstart you once had.

[1] https://www.google.co.uk/search?q=innovators+dilemma+kodak

The idea of cannibalizing your existing business is always one that seems to drive business leaders crazy. But I've always looked at it this way, if you aren't going to cannibalize your own business, a competitor will. Only when it happens, you'll be out of business instead of still up and running.

In the startup world I think we'd say that Kodak failed to pivot. I've seen a great many mature company lose their way when it comes to pivoting into a new and obvious line of business that will probably one day kill off their old business. But some manage to do it pretty well. I'd probably give the obvious example of Apple effectively killing a lot of their iPod business with the iPhone, but they weren't scared and proceeded to grow their business into entire new territories that way (while also getting their old customers to give them more money to upgrade to an iPhone).

But another example might be IBM. IBM sold typewriters and other mechanical office machines, and even though the advent of computers would eventually kill off that entire industry, they managed to turn into a computer company and then into a services company and are doing quite well.

There's others, but I think the main lesson to be learned from this is that you shouldn't be afraid to cannibalize yourself if you do it right. Kodak should own the digital imaging business by now. Everything from their own consumer cameras to the optics and sensors used in every mobile phone sold should have been theres. But they proceeded out of fear and this is where they've ended up.

Yes, I've heard a (possibly fictional) quote attributed to Sony president Akio Morita: "My job is to make our products obsolete before our competitors do"

Of course, I'm sure an ipod factory/engineering team/customer base could switch to the iphone more easily than a chemical film factory/engineering team/customer base could switch to digital sensors - so I'd be hard pressed to claim I could have done a better job of managing Kodak!

I've heard a (possibly fictional) quote attributed to Sony president Akio Morita: "My job is to make our products obsolete before our competitors do"

Fictional or not, that's a great quote; bookmarked.

They actually invented digital cameras. But fundamentally, they were a chemical company. They simply couldn't adjust to the new business model that digital cameras introduced. In fact, they didn't want to, until it was too late.

> "It's obvious they are some sort of textbook case of failing to adjust to change in technology."

I don't think that's obvious at all. Kodak I think is more of a story of distracted noncommittal execution combined with the standard woes of dramatically changing the primary competency of a large company to something entirely different.

Contrary to popular belief, Kodak didn't stick its head in the sand while digital ate the world - they were there right at the beginning.

Kodak literally invented the digital camera in 1975, though obviously it was wildly impractical at the time. More importantly, they were first to market with a DSLR all the way back in 1993: http://en.wikipedia.org/wiki/Kodak_DCS_100

Yeah, get a load of that backpack you needed to carry ;)

They continued releasing DSLRs until 2004, when they were obviously hopelessly outgunned by Canon and Nikon.

Beyond cameras, they were, for a long time, the only people working on digital sensors at all (besides Canon), and they supplied many of Canon's competitors. The sensors themselves were no slouches technically either - they were highly competitive for their time. Perhaps most famously, Kodak supplied the sensors in the Leica M8 and M9, both of which were known at the time for their incredible image quality, and optical achievement (i.e. microlensing to reduce the flange-focal distance). In fact, for a short time Kodak supplied Canon themselves.

OEMs abandoned Kodak in droves only in the last few years, when their financial troubles made the prospect of building an entire product around their sensors questionable. This, obviously, did no favors for Kodak. The rise of other medium format sensor companies also ate their top end market for lunch - Phase One and Leaf (now Mamiya-Leaf) being most notable.

So all of this sounds pretty rosy, so why did Kodak die? It's really hard to say. I suspect a large part of the problem was that becoming the world's digital imaging sensor vendor would not have financially supported a company the size of Kodak, even if they had committed to that path, and the company was loathe to downsize and reorganize the workforce to something that they would barely recognize.

So they branched into many other lines of business that were, even at the time, poor bets. They targeted low-margin markets (HP style!) and went hardcore into digital photo frames and various cheapo consumer knick-knacks that you might find at Sharper Image. IMO this was a large distraction that never should have been pursued in the first place. They even tried to copy HP by going in on the printer-ink business. That failed too.

Their stance in the digital imaging aspect of their business was always a bit noncommittal. IMO Kodak would have survived if they trimmed their business down and became the image sensor R&D company of the world. Their work force was too large and committed to the wrong lines of business all the way to the end.

Interesting note: Kodak's film business is actually profitable.

> It's really hard to say.

I think most folks here have missed it so far: They had shitty management. For god's sake, they hired Pat Russo as President and COO. Hilariously, Lucent hired her back as CEO; her performance was so miserable that Lucent had to sell itself (Alcatel bought it).

Let me repeat that: Kodak installed a top-level person who later killed a company that invented the transistor, solid-state laser, Unix, and information theory.

In another anecdote: Through a circuitous route, I got involved with a presentation to George Fisher (Kodak CEO) around 1996. They were looking for how to allot their $400M research budget between old-fashioned silver-halide films and digital photography.

Suffice to say: They absolutely saw the writing on the wall and were pouring money into the digital imaging revolution. They had very serious engineering talent, which brings me to my original point: Their management sucked.

Edit: Search for Kodak on the list of all-time worst CEOs here: http://www.businessinsider.com/the-worst-ceos-in-american-hi...

(Side note: Guess who is Lead Director of the Board at GM? Just how badly do you need to fuck up in the corner office before people go find someone good?)

What do you think of their future chances of succeeding with printing will be? Is film profitable enough for them to stick with it?

The "sell them a cheapass printer and bilk them on ink" model I don't think really works for anyone, not even the companies that have a firm foot in the space like HP. Photo printing in particular I just don't see as a viable mass-market product anymore

There's no sense keeping a big photo printer in your home, stock it with (expensive) paper and (even more expensive) ink considering most people don't print that many pictures.

When they need to, the local Walgreens will have a kiosk that will put the pricing of maintaining a home printer to shame. The quality will be better too.

It's a fundamental shift in the way we use photography - people used to go and get entire rolls of film printed as a matter of course, but nowadays consumption is almost entirely digital.

> "Is film profitable enough for them to stick with it?"

Every impression I've gotten from Kodak is that they're looking to sell the division. As a film user my fear is whoever buys it will shut it down and keep the IP. Or worse, buy the brand names and stick them on unrelated merchandise.

It's also where traditional print media is failing. Rather than embrace the digital age of publishing, they've used digital as a crutch to prop up print.

Love or hate Apple, they aren't afraid to cannibalize themselves in order to progress. The iPod-killer everyone was waiting for came in the form of the iPhone, and iPads have overtaken Mac sales.

Not sure who said it exactly, maybe Marco, Gruber, John Siracusa or someone else, but one of them made a comment that disruption rarely comes from big players (entrenched players), but from the small-time players/ newcomers. Even though Apple was a big company, they were new to the cell phone market. Like it or not, the iPhone disrupted the entire smartphone/ cellphone industry. We're all better off because of it.

I use their medical imaging software daily, and its so awful. It requires IE6 and is a bug ridden usability nightmare. I hope no one has bought this part of the company, although I suspect Carestream Health or some such crown have.

It was non-trivial for Kodak to replace the $16B in revenue they had from film. Having been a student in Rochester during Kodak's peak revenue, I have no doubt they saw digital coming, but what to do about it was less than obvious.

If Kodak could have been Adobe, Flikr, and Instagram all rolled into one, they still wouldn't have same revenue they had in the 90s. I wrote about this before here: http://baus.net/will-there-be-a-third

IV? RPX? So Google and Apple are in bed with the patent trolls now.

"Those who beat their swords into plowshares will be forced to plow for those who don't." All tech companies with deep pockets now find themselves on a battlefield with very perverse incentives enshrined in law.

The Innovators Dileamma.

As far as I am concerned, required reading for every entrepreneur, manager and executive today.

http://www.amazon.com/The-Innovators-Dilemma-Revolutionary-B...

It's bigger than that.

In the film era, they were collecting a tax on every single picture taken. What part of the digital imaging process could they have taken over that would have replaced that entire revenue stream? I'm taking 100x the pictures I took 15 years ago because the incremental cost has all but disappeared. They were doomed before they even started, and I doubt there's a management decision that could have prevented it.

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