We Have The Patents, You Do The Rest

Eastman Kodak Company EK came up with the slogan, "You press the button, we do the rest" hundreds of years ago when the company first started. Now it looks like the company's patents are all it has left, and according to Bloomberg, those patents may be extremely valuable. The company had previously discussed selling its patents, but now a valuation done by MDB Capital Group shows that Eastman Kodak's patents could be worth $10 per share to the right owner. The patents themselves could be worth as much as five times more than the business itself, as the race for patent acquisition heats up. Kodak, which once had a market value of more than $30 billion, has fallen 98% from its peak levels. After today's 20% pop, the company is still only worth a little less than $700 million. After Google GOOG announced it would be buying Motorola Mobility MMI for its patents, patents have suddenly jumped to the forefront and companies are trying to acquired them to protect themselves from litigation. Kodak's patents are used in 85% of digital cameras and smartphones, according to Rafferty Capital Markets LLC. Kodak is currently in litigation with Apple AAPL and Research in Motion RIMM over some of the patents being used. A sale of these patents would help fund the $1.2 billion pension shortfall that Kodak has, and give a company like Apple, RIM, Samsung or someone else a leg on up on its competitors. “Kodak is the lowest hanging fruit out there,” Chris Marlett, chief executive officer at MDB Capital, said in a telephone interview to Bloomberg. Kodak's patents “could go for a huge number and nobody's talking about it,” he said. Since the purchase of Motorola Mobility by Google, the Nortel patent auction, and the announcement by Kodak last month, patents have become the latest and greatest bull market. Names like InterDigital, Inc. IDCC and Nokia NOK are now getting boosts to their market caps because of the vast patent portfolios these companies have. Intellectual property has long been considered a valuable asset, but nobody really counted it because it is extremely hard to value. That line of thinking appears to be ending. “You cannot go to market today with a mobile device that doesn't have the ability to capture an image and transport it” and Kodak has the patents, said Rafferty analyst Mark Kaufman, in a phone interview with Bloomberg. “If you were to be an acquirer of this, think about what your leverage may be against those other manufacturers out there using the Android.” CEO Antonio Perez is going to feel pressure to do something with this patent portfolio, and if that means selling out, take a picture and mail it in. ACTION ITEMS:

Bullish:
Traders who believe that Kodak will do something with its patent portfolio might want to consider the following trades:

• Go long Kodak. Even if the patent portfolio is worth only two or three times the current value of the company, it is still a massive move from these levels.

• Also consider other patent plays, like InterDigital.

Bearish:
Traders who believe that Kodak will ultimately fail to sell its patents may consider alternate positions:

• CDS traders are betting that Kodak is going to default, even if the patents are sold. That could mean a short the stock scenario even if the patents are sold.
  
  

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