A Sad Kodak Moment

Over the holidays I got a little tour of the Eastman Chemical Company in Kingsport, Tennessee.  Visiting industrial settings is one of the cool things I like to do when I can; I’m sure my kids remember visiting a “wind mill cemetery” east of San Francisco, where it seems every experimental windmill imaginable had been mothballed.  I thought it was awesome, but they really really wanted to visit Marine World instead.  Oh well, you can lead a horse to water . . . . Anyway, this particular tour was being given by my wife’s parents, Bill and Mary Nelle Roberson.  Both are chemists, and Bill was employed by Eastman Kodak Company from 1948 to 1986 as an analytical chemist, with time out to take advantage of the GI Bill to learn chemistry.  He retired in 1986, before Eastman Chemical Company separated from Eastman Kodak Company in 1993.  Over his long career there, he worked in several divisions: Organic Chemicals, Tenite (thermoplastics), and Polymers. As we drove over the Holston River, Bill showed me where many many acres of logs used to be stacked up as a source of CELLULOSE.  Without cellulose, Kodak would not have existed at all.  Or photography as we know it.  More on this later. After Eastman Chemical Company and Eastman Kodak Company went their separate ways, Eastman Chemical went on to become a successful Fortune 500 company.  However, the seeds of Kodak’s demise had already been planted, though this was not obvious to anyone at the time—unless you believed in digital photography in those days. Along the east side of the industrial site were dozens and dozens of train cars filled with coal.  In 1983 Eastman Kodak Company, in response to the 1970’s oil embargo, pioneered the use of coal rather than oil to produce a syngas [carbon monoxide, hydrogen, carbon dioxide, and water], which became the feed stock for producing the many chemicals used in the original film business, and now for making many other compounds. What is now the “Chemicals from Coal Facility” became a National Historic Chemical Landmark in 1995, and it is a wonder of coal utilization.  It recovers 99.7% of the sulfur generated from the coal, producing sulfuric acid, which is then sold to the sulfuric acid industry.  Excess carbon dioxide is sold for use in carbonated beverages.  Think about that next time you enjoy a soda fizz—you may be drinking carbon from coal. The kind of imagination and innovation required to develop the first syngas-to-chemicals facility is only one example of the many innovations created by Kodak. Its founder, George Eastman, literally started the whole field of amateur photography, beginning with his first patents (look them up!): U.S. Patent 226,503 "Method and Apparatus for Coating Plates" (April 18809; U.S. Patent 306,470 "Photographic Film" (October, 1884); U.S. Patent 306,594 "Photographic Film" (October 1884); U.S. Patent 317,049 (with William H. Walker) "Roll Holder for Photographic Films" (May 1885); U.S. Patent 388,850 "Camera" (September, 1888).  Previously photos were taken on “dry plates”; Eastman INVENTED roll film—the drawings in his patents look like the roll film you can still buy today (not that I can understand why you would!). In the midst of this flurry of innovation, he started the Eastman Dry Plate and Film Company in 1884, and in 1888 he coined the name “Kodak” and started producing the first cameras for mass consumption ("You press the button, we do the rest.").  The rest, as they say, is history. And central to the history of roll film is cellulose.  Cellulose makes up about 30% of wood, or of any plant material for that matter.  It turns out that cellulose is pretty interesting stuff.  Its uses range from explosives to cellophane to nitroglycerine to roll film. Although cellulose was first discovered in 1838, six years earlier in 1832 it was found that if you treat cloth with nitric acid you get nitrocellulose.  And from nitrocellulose many products could be made—the first being explosive “gun cotton” (Jules Verne used gun cotton to blast his fictional space ship to the moon in 1865).   In 1846 a mixture of nitrocellulose, ether and ethanol was used to make Collodion, the first “wet plate” photography.  In 1862 cellulose was converted into the first plastic (celluloid) by treating it with nitric acid and camphor. But it was nitrocellulose that was used by Kodak in 1889 to serve as the roll film “base” on which the film industry really got started.  Here the story gets a little murky.  In the 1884 patents I cited above, Eastman’s roll film inventions consisted of gelatin on a paper base.  In 1898 a man named Hannibal Goodman got a patent (U.S. Patent 610,861) on using nitrocellulose to make a flexible, transparent, “plastic” base.  He filed for a patent in 1887—and it took 11 years for it to issue.  Now, who invented what and when must be a very interesting story, and how George Eastman found out about the nitrocellulose patent would itself be fascinating, but in 1905 Eastman was ordered to pay $5 million for infringing Goodman’s 1898 patent (about $100 million today).  By that time Goodman’s patent was owned by a company called Ansco that was also in the photography business.  But the $5 million paid to Ansco was not enough to enable it to compete with the Kodak behemoth. All this is relevant to the story because the chemical industry was central to Kodak’s business; by the time Eastman Kodak separated from Eastman Chemical in 1993, Eastman Chemical was producing a wide range of chemicals and cellulosic thermoplastics (Tenite).  But Kodak had started its decline. It is too bad that Kodak spun off Eastman Chemical, because if they kept it maybe Kodak wouldn’t be in the terrible fix it is in today.  But I’m sure Eastman Chemical is just as happy they did; Eastman Chemical has gone on to be profitable, while Kodak has not. The high-water mark for Kodak may have been in the 1970’s— in 1976 it had 90% of film sales and 80% of camera sales.  Then, in a serious miscalculation of consumer fidelity, it started to lose ground to Fujifilm.  In an equally serious miscalculation concerning the future of digital photography, it failed to follow up on its INVENTION of the first digital camera in 1978.  Kodak thought that film was king and would be forever.  This decision is seen as one of the greatest commercialization blunders of all time.  I can remember talking with a Kodak Vice President in the late 1980’s, and when I asked about the future of digital photography, he said that Kodak was confident digital would not compete with film. Picture this:  You are Steven Sasson, an electrical engineer in the 1970s, working for a huge company, Kodak, which makes all of its money on chemicals, film, and cameras.  Your colleagues are probably wondering why Kodak hired you.  You have this hair-brained notion that images can be captured electronically and that the capture device could be sold as a commercial camera.  After all, NASA made digital images of the moon landing and sent them back to earth in the 1960s.  You come up with an electronic contraption that weighs 8 pounds, is the size of two toasters stacked on top of each other, and can take a low resolution (0.01 megapixel) black and white image that is stored on a digital cassette tape.  It takes 23 seconds to record a single image and another 23 seconds to display that image on a TV.  In 1978 you obtain U.S. Patent 4,131,919, titled “Electronic still camera.”  Since Kodak at the time is making huge profits on film, it makes the fatal decision to NOT pursue commercialization of this invention because it doesn’t want to create competition for its film business.  And how could this new invention compete with Kodachrome, anyway?  How do you convince corporate managers to take a risk on this primitive black and white technology when your film business is so huge that there is a state park (Kodachrome Basin, Utah) named after it?  Tough sell.  Sorry Sasson, your patent is not a “strategic fit.” But, even though Kodak was awarded the patent, it was published for all the world to see, as are all patents.  Patents are not secret, and inventors in other companies read this one with interest.  They started making improvements and filing patent applications of their own.  Canon obtained patents in 1981, 1982, 1983 with titles such as “High speed image recording system,” “Image recording system,” and “Video camera and recorder.”  Nippon obtained patents in 1983 and 1984 titled “Electronic photographic camera” and “electronic camera.”  In 1985 Fuji obtained a patent titled “Image reproducing apparatus.”  Sony obtained a patent titled “Solid state image pickup apparatus.”  Today more than 100 issued patents from leading digital companies reference the original Eastman Kodak patent, even as recently as 2011. The lesson here is clear: making an invention is one thing, making money on it is another.  A lot more goes into making money on technology than just making the first invention—aggressive marketing and advertisement, timing of market entrance, capital investment, scale-up, making improvements on your initial inventions, business imagination, and competence.  Apple Computer’s commercialization of the digital interface invented by Xerox but commercially imagined by Steve Jobs is an excellent example. But Kodak did try.  It went on to obtain 100’s of patents in digital photography, web handling of photos, printing, and digital color technology.  It commercialized dozens of digital products from cameras to printers to kiosks in every Walgreens. But its business continued to fail, and in 2004 it was removed from the Dow Jones Index after 74 years.  Its stock fell from $94/share in 1997 to $0.76/share in 2012.  It declared bankruptcy in 2012. Well, what a fall for such a historically important and innovative company.  However, it did have a valuable asset:   a portfolio of 1,100 patents.  The company thought that these patents were worth $2.6 billion, but in a settlement on December 20, 2012, the marketplace said they were only worth $525 million.  This ended a legal battle in which Kodak was attempting to recover damages from companies like Apple for smartphone and tablet uses of Kodak’s technologies.  Kodak lost these battles and ultimately agreed to sell its 1,100 patents to Intellectual Ventures LLC, which has in turn has agreed to license Apple, Google, Samsung Electronics, Facebook, Amazon, Microsoft, Research in Motion (Blackberry), Adobe, Fujifilm, Huawei Technologies, HTC, and Shutterfly. A good question is why Kodak never licensed these companies itself.  Given its patent portfolio, it appears Kodak was good at innovation, but not particularly effective at commercialization of high technology, at least in the later years.  So these patents have effectively been taken out of Kodak’s hands and given to another company that may have a better chance of benefiting the public.  Intellectual Ventures LLC itself represents another U.S. innovation: a company that specializes in the aggressive commercialization of patents without itself practicing the technology .  Time will tell if Intellectual Ventures (known derisively as a “patent troll”) does any better than Kodak.  My guess is that it will. Patent trolls may be good things—to the extent that they promote the use of technologies.  Companies that sit on useful innovations run risks, and and it appears in retrospect that Kodak made the wrong decision.  I wonder what George Eastman would have said—that Kodak got what it deserved?