Eastman Kodak Co. yesterday pulled out of the instant-camera business because of a protracted legal battle with rival Polaroid Corp., leaving 16.5 million owners of Kodak instant cameras without a source of film.

Kodak gave up its nine-year patent fight with Polaroid after a federal appeals court refused to lift an injunction prohibiting Kodak from making or selling instant film or cameras beginning today.

The court ruling and Kodak's decision left Polaroid in total control of the billion-dollar-a-year U.S. instant photography market. Polaroid, which pioneered instant photography by marketing the first workable camera in 1948, charged its competitor with patent infringement when Kodak brought out its own line of instant cameras and film in 1976. Last October, Polaroid had won a landmark federal court order upholding its patents and barring Rochester, N.Y.-based Kodak from manufacturing, selling and distributing all instant cameras and film as of the close of business Jan. 8.

Asked if Polaroid would now consider making instant film for Kodak cameras, spokesman Sam Yanes replied, "We do not intend to do that . . . . We do not make film for other people's cameras."

Confronted with millions of customers whose instant Kodaks will be worthless when film supplies run out in about two months, Kodak late yesterday announced a three-option rebate program to "accommodate" its customers for the "inconvenience caused by the action."

One option for owners of the Kodak instant cameras will be to trade their cameras for one share of Eastman Kodak common stock, which closed yesterday at $48.67, down $1.37. Kodak said it also will allow its instant cameras owners their choice of either a $50 disc camera with a telephoto feature or an "instant value" rebate book of Kodak coupons worth about $50.

The company said it will take out national newspaper ads about the program and has installed a toll-free number, 1-800-792-3000, for consumers wishing to take advantage of it.

"We're delighted by" the decision by the U.S. Circuit Court of Appeals for the Federal Circuit here, said Polaroid's Yanes. "We're obviously sympathetic to their [Kodak's] customers . . . but we're the biggest victims of this. Every time Kodak sold a camera since 1976, we lost sales, profits and jobs because they were infringing our products."

Although Kodak is about 10 times the size of its rival, Polaroid controls about 75 percent of the instant-camera market, having sold 54 million instant cameras since 1976 compared with about 16.5 million by Kodak. But the two companies' products are incompatible: Polaroid film cannot be used in Kodak cameras, or vice versa. A Japanese company, Fuji Photo Film Co., has manufactured film abroad that can be used in Kodak cameras, but it is not available in the United States.

Officially, yesterday's ruling merely rejected Kodak's request for a delay in the effective date of the injunction; the company still could prevail on its separate appeal to have the injunction overturned later. But Kodak Chairman Colby H. Chandler had said in court papers filed last fall that, if the injunction were to take effect even temporarily, "it will so disrupt Kodak's instant-photography business that it will not re-enter" the market.

Company officials had contended in court papers that the injunction would cost hundreds of jobs, idle about $200 million in plant and equipment and do "irreparable harm to Kodak's reputation and image." The rebate program alone is expected to cost the company more than $100 million, according to one industry estimate.

But Kodak's problems are far from over. As part of the complex litigation, there will be a separate trial for damages; Polaroid contends that the alleged patent infringements were "willful," thereby entitling it to damages amounting to three times the value of its economic losses. Eugene Glazer, a photography industry analyst with Dean Witter Reynolds Inc., said Polaroid likely will seek damages of between $1 billion and $2 billion.

The fight dates back to 1972 when Polaroid introduced its current generation of instant cameras known then as the SX-70 -- a totally automatic, motorized unit in which the film develops within minutes and then ejects from the camera. Four years later, Kodak came out with a camera that performed similarly, called the EK-4 and EK-6. Polaroid immediately filed a lawsuit claiming that Kodak had infringed on 10 Polaroid patents, including several held by Edwin H. Land, the company's legendary founder who personally holds more patents registered with the U.S. Patent Office than any other inventor except Thomas A. Edison.

In lengthy court testimony, Polaroid charged that Kodak's cameras were "reverse engineered," meaning that Kodak developed its own version by starting with Polaroid cameras and taking them apart. But Kodak consistently has denied the allegations and contended that its entry into the instant-camera market was done "carefully and well," even though Polaroid was "heavily fortified by layers of patents."