Apple settles with Creative for $100 million

Companies end legal disputes after Apple agrees to license Creative patent for music player interface.

Apple Computer and Creative Technology have agreed to settle their legal dispute over music player patents for $100 million, the companies announced Wednesday.

The $100 million, to be paid by Apple, grants Apple a license to a Creative patent for the hierarchical user interface used in that company's Zen music players. After months of hinting that it would be coming after rival music player companies, Creative sued Apple in May, claiming the iPod maker was infringing on its patents.

A week later, Apple countersued, claiming Creative was infringing on Apple patents for user interfaces. As a result of the settlement, all legal disputes between the two companies related to the patent will disappear. Creative had also asked the International Trade Commission to investigate Apple for patent infringement.

The patent covers an interface that lets users navigate through a tree of expanding options, such as selecting an artist, then a particular album by that artist, then a specific song from that album, said Phil O'Shaughnessy, a Creative spokesman. The patent applies to portable media players, which includes devices like the iPod or cell phones that have the ability to play music, he said. Creative filed for the patent on Jan. 5, 2001.

Apple can get back some of the $100 million payment if Creative is able to secure licensing deals with other MP3 player manufacturers, said Steve Dowling, an Apple spokesman. He declined to specify exactly how much Apple could recoup or how many deals it would take to trigger the payments.

Under U.S. patent law, the first inventor to file a patent generally holds the rights to that technology, said Rod Thompson, an intellectual property lawyer with Farella Braun and Martell in San Francisco. This isn't always the case, as another inventor can attempt to prove that they were working on the invention before the other inventor filed for a patent, but that's a long, expensive legal process with no certainties, he said.

"This had the makings of a big battle, because the stakes are so high," Thompson said. Apple obviously couldn't afford to have an injunction slapped on imports of the iPod, and $100 million is a pittance compared to the $1.5 billion in revenue Apple garnered on iPod sales just in the last quarter, he said.

"Creative is very fortunate to have been granted this early patent," Apple's CEO Steve Jobs said in a press release. Apple was eager to move beyond the legal dispute caused by the patent, which could have eventually cost the company as much as the $100 million settlement amount, Dowling said.

"We're very pleased to have reached a broad agreement with Apple," O'Shaughnessy said. Creative plans to speak with other MP3 player companies about its patent, he said, but is not providing details on whether it has entered discussions with other companies.

As part of the agreement, Creative will also enter Apple's program as an authorized seller of iPod accessories. Creative will be able to affix the "Made for iPod" logo to its speakers, headphones and other related products, O'Shaughnessy said.

Creative is one of many companies attempting to chip away at Apple's runaway lead in the market for portable MP3 players. Its Zen products haven't translated into profits, however: Earlier this month, Creative reported a $12.7 million loss on slowing sales for its fourth quarter. The company expects the $100 million settlement to add 85 cents to its earnings per share figures for its current quarter.

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