Apple & Creative settle: Apple pays $100M for ‘Zen’ patent, Creative plans iPod accessories

Apple and Creative Technology, Ltd. today announced a broad settlement ending all legal disputes between the two companies. Apple will pay Creative $100 million for a paid-up license to use Creative’s recently awarded patent in all Apple products. Apple can recoup a portion of its payment if Creative is successful in licensing this patent to others. In addition, the companies announced that Creative has joined Apple’s ‘Made for iPod’ program and will be announcing their own iPod accessory products later this year.

“Creative is very fortunate to have been granted this early patent,” said Steve Jobs, Apple’s CEO in the press release. “This settlement resolves all of our differences with Creative, including the five lawsuits currently pending between the companies, and removes the uncertainty and distraction of prolonged litigation.”

“We’re very pleased to have reached an amicable settlement with Apple and to have opened up significant new opportunities for Creative,” said Sim Wong Hoo, chairman and CEO of Creative, in the press release. “Apple has built a huge ecosystem for its iPod and with our upcoming participation in the Made for iPod program we are very excited about this new market opportunity for our speaker systems, our just-introduced line of earphones and headphones, and our future family of X-Fi audio enhancement products. We expect that the one-time licensing payment of $100 million will contribute approximately $.85 of earnings per share to our current quarter, ending September 30, 2006.”

“It was unclear whether Creative would continue to make its own Zen line of digital music players, which compete with the iPod. If so, the move would mark one of the first times that a company had both been a partner and competitor with Apple in the digital music space,” Troy Wolverton reports for TheStreet.com.

Wolverton reports, “Apple spokesman Steve Dowling directed questions about Creative’s plans for the Zen and its iPod accessories to Creative. A Creative representative did not return a call seeking comment.”

“Although Apple will be out $100 million for the license, the company may be getting some of that back. As part of the deal, Creative agreed to return some of that money to Apple if it is successful licensing its patent to other companies,” Wolverton reports. “Apple did not say how the deal might affect its current-quarter results, but the settlement amount is equivalent to about 11 cents a share, given the company’s diluted share count at the end of its most recent quarter.”

Full article here.

[UPDATE: 6:33pm EDT: Added quotes from TheStreet.com.]
And so ends the war, not with a bang, but with a whimper from Apple’s petty cash drawer (or a nice fat check from Creative’s point of view). So, excellent news all around! Many had expected just such a settlement and some – including us, as recently as August 11, 2006, though mostly tongue-in-cheek – had suggested Creative make iPod accessories instead of continuing to bleed money trying to make and sell iPod also-rans. Don’t be too surprised if Creative’s MP3 player-making days soon come to an end; that may have already happened unofficially today.

Oh, yeah: Microsoft had better make sure that their Zune interface doesn’t infringe on Creative’s patent. wink

Notes: Apple Computer Inc. continued to lead the U.S. digital music player market in the second quarter with a 75.6% share, according to the NPD Group. Creative was third with 4.3%, following SanDisk’s 9.7%. For its third fiscal quarter ended July 1, 2006, Apple generated $1.954 billion in iPod and iTunes Music Store sales, iPod services, and Apple-branded and third-party iPod accessories.

[UPDATE: 7:12pm EDT: Added Microsoft Zune and Notes portion to the Take.]

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97 Comments

  1. Wow! I know Apple has 9 billion in the bank or whatever but I didn’t think they would cough up this kind of cash. Creative must have actually had a real case here for Apple to back down.

    On the other hand, it’s sounds like Creative finally wised up and realized, that patent or no, they weren’t going to even make a pinprick in Apple iPod business. So take the money and get in bed with Apple and start cranking out iPod accessories.

  2. I think that the iPod accessories announcement is a sretty strong sign that the Creative is going to drop their own players. Competing in this market is costing them too much in marketing expenses (and inventory writeoffs when the units dont sell)

  3. I guess they were afraid of litigation going on forever.

    I think Apple is being generous here. It gives Creative the chance to make money because after the iPod and the Zune coming up there won’t be much market for them.

  4. I agree with MDN take. With all the pressure Apple is under with NASDAQ delisting threat (pay attention to this, it’s not nothing), disappointing Intel first edition machinery, and a very, very weak new cat (so far), Apple needs to get some breathing room and work on quality, performance improvements and customer care.

  5. BOYCOTT CREATIVE

    Don’t buy their stuff, they will spend millions of dollars to make absolute junk that will ruin any iPod stuck in them. Creative don’t play nice.

    There is a company called 3DLabs which Creative owns, they make awesome and affordable 3D rendering video cards, but won’t make any for Mac’s.

    For many years Mac users have begged the company to make cards for Mac’s because rendering on the Mac’s suffered compared to their PC versions.

    3DLabs wrote nasty emails back to Mac users telling them to get a Windows PC and that the Mac “was dead” and that the parent company (Creative) hates Apple, see’s them as a competitior and will not associate with Apple or it’s products.

    CREATIVE IS NO FRIEND OF MAC USERS.

    BOYCOTT CREATIVE

  6. This was a savvy move on the part of his-Jobness. There’s no “moral highground” to be awarded here so, pay Creative royalties, let them make iPod accessories and watch their branded players vanish from the marketplace. This is win win as far as I can tell. Hopefully we’ll see some cool accessories come out of Creative’s camp and Apple can focus on the next generation of kick ass stuff.

  7. Wow, I’m shocked that Apple paid so much! In fact, I’m shocked Apple paid at all! I thought that Apple had a strong case that heirarchical menus applied to music players was not a patentable process.

    I guess that works out to $2 an iPod. Pretty sweet deal for Creative, seems to me.

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