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. 
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.]
Related articles:
Analyst: Apple’s relatively small settlement with Creative removes threat hanging over iPod – August 23, 2006
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How beleaguered Creative got stomped by Apple Computer – July 10, 2006
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Come on guys, let’s see it as it is. This is more like,
“Cupertino, start your copy machines”
Obviously Apple’s not immune from copying things every once in a while, so let’s not be too smug. After all, the original Mac interface was taken from Xerox (I still have my original 128k Mac from the early 80’s)
Love my Ipod and Powerbook, though.
>>>Zen, Zune, i’m confused?<<<
Zen + Zire = Zune
“hey are going to wait on the Zune platform and drop this license right away because (you guessed it) Apple’s market share is too small, and leave it at that.”
Sorry, douche, the OS market share has nothing to do with this. Good try though, douche. Further, Creative is going to spend $ to prop up Zune so that MS can beat Apple? Right. In the absence of Zune, Creative would love iPod market share to be hacked so that Zen could be competitive. However, the idea that Creative would rather bide their time waiting for Zune to kill off iPod, THEN make $ is without merit.
“fukkin lawyers”
Actually, you can blame the people that wrote the laws. Lawyers merely abide by those rules.
L,
You are misinformed. Read it from those that were there:
On Xerox, Apple and Progress – by Bruce Horn
Creative’s patent is bogus – the Mac had similar menus before Creative even existed – but Steve Jobs avoided a drawn out legal fight and instead smartly set up the winning move today by sacrificing nothing but a measly pawn.
Very interesting article – thanks for the reference, Michael. However, I don’t think it proves your point. It seems to me, the basic windowing paradigm used in the Mac would never have existed if it hadn’t been seen at Xerox Parc. Of course there would be some differences, but the windows and the mouse were the kick off points. So Apple “stood on the shoulders of giants”.
This brought back memories, though. I used to sell the Lisa in a computer retail store in the early 80’s. We also sold the original IBM PC. I can tell you that when it was quiet in the store, I could not spend enough time playing with that remarkable machine and it’s incredible operating system. It made other computers seem archaic.
When the first Mac was announced, I found out I could get an employee discount and buy one for $1000. I did, and I still have the 128k Mac.
I will never buy a product from Creative. Ever.
J
Cpt. Obvious says:
“Apple admits guilt, pays a huge fine, and they are lauded for their brilliance in here.”
Apple did not admit guilt, they settled out of court, there is a big difference.
Keep your friends close and your enemies closer
Might be exactly what Apple is doing.
Notice how Apple sells that defunct OfficeMac and Symantec AV software right next to shiny new Macs?
Next there will be Creative Zens next to the iPods in Apple Stores.
Steve Jobs must need something to make his iPods look even better.
@Douche donkey
It’s my belief that Creative has given up on the Zen player. The iPod has all but killed it and Zune player is going to put it out of its misery for good, and they’ve got know this already. Creative is going to make their money in the digital music market now by leveraging this patent and selling accessories for other players. Like all of the traditional Wintel market they ARE going to support MS’s Zune platform and you’d better believe it. Why? Because of the iPod’s infamous halo effect, and the fact that it’s helping to grow APPLE’S OS MARKET SHARE, that’s why. I previously mentioned Apple’s market share sarcastically, as it’s always one of the cheesy reasons most Wintel based companies use to drop Mac support or in this case support for an Apple device. In the long run from the Wintel perspective, doing whatever it takes (yes, even losing $) to kill off the iPod has everything to do with OS market share.
Wow, talk about a lot of trolling, ignorance, or just plain lack of perspective on this board. Let’s tackle some of the issues here
1) Apple lost because $100 million is a lot of money![/b[
Wrong. $100 million may be a lot of money to you or me, but to a corporation the size of Apple, it literally is a drop in the bucket. Apple has $10 BILLION in cash. That money is not squirred under Steve Jobs bed!
Apple actually has set up a pseudo-corp in Nevada whose only task is to manage Apple’s cash. Meaning, Apple invests that money in various financial vehicles that can be quickly liquidated if necessary, but while working is designed to produce a return on the investment.
If Apple simply stuck all that money in a regular old savings account, at a decen interest rate of 3% a year, Apple makes $300 million a year on interest alone.
$100 million is a drop in the bucket for Apple.
2) Apple lost because the licensing the patent validates Creative’s patents!
Yes, Apple paying money to license Creative’s patents does in fact validate the patents, or at least give them more validity in the courts.
However, saying Apple “lost” is taking the short-sighted view. First of all, settling with Creative removes one more cloud of uncertainty. That’s something investors love, because uncertainty is the bane of all stocks.
Secondly, by strengthening Creative’s hand, Apple has now insured that Creative can go after all the other iPod competitors out there. That means Sandisk. That means iRiver. Most importantly, it means Creative can probably go after Microsoft’s Zune and extract big payments.
This is clearly what Apple had in mind, since the deal somehow involves Apple getting some if not all of its settlement money back if Creative successfully extracts licensing payment from other parties.
For those of you who still need it spelled out, it’s very possible that Microsoft will be paying Creative, and Creative in turn will be paying Apple. In other words, Microsoft will be paying Apple for Zune. How devious is that?
3. Apple lost because settling = losing or settling = admitting guilt!
Wrong. This has nothing to do about “guilt.” The agreement doesn’t even go there at all. All it says is that there are no more legal disputes over the patents, and both sides are happy now and the best of friends.
With Creative now on board to make iPod accessories, the choices should be crystal clear for Creative. They can continue making money-losing “iPod killers” or spend the time sicing a few lawyers to collecting $100 million payments here, there, everywhere.
They can also devote their R&D budget producing low-cost but high-margin iPod accessories. I’m willing to bet the sales of iPod accessories will soon exceed the revenue of Creative music players, and Zen will probably go the way of the Dell Ditty before long.
4. So if Apple really won, why did they have to settle at all?!
My guess is that Apple’s lawyers basically spoke the hard truth to Creative’s lawyers: “One, we can take this to its natural conclusion and spend the next 5 years making your life hell. You know how thorough we are with the discovery process. How much is that going to cost you over the next few years? $10 million? $20 million? $50 million or more? And meanwhile, at the end of it all, you have a chance to lose it all. Do you want to literally go all in when all you have is a pair of nines versus the nice hand I’m showing?”
“Or two, we can settle this right now. You get a big cash infusion at a time when Microsoft is making a loud noisy moves to kill your company by Christmas with Zune. With this settlement, you now get to sue Microsoft because now we’re slipping you another nine. Suddenly you have a 3-of-a-kind instead of a pair. In return, you can scratch our backs to by splitting whatever earnings you get from this clueless Microsoft guy.”
Basically, Apple probably told Creative that with Zune’s launch imminent, it wouldn’t last the 5 or so years necessary to see the court battle to its conclusion. Creative prudently saw the writing on the wall, and just bought itself a lifeline.
Sheer brilliant jujitsu on Apple’s part!
I think you got it right.
The most important thing here is that Creative now has the case to go and sue every other MP3 player manufacturer in the world. That is, every other possible manufacturer in the world will end up to have to pay fees to Apple and Creative patent.
“Play for Sure” suddenly is now countered by “Made for iPod”.
Apple paid very cheaply what could become a huge HUGE foothold in the all music player industry.
NewType,
I like your reasoning. Apple makes very smart business decisions these days. And Creative may actually start to make money.
Just to agree with NewType: If Apple really was “caving”, the settlement wouldn’t have such generous terms for Apple. The settlement would have been bigger, it would not have been one-time, and this (frankly amazing) provision that Apple gets a cut of future license fees wouldn’t be there. This settlement was clearly Apple’s idea, on Apple’s terms. Creative caved, and is being paid generously to do so.
What’s really amusing is how this patent can now be turned against Microsoft. It’s ironic, because Microsoft used a nearly identical strategy to cripple the PlayStation 3. When Immersion sued them for the vibration technology in the XBox controller, Microsoft settled, giving Immersion a big cash infusion for their battle with Sony.
Errrrr apple accessories designed by Klingon? I don’t think so. So lame, they lost in the market and the best thing they did was filing a lawsuit? Desperate measures, not so creative one though.
Pre Settlement Mac Zealot opinion.
There’s nothing to the lawsuit, Apple is right. Apple invented the iPod. Creative’s claim is weak. Apple will Crush Creative. Steve will never surrender. We will never settle. We will continue in court until they have no will or means to fight left. We will grind them into the dust. Creative is history.
After Apple implicitly admits there might be something to this by paying money opinions.
This is a brilliant tactical move by Steve getting sued by Creative then settling. 100 million isn’t a lot of money, Steve was a tactical genius in arranging this. Creative owns the UI design patent. Their claim is strong. They can now enforce their rights against other people.
Uhm, I think a lot of people are ignoring the point that MDN ain’t a collective. Me? I thought that Apple had a strong case and would not lose. However, like most people here, I don’t know the nitty-gritty details. Apple chose to settle out of court, which does not imply admission of guilt. Is that the path I would have chosen? No. But, given that Apple did choose it, what benefits does it bring them? I can see the ways it would work out to their advantage, as many other commentors have already pointed out. So does that make me a Mac zombie? I don’t think so. However, facile analysis makes you a troll.
So if the Apple Store at the mall near me is sold out of the iPod accessory I want to buy, and Best Buy is sold out of it, and Circuit City, and Radio Shack, I can now see if they have it at Cambridge SoundWorks.
As I recall it was the small Rio players that creative had on the market first – not anything called Zen.
Creative were first to market but how many times do we see those with the original idea not able to see the full potential and ultimately being squashed by the competition.
Hey, “Creative” — What a wonderful job of picking and choosing opinions to create the illusion of inconsistency. Kind of like “Liberals want to legalize marijuana, but they want to outlaw tobacco!” Those are two different groups. Find me ONE INDIVIDUAL who has expressed both opinions, then we’ll talk.
I still think Apple would have won if they continued to fight, maybe outright, maybe simply by outlasting the competition. One thing that I have always said is that Creative didn’t have the resources to see this through to the end, not with the losses they were suffering annually. Apple saw an opening to get a settlement on terms generous to Apple.
For the ones who still don’t understand this, here are the events in chronological order, stated in layman’s terms:
– iPod (Apple) is wildly successful, makes billions of dollars.
– Zen (Creative) is not, loses millions of dollars.
– Creative has handy digital audio device patent, that we now know had legal clout, leverages it against Apple.
– Apple doesn’t want to fight a long legal battle with Creative (essentially bankrupting Creative) and decides to instead lend credibility to the patent and let Creative handle the legal angle of the upcoming battle with Zune.
– Apple hands Creative a nice check for $100M, bankrolling any future licensing disputes that Creative will undertake with companies such as Sandisk, iRiver, and Microsoft, and funding Creative’s new iPod accessory business. The brilliant part of this is that Apple benefits from any licenses granted by Creative AND from Creative making iPod accessories.
– Creative quietly discontinues non-profitable Zen line of MP3 players.
In short, Apple has executed a brilliant coup in the digital audio space, ensuring future viability and profits with less competition. What surprises me here is the fact that Creative’s patent actually held any validity. I was of the same assumption that many other readers were, that Apple possessed prior art to the Creative patent in the Mac OS X column view inherited from NeXT. As we now see, this must have been a non-informed opinion on the patent, as (admittedly) none of us has actually seen or read it. So now, instead of being the enemy, Creative has become Apple’s legal department in the area of the iPod UI. Apple will not have to fight Microsoft in court over the UI of Zune, Creative will do it for them, and if Creative wins, Apple gets a cut of the profits.
Creative was going to go bankrupt shortly if it continued on its current business model. The Zen was losing heaps of money, and none of Creative’s other ventures were profitable enough to keep the company in the black. Therefore, what Apple has done is provided Creative with a profitable area in which to conduct business: The iPod accessory market. Creative will return to profitability, selling iPod accessories that benefit both it AND Apple, and defending its digital audio player patent that again, benefits both it AND Apple.
I do not see a way that this could be any more brilliant on Apple’s part. It is infinitely more business-savvy than simply bankrupting Creative.
–mAc
What again, is that company called that infringes upon others’ patents or blatantly steals their ideas, gets sued for it and then laughingly pays the fine/settlement because at the end of the day they made shiploads of money from the stolen technology and that gets bashed for that on a macdaily basis?
You guessed it.
Hypocricy, you gotta love it.
I’ve always been impressed with the Zen that Creative makes. My daughters friends have commented they wish they had one as they can’t play, trade or share a lot of music that she can run on her Zen with no problem. There are a lot of kids out there that can’t afford to buy music and would love to have a Zen that allows them to play anything they want. Also with the 30 gig HD she can use it for taking homework back and forth to school. I sure if Apple had it’s way they will shut this product down.