Apple and Creative settle – the bigger picture

Apple and Creative Technology, Ltd. yesterday 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.

“The first major player to the mass market with a successful MP3 payer was the Rio from Diamond Multimedia in 1998, Creative didn’t enter the market until the following year… It was only later when Apple entered the player market that the products went mainstream and effectively set the ‘gold standard’ for players,” The Business News Source reports. “Apple has often been involved in high profile litigation cases and has a reputation for effectively fighting to the bitter end. So why did Apple roll over so willingly in this case?”

“The outcome of the agreement seems to have benefited everyone to some degree. For Creative there is the massive one off injection of $100mn, with the potential of more to come from Microsoft if their new Zune product is a success. Creative have been losing market share and will now be part of Apple’s ‘Made for iPod’ programme, which indicated that Creative sees a bigger revenue potential from the ‘halo’ products sitting around the iPod,” The Business News Source reports.

“For Apple the cost is not small, but will not make a massive dent in the overall numbers, in the last set of figures produced by Apple (Q306) iPod sales accounted for 45 percent of revenue – Apple has a cash pile of $9.2bn. So the chance to convert another foe to friend and establish yet another contributor to the ‘halo’ is good news. In effect Apple’s iPod is now such a standard that the only area to join if you’re looking to get into the MP3 market – is as an iPod peripheral maker,” The Business News Source reports. “Any ongoing litigation would ‘ muddy the waters’ – at least a clear message has come out of this litigation, to its partners in the ‘add on’ business – Apple is the clear winner and even the competition have acknowledged this by becoming part of the ‘family.'”

Full article here.

Related articles:
Creative Tech shares surge in early trading, Apple also up – August 24, 2006
Creative Tech’s investors cheer iPod decision but company’s woes far from over – August 24, 2006
Analyst: Apple’s relatively small settlement with Creative removes threat hanging over iPod – August 23, 2006
Apple & Creative settle: Apple pays $100M for ‘Zen’ patent, Creative plans iPod accessories – August 23, 2006
Creative explores new way to beat Apple iPod: patent litigation – August 30, 2005


  1. macromancer,

    Apple didn’t give in to Creative. Apple owned Creative. Apple basically “loaned” $100 million (a small sum to Apple, a massive sum for Creative) to use to pursue other patent infringers (all other MP3 player makers, basically, if you look at their menuing systems).

    Creative pays Apple when it gets payments from these other patent infringers.

    You can be damn well sure that Jobs told Creative to get out of the MP3 player biz ASAP and make “Made for iPod” accessories instead.

    Apple admits no guilt by settling these suits.

    There is no part of this deal that is a win for Creative beyond that they get to stay in business and make presumably big profits on iPod accessories.

  2. Maybe Apple paid $100 million (which it can totally afford) but included in the deal that Creative had to go after every other mp3 player including MSFT. The only companies that have the cash to pay are Apple and MSFT… all others in the market will be hurt.

  3. Anyone know the exact details of Creative’s patent? I’d really like to know what they now own the patent on, because it doesn’t seem like the iPod touched on anything that hadn’t been used already in computers for decades. What was so special that Creative should be awarded a patent?

    Honestly, aside from all the posturing Creative did, declaring war on Apple, etc., I have nothing against the company, and that was just marketing BS. From everything I’ve read, they’ve always made quality products. Good for them that they decided to become an iPod accessory maker instead of continuing down the impossible road of trying to make an iPod killer. I look forward to seeing what they come up with.

    And, FYI, they’re really only getting $75 million of the settlement because they had to recoup that “well spent” $25 million from their advertising campaign that was going to give them all the market share ; )

  4. Don’t be sick about it. It’s even better than this guy makes it out to be.

    Soon Microsoft, SanDisk, Sony, and all of the other MP3 players will either have to pay Creative or go to court to have these patents overturned. The cost of defending the patent will be borne completely by Creative, not Apple. Whenever one of these other competitors rolls over and pays Creative, Apple will get a rebate on their $100M. If Creative goes to court and loses, thereby invalidating the patent, Apple can sue Creative to get their money back. In the meantime the hassle of the lawsuits goes away, and Apple can sell iPods without the risk of an injunction.

    Now, having said that I personally don’t plan to buy any Creative iPod accessories myself. There’s been too long a period of bad behavior on their part to suit me.

    MDN magic word: faith. As in, have faith that Apple’s managers are truly farsighted chess masters.

  5. i have a feeling that Apple knew all along that it’d be a very difficult fight which’d cost them tons of money, so it first countered with a series of countersuites in hope that it’s will some how intimidate Creative a bit, kinda like an all-in move at the turn in no-limit Hold’em—we’d collect the money if opponent folds, if they dont then we’ll check or in this case fold ourselves. It’s a huge bet and a pretty big loss at the end, still, the general perception is that Apple’s winning, though costly, in being able to get its opponent to join the team plus some possible $$$ back from that huge $100mill as a bonus. Also, probably & hopefully, that’s one way Apple tries get it over with & prepare for what’s coming next… a huge announcement for it’s iPod line cuz we all know it’s about time to celebrate iPod nano & video’s 1st birthdays… let’s hope it’s coming in a couple of weeks, what ya guys think?

  6. I think it’s hilarious that this sets up a lawsuit for Microsoft. Since the Zune copies the iPod so much, they can expect the same lawsuit for a product they haven’t even launched yet. At the same time Creative joining the iPod community is another blow to Zune. This is too funny.

  7. It’s also worth noting that it’s now important for Apple that Creative KEEP its own mp3 players alive and in the marketplace. Any legal assault by Creative on other mp3 player makers for patent infringement will be far more effective – and likely to succeed – if the ‘original’ product isn’t defunct.

    Nice one Apple.

  8. This appears to be a lot of money. But I wonder how much they would have made if they had originally partnered with Apple to make the iPods when they had the chance. That was a major foul-up. Now they’ll have to subsist on Apple’s scraps. That and $100 million smackers.

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