Apple, Creative announce settlement; Creative joins ‘Made for iPod’ program | iLounge News


Apple, Creative announce settlement; Creative joins ‘Made for iPod’ program

Apple and Creative Technology today announced a broad settlement to end all legal disputes between the two companies. Apple said it will pay Creative $100 million for a license to use Creative’s recently awarded patent in all Apple products. The companies also announced that Creative has joined Apple’s “Made for iPod” program and will be announcing their own iPod accessories later this year. Creative sued Apple in May, claiming that the iPod’s interface is infringing on its “Zen Patent.” Following the company’s legal actions, Apple countersued Creative.

“Creative is very fortunate to have been granted this early patent,” said Apple CEO Steve Jobs. “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. “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.”

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Hmm… so, you have to pay a company 100 mil to use something you’ve been using for ages and they’ve only just patented? My, am I glad I don’t live in America.

Posted by Liam on August 23, 2006 at 5:35 PM (CDT)


Looks to me like Creative is conceding the DAP market to Apple and trying to cash in with accessories.

$100M seems pretty low, the legal bill for the 5 lawsuits probably would have been higher.

Posted by LSC on August 23, 2006 at 5:38 PM (CDT)


Interesting.  On the one hand Apple forks over some cash (a small sum for them, relatively speaking)...on the other hand, Creative is making iPod accessories.  For some reason, this reminds me of when Microsoft invested all that money into Apple, way back when - big brother helping the little guy stay in business so he doesn’t get busted for being a monopoly.  It’s a total win for Creative - they can finally cover their losses, have a steady revenue stream from accessories for the mp3 player that’s kicking their a$$, and possibly fade out of the hardware business without losing too much face.

Posted by domarch on August 23, 2006 at 5:43 PM (CDT)


And the collective group of Zen supporters/Apple haters jaws hitting the floor just made a deafening thud.

Man, I have to wonder what scared Sim Wong Hoo so much to have totally backpedaled on his stance of this patent being able to rein Apple in.  Apple will clear that 100 million in a few years or less.

Posted by ajservo on August 23, 2006 at 5:47 PM (CDT)


Microsoft gave Apple $150 million, which was a drop in the bucket to both companies and more of a gesture of good faith. Apple had billions of dollars in liquid assets at the time. Microsoft did not save Apple.

Posted by ort on August 23, 2006 at 6:10 PM (CDT)


Unfortunately, this is more a win for ignorancy on the part of those who grant these patents in the first place.

You CAN’T Patent a stupid Hiearchal File System.  Prior art abounds.  It was a ridiculous patent, and Steve Jobs shows that he knows it with his “Creative is Very Lucky” comment. 

The real question is: Will Creative sue Microsoft?

I also wonder what the terms of the license are…in the early days of the Mac, Bill Gates manhandled his way into what was interpreted by the courts as a perpetual license to the Mac user interface….  Did Apple manage to wrangle a similar deal from Creative?

Posted by Cameron T. on August 23, 2006 at 6:23 PM (CDT)


domarch - Apple will clear the $100 million in far less time than a few years.  In the quarter ending March 31st, Apple sold 8,526,000 iPods at an average net revenue of $201/unit.  Apple refuses to disclose their iPod margin, but we know it is somewhere between 20% and 30%.  Assuming 25%, Apple will clear $100 million from the iPod alone in less than 1 month and that is in a “slow” quarter.  This doesn’t include iPod-related revenue, including the royalties Creative will now be paying as part of the “Made for iPod” program.

It sucks that Apple was, IMO, blackmailed into this.  But I think Apple is right to focus on winning in the marketplace and not get distracted by the courtroom.  This settlement lets Apple do that.

Posted by micvog on August 23, 2006 at 6:33 PM (CDT)


Oops… sorry domarch.  My comment should have been directed at ajservo.

Posted by micvog on August 23, 2006 at 6:34 PM (CDT)


I hope this means iPods now can have Creative quality sound output. :D

Posted by Anton on August 23, 2006 at 6:45 PM (CDT)


Apple is better than Creative. Creative didn’t create anything. Creative quality soung output? The iPod sounds great just as it is.

Posted by Charles O. on August 23, 2006 at 7:00 PM (CDT)


it was a rediculous patent to begin with, but apple agreeing to pay them gives the patent validility.

i reckon this has more to do with putting microsoft’s Rune player even more on a backfoot. we know microsoft will sell it at a loss like xbox…. but now microsoft might have to budget in lisence fee’s on top of this for the menu system??

in the end, who knows what goes through these guys minds, maybe the thought of being ordered to stop selling iPods in america was enough to scare apple to do a deal quickly??

Posted by steve on August 23, 2006 at 7:55 PM (CDT)


since creative is in the made for ipod program maybe apple let them in for free in exchange of a lisence to the patent? just a thought

Posted by BIGP on August 23, 2006 at 7:56 PM (CDT)


$100M is not a drop in the ocean to Apple, they made profit of ~$400M last quarter, it will knock about 25% off their next quarter’s profits.

However, this is still a big win for Apple.
They have gained an “ally” of sorts in Creative, who now will be apart of their “Made for iPod” program, therefore giving Apple a new revenue stuff.
This whole thing won’t have to go through the courts, probably hitting the mainstream media that paints Apple as a patent infringer, no negative press.
They will get some of that money back if Creative successfully goes after other companies (MS maybe?) and gets settlements out of them.
It’s a good move for both companies, sneaky, a little underhand perhaps, but a good move.

And you can’t blame Creative for all of this, it’s the patent system that’s broken, if you can take advantage of it, why not? If you don’t, someone else will and start suing you.

Posted by Steven on August 23, 2006 at 8:45 PM (CDT)


A measly $100M AND Creative joins Made for iPod? I think we know who won.

$100M is nothing to Apple. I see them surpassing Microsoft in sales in the future. Apple is going on the right track. They just need to get people to break hold of Windows and buy a Mac. They’ve already gotten me. I’m buying a Mac the first chance I get.

Posted by Bonk on August 23, 2006 at 8:49 PM (CDT)


I totally agree with bonk. Young people who have grown up with windows think thats the only option. Also, businesses cant use macs because of campatibility issues, most of which apple is working to resolve. (bootcamp)

Posted by QWER on August 23, 2006 at 9:29 PM (CDT)


Apple had billions of dollars in liquid assets at the time. Microsoft did not save Apple.

Talk about spin doctoring and revisionist history.

Apple had just lost $900M in the three quarters prior to that deal. Microsoft DID NOT just hand over $150 million; they BOUGHT INTO APPLE, actually owning nearly 5% of the company, which would put the market cap of AAPL at that time around $3 billion, hardly enough equity for “billions in liquid assets” as you claim. In three quarters, they had losses worth nearly a third of their stock’s market value. If that’s not significant, I don’t know what is.

I would tend to agree that MSFT’s cash infusion was more a good faith offering and a PR ploy than anything else, but considering how woeful Apple’s outlook was under former CEO Amelio, the company need ALL the help it could get, even if it had to come from Redmond. And lest you’ve also forgotten, Steve Jobs played a key role in making this deal with Microsoft.

The key components of that deal wasn’t the infusion of cash, though that did help. What was more important was keeping Office going for Mac OS, and obtaining agreements on the sharing of various technologies between the two companies (how much of this actually happened is any outsider’s guess). There was a cross-licensing of various patents the two companies held at the time, though some would argue the REAL reason Microsoft did this deal was to score some brownie points with DOJ and the pending anti-trust suits, which in hindsight didn’t pay off (like so many MSFT ‘investments’). But if you claim that MSFT didn’t help at least a bit to turn things around for Apple in the mid ‘90s, you need to do some Googling to get your facts straight.

As for Creative: $100 million is a fair offer; it’s only a licensing agreement, and not some magical pill that’s going to save Creative’s MP3 business in the U.S. I still believe that this patent snever hould’ve been awarded at all, whether to Creative or to Apple, as they were late in trying (and applying). But as it is, it doesn’t seem as if Apple got off cheap; after all, they DID have to admit that they were in violation of Creative’s patent (along with all the other ‘violations’ the company has been committing these days).

Posted by flatline response on August 23, 2006 at 10:34 PM (CDT)


flatline response: I don’t disagree with what you wrote but you forgot some key elements…

First the shares MS bought were non-voting stock.

Second, MS sold all of their Apple shares many years ago and actually made a good profit since the shares went up since they bought them.

Posted by vtwin on August 23, 2006 at 11:35 PM (CDT)


And just to make it even clearer so I don’t have to read again from some Mac hater that MS owns part of apple:

Microsoft currently doesn’t own any part of Apple.

Posted by vtwin on August 23, 2006 at 11:38 PM (CDT)


Creative won this round.  That’s all there is to it.  No downside whatsoever for Creative.  Anytime you collect $100 million from a patent infringement suit, that’s a victory for your company.

Was it luck as Steve Jobs called it?  Maybe.  I’ll take luck over just about anything else when it comes to business.  Heck, Steve Jobs says the genesis of his career was a bit of luck (for those who don’t know what I’m talking about, just google for the Jobs commencement speech at Stanford).

Posted by Talking Madness on August 24, 2006 at 4:01 AM (CDT)


To confirm what a few others said re the Microsoft investment, it was non-voting stock, and Microsoft made quite a profit when they sold it a few years ago. Note that they sold it before Apple stock took its leap related to the iPod… However, if I’m not mistaken, the investment deal specified that they were to sell the stock by a certain time.

I remember overhearing a clueless computer salesman in a major French chain store saying to a customer that he shouldn’t buy a Mac because “Microsoft had just bought Apple, and the company wouldn’t be around long.” This was in the days of the first iMacs, if memory serves… Boy was he wrong!

Posted by Kirk McElhearn on August 24, 2006 at 4:23 AM (CDT)

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