Apple Settles with Creative for $100 Mln

Apple Computer has agreed to pay Creative Technology $100 million to settle patent disputes which threatened to shut down the iPod - or drive Creative into bankruptcy.

In a surprising development, Apple Computer has agreed to settle ongoing patent battle with Creative Technology for $100 million, putting an end the so-called “iPod patent” dispute between the two companies.

Under the terms of the settlement, Apple has agreed to pay Creative $100 million for a paid-in-full license to use Creative’s “Zen” patent in all Apple products, including the iPod. Apple can recoup a portion of the $100 million payment if Creative can successfully license the patent to other parties. What’s more, Creative will be joining Apple’s “Made for iPod” program and creating its own line of iPod accessory products.

“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 a 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.”

Creative Technology was granted a patent for the navigation and organization of music tracks on portable devices in August of 2005; it had originally filed for the patent in relation to its Nomad and Zen music players back in January 2001. (Hence, the monicker “Zen patent.”) Apple introduced the original iPod in October 2001.

After (presumably) some failed behind-the-scenes negotiations with Apple, Creative filed suit against the Cupertino company in May, 2006; Apple immediately fired back with two salvos of patent suits (on May 19 June 7 and against Creative, accusing the company of violating more than half a dozen Apple technology patents. Apple’s suits against Creative aren’t mentioned in today’s release describing the settlement, but it’s reasonable to assume Apple’s description of a “broad settlement ending legal disputes between the companies” means those suits will be dropped.

The settlement removes clouds of doubt over both the future of Apple’s iPod line (Creative was working to ban the importation of iPods into the United States on the basis of patent violations) and on Creative Technology’s overall business, which may not have had the resources to survive prolonged patent litigation. Now, Apple can continue to develop iPods and music-related products without patent hindrance from Creative, and Creative gets a big check and gets to tap the mammoth iPod market with new accessory products.