August 23, 2006 2:59 PM PDT

Apple settles with Creative for $100 million

Apple Computer and Creative Technology have agreed to settle their legal dispute over music player patents for $100 million, the companies announced Wednesday.

The $100 million, to be paid by Apple, grants Apple a license to a Creative patent for the hierarchical user interface used in that company's Zen music players. After months of hinting that it would be coming after rival music player companies, Creative sued Apple in May, claiming the iPod maker was infringing on its patents.

A week later, Apple countersued, claiming Creative was infringing on Apple patents for user interfaces. As a result of the settlement, all legal disputes between the two companies related to the patent will disappear. Creative had also asked the International Trade Commission to investigate Apple for patent infringement.

The patent covers an interface that lets users navigate through a tree of expanding options, such as selecting an artist, then a particular album by that artist, then a specific song from that album, said Phil O'Shaughnessy, a Creative spokesman. The patent applies to portable media players, which includes devices like the iPod or cell phones that have the ability to play music, he said. Creative filed for the patent on Jan. 5, 2001.

Apple can get back some of the $100 million payment if Creative is able to secure licensing deals with other MP3 player manufacturers, said Steve Dowling, an Apple spokesman. He declined to specify exactly how much Apple could recoup or how many deals it would take to trigger the payments.

Under U.S. patent law, the first inventor to file a patent generally holds the rights to that technology, said Rod Thompson, an intellectual property lawyer with Farella Braun and Martell in San Francisco. This isn't always the case, as another inventor can attempt to prove that they were working on the invention before the other inventor filed for a patent, but that's a long, expensive legal process with no certainties, he said.

"This had the makings of a big battle, because the stakes are so high," Thompson said. Apple obviously couldn't afford to have an injunction slapped on imports of the iPod, and $100 million is a pittance compared to the $1.5 billion in revenue Apple garnered on iPod sales just in the last quarter, he said.

"Creative is very fortunate to have been granted this early patent," Apple's CEO Steve Jobs said in a press release. Apple was eager to move beyond the legal dispute caused by the patent, which could have eventually cost the company as much as the $100 million settlement amount, Dowling said.

"We're very pleased to have reached a broad agreement with Apple," O'Shaughnessy said. Creative plans to speak with other MP3 player companies about its patent, he said, but is not providing details on whether it has entered discussions with other companies.

As part of the agreement, Creative will also enter Apple's Made for iPod program as an authorized seller of iPod accessories. Creative will be able to affix the "Made for iPod" logo to its speakers, headphones and other related products, O'Shaughnessy said.

Creative is one of many companies attempting to chip away at Apple's runaway lead in the market for portable MP3 players. Its Zen products haven't translated into profits, however: Earlier this month, Creative reported a $12.7 million loss on slowing sales for its fourth quarter. The company expects the $100 million settlement to add 85 cents to its earnings per share figures for its current quarter.

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51 comments

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Creative make more then players ?
I always bought for a long time different types of Creative sound cards, even tho I never bought their player, their sound cards are good ones.

And Apple don't even makes sound cards, Creative needs to get back to their roots and make that top of the line.
Posted by rmiecznik (224 comments )
Reply Link Flag
Future of Sound Cards?
Is there anything left to be done with sound cards? Does anyone care anymore? I think most people just use the built in sound on the motherboard these days. I bought the X-fi a while back, and now I wonder whatever for. It has made no impact on me at all. I think Creative is in big, big trouble.
Posted by stmon99 (32 comments )
Link Flag
Holy Crap
Wow!

You know that place deep down underneath? The one that's erally hot?!

Yeah... it froze over....
Posted by stealth_geek (1 comment )
Reply Link Flag
Petty
It's getting ridiculous what can be patented! Lawsuits like this waste the time of courts and companies alike - and who knows what tax payer resources. The pettiness of the most simple ideas being patented goes beyond the intent of intellectual property. There's nothing intellectual about organizing a simple file system. OMG, I have files in my desk filed alphabetically and each drawer is organized by subject - am I going to get sued!?!
Posted by brianmead (3 comments )
Reply Link Flag
Ha Ha Ha!
I remember a lot of Apple fanboys predicting that Creative will suffer a bad consequences. you can read all about it here:
<a class="jive-link-external" href="http://news.cbsi.com/5208-1047-0.html?forumID=1&#38;threadID=16940&#38;start=0" target="_newWindow">http://news.cbsi.com/5208-1047-0.html?forumID=1&#38;threadID=16940&#38;start=0</a>

See what happened!
Posted by cary1 (924 comments )
Reply Link Flag
Apple could have killed Creative
in the long run and it would cost them much more than the $100
million they pay now. The interface is now patented so Zune will
have to license to Creative and in part to Apple or don't use it, its
almost as if Apple and Creative worked together from the
beginning. Its a big blow for Zune because MS will have to use
another interface now and that won't be easy.
Posted by Peter Bonte (316 comments )
Link Flag
Apple apologists know no limit
Apple got sued for STEALING from another company, yet all that can be said is Yea Apple, they really won.
What completely hypocritical BS. Should MS make anything that may in any way resemble something once done by Apple (or rumored to be released soon), these very same people burn MS in effigy for being a copycat.
Here Apple gets caught red handed, and these folks give them a pat on the back.
Posted by catch23 (436 comments )
Reply Link Flag
Yeah, ok
Apple got sued because Creative wanted to make some money
off of their "patent" on how files are accessed in a menu
structure on a DAP. That, my friend, is what is ridiculous. And
yes, Apple was also being ridiculous when they sued Microsoft
over the GUI. Just more and more examples of how software
patents should never have existed in the first place.
Creative is jumping into bed with Apple here by joining their
"Made for iPod" accessory program. That alone gets Apple $4
per accessory sold by Creative. If Creative is successful in
signing up other manufacturers onto their "menu" licensing
program, then Apple gets a partial refund of the payout. They
know that Microsoft will be stabbing them in the back in the
coming months when they push PlaysForSure to the backburner
while promoting their own digital player.
Posted by OscarWeb (76 comments )
Link Flag
Windows Fanboys know no limits
Apple haters like you will put spin on anything you can. As anyone
who knows the history of this fight can tell you, it had nothing to
do with stealing. It was a case of who got to the patent office first,
just like Alexander Graham Bell and his rivals for the telephone
patent. But irrational haters like yourself will always claim Apple
stole the GUI from Xerox Parc and Apple stole this and Apple stole
that. Your hatred blinds you.
Posted by lkrupp (1608 comments )
Link Flag
A settlement is not about guilt
Apple has not admitted to anything, actually. It is entirely possible
that it would have won had the case been litigated. By reaching a
favorable settlement, Apple can move on and actually profit from
any success Creative has with accessories.

Let me know if you need other basic things explained to you.
Posted by J.G. (837 comments )
Link Flag
This is a win for both Apple and Creative!
So, in summary...

Apple pays Creative a one time fee of $100M to licence their
patents.

Creative joins the 'Made for iPod' program making accessories
for their competitor, Apple, who gets money for 'Made for iPod'.

Creative still HAS to defend it's patent against other competitors
- that's the nature of patents - or licence it to them. If they do,
Apple takes some of that money too. In a round-a-bout way,
Apple is getting money back from it's competitors. Nice.

Creative have a much better case because Apple settled.

Creative still owns a valid patent. If Apple had won, there would
be no patent so anyone could copy the Creative/Apple style
interface.

Apple continues on as if nothing has happened. No long court
case delaying sales. No injunctions to halt imports.
Posted by hat389563 (2 comments )
Reply Link Flag
what you're forgetting...
Is that nobody has duplicated Apple's clickwheel in it's entirety because it was thought that Apple owned the patent to this and like it's DRM there is no way Apple would have licensed this.

Now all a competitor would have to do is pay cash strapped Creative a fee to use their patent.

I think we'll see a lot of upcoming mp3 players with a fully implemented version of Apple's clickwheel
Posted by Musica360.com (106 comments )
Link Flag
Advantage Apple
"Creative have a much better case because Apple settled."

This is not so. If they had won in court, Creative's poistion would
be enhanced, as it is, no potential litigant is going to be affected
by this in any way. This is just not how the law or the legal
system works. Past settlement, particularly for such relatively
small amounts, rarely affect current litigation. If anything, the
size of the amount makes Creative's position look that much
weaker. I mean come on, they are suing the maker of the device
with over 75% of the market over one of the key components
responsible for its popularity and all they could get was 100M?!

" If Apple had won, there would be no patent so anyone could
copy the Creative/Apple style interface."

No, if Apple had won, they would either have had the patent
declared null OR assigned to them.
Since Apple was not suing anyone over hierarchical menus, the
situation would remain unchanged. They would still have the
sole rights to their INTERFACE.
Posted by DeusExMachina (516 comments )
Link Flag
but what Cnet failed to note that others did...
"Investors have cheered Creative Technology's 100 million US dollar settlement from rival Apple Computer but analysts warned the Singapore company's troubles are from over.

...However, analysts said the loss-making Singapore company faces an uphill battle to get its business back on track after investing heavily in the last two years to challenge Apple's dominance in the MP3 music player market.

"Their cost structure is still too high, they are still losing money," said Claudio Checchia, a regional research manager with International Data Corp.

"They still have to go a long way to improving their own cost structure and trying to get sales high," he told AFP.

..."However, the settlement does not change our negative view on its core businesses. Demand for its audio products have been waning, and competition for the MP3 player market has intensified.

"We still cannot find any new 'killer' products from Creative that could help revive strong earnings recovery in the near term."

Ng however raised his fair value for Creative by 1.85 dollars to 10.50 dollars per share and upgraded the brokerage's rating on the stock to a "trading buy" due to the windfall from the settlement."
Posted by Musica360.com (106 comments )
Reply Link Flag
and why not article on this?
Dell Inc. has quietly pulled the plug on its DJ Ditty music players, less than a year after the world's largest computer maker launched the device to compete with Apple Computer Inc.'s iPod Shuffle.
ADVERTISEMENT

The company stopped selling the Ditty on Aug. 17, Dell spokesman Venancio Figueroa said Wednesday.

He declined to characterize the decision as Dell bowing out in the face of competition from market leader Apple. Dell is trying to focus on its core areas of PCs, printers and flat-panel televisions, he said.

Dell unveiled the Ditty last September as a better value than the Shuffle. Both devices store music on flash memory chips.

The Ditty, like the Shuffle, cost $99 at the time and included 512 megabytes of memory. But because the Dell device used an audio format that compresses digital music files more efficiently, Dell asserted it could hold up to 220 songs  100 more than the Shuffle. The 512 megabyte Shuffle now retails for $69, with a one-gigabyte model for $99.

The Ditty also included a 1-inch LCD display screen and an FM radio receiver. The Shuffle lacks both features.
Posted by Musica360.com (106 comments )
Reply Link Flag
apple settles
Another example of Apple claiming they created something and then admitting,without even going to court that it was actually created by someone else. apple SETTLES. They gave up the 100 million quickly because they knew they were caught.
Posted by km7 (15 comments )
Reply Link Flag
Who says Apple stole it?
The hierarchical user interface doesn't take genius to come up with. A simple menu system combined with a small screen size, makes it almost obvious to use this style interface. It really isn't all that different from the hyperlinking in Hypercard, or the hierarchical menus that have been common in desktop GUI's for years now. It seems that Creative may have just patented the concept first. It doesn't mean that Apple engineers looked at Creative's product and said "Let's steal this!"

Personally, if it was all out stealing, then Creative was idiots to settle. I would have taken Apple to the wall. Perhaps Creative and Apple's lawyers both knew this could go EITHER way in court. But for Apple to turn the situation into an opportunity to get another MFI licensee on board is just brilliant. I really don't think that Creative's menu system is all that unique to be worthy of a patent.
Posted by mike.gw (942 comments )
Reply Link Flag
The great "inovator'
Apple would not have settled if Creatives patent was not valid. They are admitting that they copied the user interface for their most successful product from a (gasp!) Windows product.

So much for the myth that Apple delivers better user experience through innovations, which others then copy.
Posted by voo.doo (13 comments )
Reply Link Flag
Innovation
Try using a dictionary to prevent looking so illiterate. When Steve Jobs was ousted from Apple in the late 80's he used the opportunity to found another computer and software company called NeXT. A prominent part of the user interface for the OS they built was precisely the hierarchical menu system. Of course the idea of hierarchy was not invented in the 80's and it was not in any proper sense invented or owned by Creative in 2001. That is just another indicator that our patent system is broken. It is probably worth noting that when Jobs returned to Apple the legacy Mac OS was retired and all of OS X was a rewrite of NeXTStep. When you want to make sweeping pronoucements it is helpful if you actually know something.
Posted by Steve Bryan (92 comments )
Link Flag
Not really
The only reason to get a Creative card is for playing games. If your main use for the PC is HTPC, you're better off getting a card from M-Audio. They have better DACs, quieter analog sections and don't resample input by default.

I have a creative card, and it's good for gaming, but I'd never consider it if I was playing music through a stereo system with decent speakers (PC speakers need not apply).
Posted by notgonnatellya (65 comments )
Reply Link Flag
Well they shouldn't have won
I'm not a fan of the Ipod, but this suit is silly. What we basically have here is Creative patenting something that's obvious and the way most people have stored their records. Oh maybe it's slightly different, they go alphabetical by artist and then by album, where as I suspect most do the former and then have albums in order of release.

I've never seen creatives menu, AFAIK, but that's how I have my albums on my HD. How else would you store it?

Much like the company that has a patent on Buy It Now, this is a silly patent that never should have been issued in the first place.

Don't get me wrong, i want Creative to stay in business, but I there's nothing new or innovative about Creatives interface (or any other DAP's interface for that matter).
Posted by notgonnatellya (65 comments )
Reply Link Flag
Nits
It might interest you to know that I own Apples, Macs, and a working NeXT Cube. I am very familiar the history. I agree with you the the
NeXTStep OS was innovative for its time.

But how is it relevant to this case?

NeXTStep clearly was not admissible as prior art in challenging the Creative patent. I stand by my statement that Apple copied the iPod UI from Creative. otherwise they would not have paid $100 Million to settle.

And no, patent law is not "broken" just because it doesn't favor Apple
Posted by voo.doo (13 comments )
Reply Link Flag
NeXT, their menu system, and broken patent law
If you have a NeXT Box (as I do) just menu click on the desktop if
you need indication of the relevance to the current discussion.
Jeeze.
How is it clearly inadmissible? This case never really went to
trial. It was a settlement.
The UI of both is intuitive, which is why it is invalid to be
patented, and why Creative has so many other potential
adversaries.
The fact that the patent was granted is indication of a broken
system.
But if you think it is not, you are in the DISTINCT minority of
people, including patent lawyers. Tell that to the lawyer who, as
part of an attempt to show his son what he did for a living,
managed to successfully get his son granted a patent for
swinging sideways on a swing.
Patent law is broken because it lost all semblance of similarity to
what was provided for in the Constitution decades ago.
Posted by DeusExMachina (516 comments )
Link Flag
And that's it??
This can leave people to belive 2 possible conclusions: 1 - Creative lied and just wanted a piece of the iPie or 2 - Creative lied ad just wanteda piece of the iPie. Why sue for one said amount when you could get so much from each iPod ever sold? That would seem much more smart becuase Creative will never beat iPod anyway...
Posted by PCCRomeo (432 comments )
Reply Link Flag
So what?
The idea of patenting something so obvious is ridiculous, but since creative was first they should be compensated. I for one see this as a positive step towards Apple making it's product competitively priced as others start implementing the click wheel design.

Also, where in the agreement did it state Creative had to pay Apple for the made for iPod program? The way I read it, creative was getting it for free as no price was mentioned in the article.
Posted by Stormspace (1028 comments )
Reply Link Flag
iBrokeitthefirsttimeiusedit
Do Apple hold the pattent for the Rapideath technology employed in all of the iPods? Because the cheaper generics seem to break almost as quickly.
Bad Batteries THAT CANT BE REPLACED, dead screens and random hard disk corruption... all of my mates that have had iPods now swear by Creative's robust players.
Posted by ?eter (6 comments )
Reply Link Flag
What happens to the $100 million...
when Creative goes belly-up, out of business, which is going to
happen in at most a year. They've been hemorrhaging money for
years now because they can't even give away their players. Then
there's the "Zune" factor, a sort of double whammy with M$ b*tch-
slapping their partners (like Creative).

Oh the pain. The pain.
Posted by lkrupp (1608 comments )
Reply Link Flag
Amen to that
Although I give them longer then a year, I agree completley.. This
is like pouring water in a pitcher that has a hole at the bottom.
Posted by Zatoichis Sword (29 comments )
Link Flag
ignorance speaks?
Umm... are you a total 12 yr old noob or just a caveman? Creative is more than MP3 players...
Posted by skeptik (590 comments )
Link Flag
Apple really won here
The Made for iPod program states that for EVERY unit sold, an
accessory maker must pay Apple $4
Basically, Creative just sued themselves.

Hilarious.
Posted by Bosco714 (8 comments )
Reply Link Flag
Yes Apple did win
Not only that, from the article:

"Apple can get back some of the $100 million payment if Creative is able to secure licensing deals with other MP3 player manufacturers,"

So if Creative go after the many DAPs using the same file structure, Apple gets paid also.

Who won again?
Posted by daveworld (123 comments )
Link Flag
Not So Fast
They have a separate agreement. Unless someone knows what that agreements says, they have no idea how much Creative will pay Apple for each iPod accessory sold. It's silly to think that Creative is paying the "going rate" to Apple and did that via winning a lawsuit--why not just license it outside of the lawsuit? It's more logical to think that Creative worked out a special arrangement, but is bound by the terms to not release info about it to other iPod accessory makers.

As for the other remark about Creative paying Apple if they can further license the patent: Remember, until this was settled Creative was "at risk" if they further licensed a patent they might not have owned. The terms of the suit likely demanded a higher payment from Apple because of this risk. In settling the suit, Creative undoubtedly used this to leverage more money from Apple, but Apple probably stated that they'd pay it, but expected a return of that money if it turned out that Creative was able to further license the patent.

mark d.
Posted by markdoiron (1138 comments )
Link Flag
made for idiots
'Made for iPod'
Creative CAN put the label on accessories... or HAS TO? See the difference?
Creative can place the label on and pay the $4 if they feel it will generate more sales than without... or skip it and not pay.

(Maybe I'm the only one, but when I see 'Made for iPod' on something I laugh out loud at how stupid most sheep are. Headphones... like they're made specifically for the iPod? Like they won't work well with anything else? Like a good set of headphones won't sound better than a cheap set of 'Made for iPod' certified? Maybe if they're white, they work better?)

Do you really think Creative would want the Made for iPod tag if it wasn't financially beneficial? You see this as a win by Apple, forcing Creative to be a manufacturing arm for Apple's products?

Your understanding of business is hilarious... or maybe your sense of humor is just wack.
Posted by skeptik (590 comments )
Link Flag
 

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