Struggling MP3 maker Creative Technology is set to pocket $130 million dollars after Apple agreed to settle a dispute over several Creative patent claims
In a statement, Apple Chief Executive Officer Steve Jobs said the settlement resolves the five suits and countersuits between the companies, including a complaint Creative filed with the U.S. International Trade Commission.
Creative introduced its MP3 player before the iPod, but the iPod — and its accompanying iTunes music service — quickly caught on among consumers. The iPod’s market share is roughly six times that of Creative’s, said Tony Berkman, director of research for Majestic Research. Last year, Creative was awarded a patent for its system to categorise a large number of music files on a portable device. It suggested at the time that it would go after companies that infringed on it.
“Creative is very fortunate to have been granted this early patent,” Jobs said. “This settlement … removes the uncertainty and distraction of prolonged litigation.” The iPod has propelled Apple into Silicon Valley’s digital darling. During April, May and June alone, Apple sold 8.1 million iPods, taking in nearly $1.5 billion. The device has also spawned a multimillion-dollar market of accessories, from Bose speakers to clothes to dress up the iPod.
Creative said it hopes to take advantage of the iPod’s popularity by developing products for it, even though its Zen digital media player competes against it. “The iPod has a huge base and we’ll be able to tap into that,” Creative Labs President Craig McHugh said in an interview. “It gives us an opportunity to develop products for (not only) our Zen, but (also) for the iPod.”
Analysts said the settlement removes a threat hanging over the iPod. “Even though it costs Apple money, it is a small amount considering the size of Apple’s iPod business,” said Tim Bajarin, principal analyst at the research firm Creative Strategies. “One hundred million is not pocket change, but it’s a relatively small amount to get that out of the way.”
Wednesday’s settlement could help Creative strike licensing agreements with companies that might have infringed on its patents. Though McHugh did not specify other firms that use similar technology, he said Creative’s patented ability to easily find and access files is found in many high-end MP3 players and cell phones.
“Creative can trumpet (the settlement) and say this is a serious claim,” said Allonn Levy, an attorney with Hopkins & Carley in San Jose. “The fact you have a serious player and a substantial exchange of money suggest there is something to the claim.”