Apple Agrees to Pay $100 Million to Resolve IPod Patent Litigation
Apple Computer Inc. will pay $100 million to rival Creative Technology Ltd. to settle five patent lawsuits over technology for navigating through songs on the popular iPod digital music player, the companies said Wednesday.
The settlement allows Cupertino, Calif.-based Apple to recoup a portion of its payment if other electronics companies license Creative’s technology.
“Creative is very fortunate to have been granted this early patent,” Steve Jobs, Apple’s chief executive, said in a statement Wednesday. “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.”
Creative CEO Sim Wong Hoo called the settlement “amicable.”
In June, the U.S. International Trade Commission agreed to investigate whether Apple’s iPod infringed one of Creative’s patents.
Singapore-based Creative filed the complaint and a federal lawsuit, alleging that iPods infringed its patent for a navigation system used to organize and access music on its Zen media players.
In the quarter that ended July 1, Apple shipped 8.1 million iPods, up more than 32% from the 2005 fiscal third quarter. IPods outsell Apple computers by nearly an 8-1 ratio and are a significant contributor to the company’s quarterly profit of $472 million and revenue of $4.37 billion.
In the complaint, Creative asked the trade commission to block imports of Apple’s market-leading iPods, which are manufactured abroad. If the federal agency had approved the ban, Apple would have been unable to import the company’s most popular product to the world’s largest consumer market.
In court documents, Apple said it had committed no wrongdoing and subsequently filed two patent-infringement countersuits against Creative, which were also settled Wednesday.
“The ITC presents a uniquely fast and threatening forum,” said Stefani Shanberg, a patent litigator with law firm Perkins Coie in San Francisco. “The ITC’s decision would have come down before any district court decision, and that was probably a motivating factor in getting the settlement done quickly. Both companies had a pretty quick day of reckoning coming.”
The one-time licensing payment will not materially affect Apple’s financial performance, Apple spokesman Steve Dowling said. The payment will add 85 cents a share to Creative’s earnings in the current quarter, which ends Sept. 30, Hoo said.
Michael Kroll, a Syosset, N.Y.-based patent attorney, called the payment “nickels and dimes” for Apple, which has a market capitalization of $57.4 billion.
Apple stock fell 31 cents Wednesday to $67.31. In after-hours trading, it lost an additional 20 cents.
Creative stock fell 5 cents to $6.01. After the settlement was announced during after-hours trading, the share price surged nearly 34%, gaining $2.04.
