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Apple to Pay $100 Million to Settle iPod Patent Lawsuits

Associated Press
Published | Updated

SAN FRANCISCO – Apple Computer Inc. (AAPL) will pay $100 million to rival Creative Technology Ltd. (CREAF) 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 Chairman and CEO Sim Wong Hoo called the settlement "amicable."

In June, the U.S. International Trade Commission agreed to investigate whether Apple's iPod infringes on one of Creative's patents.

Singapore-based Creative filed the ITC complaint and a federal lawsuit, alleging that iPods infringed on its patent for a navigation system used to organize and access music on its Zen media players.

In the three months that ended July 1, Apple shipped 8.1 million iPods, up more than 32 percent jump from the 2005 fiscal third quarter. IPods outsell Apple computers by nearly an eight-to-one ratio, a significant contributor to the company's quarterly profit of $472 million and $4.37 billion in revenue.

In the ITC complaint, Creative asked the ITC to block imports of the Cupertino-based company's market-leading iPods, which are manufactured abroad.

If the federal agency had sided with Creative and 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 maintained 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 partner and patent litigator with Perkins Coie LLP 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 would not materially affect Apple's financial performance, said Apple spokesman Steve Dowling. The payment will add 85 cents per share to Creative's earnings in the current quarter, which ends Sept. 30, Hoo said.

Michael Kroll, a Syosset, N.Y.-based patent attorney and engineer, called the one-time payment "nickels and dimes" for Apple, which has a market capitalization of $57.4 billion.

"A settlement doesn't mean anyone's right or wrong. In general it's just the cheapest way to get on with life," Kroll said. "You do what's best at the time. I'm sure that's what Apple was thinking."

The announcement came after U.S. stock markets closed. Apple stock closed Wednesday at $67.31, down 31 cents from the previous day. In after-hours trading on the Nasdaq Stock Exchange, it lost another 16 cents.

The settlement had a bigger impact on Creative, which has a market capitalization of less than $500 million.

Creative stock closed Wednesday at $6.01, down 5 cents from the previous day. After the settlement was announced during after-hours trading, the share price surged nearly 37 percent, gaining $2.25.