Apple to pay US$100 million, settling iPod dispute

Creative had reasonable chance of stopping iPod imports, says analyst

Apple Computer will resolve its patent squabble with Creative Technology by paying the Singapore-based company US$100 million (NZ$157.5 million) for a license to use a recently awarded patent.

The deal ends all legal disputes between the companies, including five currently pending lawsuits, according to a statement. In return for its payment, Apple will get a paid-up license for use of the patent in all its products. It can also make some of that money back by licensing the patent to other companies. In addition, Creative will make iPod accessories under Apple's "Made for iPod" program starting later this year.

Creative is a leading competitor to Apple, which dominates the portable media player market with the iPod. In May, Creative asked a US court to block sales of iPods, saying they violated a patent that covers the user interface software in most portable media players, including the iPod. Creative also asked the US International Trade Commission to block the importation of iPods into the US.

The settlement "removes the uncertainty and distraction of prolonged litigation," Apple Chief Executive Officer Steve Jobs says. The payment will add about US$0.85 per share to Creative's earnings in its current quarter, ending September 30, the companies say.

Creative was a pioneer of portable digital media players in the late 1990s with its Nomad products and currently sells the Zen line of players as well as the popular Sound Blaster PC sound cards.

The deal should be a boon to both parties, according to Rob Enderle, principal analyst at Enderle Group, in San Jose, California.

"Apple gets out from under what could have been a major problem," Enderle says. "Creative had a reasonable chance of stopping iPod imports." Apple's stock would have "cratered" if it had, he says.

The iPod accessories market could be a lucrative new business for Creative, which hasn't been growing much in the media player market, Enderle says. The strongest challenger in that space today is SanDisk, he says.

IDG Tokyo reports that Creative's shares surged in early trading on Thursday after the company and Apple resolved the long-running patent dispute.

Creative stock was trading at US$12, up 25% on the day, as of 9:45am local time (01:45 GMT Thursday) on the Singapore Exchange. Earlier in the session it had climbed as high as S$13.20.

Additional reporting by Martyn Williams.

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