Prof. Smith isn’t the sharpest tool in the shed. Whenever you go to court, you run the risk of losing. It’s always a crap shoot. Even with a strong case. And Apple did have a strong case (prior art and all that), but was it worth the risk? Apparently not for Apple.

The deal boils down to this: Creative gets off Apple’s back and they can go off extorting lunch money from the other kids on the playground and, if successful, Apple pays less. Also, Creative now has to pay Apple royalties on its iPod accessories. All in all, not such a bad deal for Apple because it ends the threat to a lucrative line of business for Apple, and turns an enemy into an ally.

And it’s a lesson for Apple: Don’t forget to file your patents for things you invent, cause some other kid might come along and steal it away from you.

Creative is in an odd position. How long do yoiu think that it will take them to make $100 million on their MP3s? You can at least double that time frame with the Zune arriving from MS and MS slowly dropping their Plays For Sure program. I have no doubts that Apple pointed out the Zune to Creative, mentioned that they would probably make a lot more money being in the Ipod environment, plus the easy money of licensing their patent rights. Creative shareholders would have the heads of everyone at the executive level if the walked away from this reality.

For Apple, it's a good fix as Creative now has to defend any interface suits (or at least come up with the cash) and they are going to get money back on license fees as well as the iPod tax creative will pay. Apple may even throw them a bone or two in terms of design ideas if they show they can make good iPod accessories.

"He agreed that, if Microsoft has to license Creative's technology for Zune, Apple could reap the benefit by seeing some of its $100 million payment come back via one of its staunchest rivals."

How would that be? Apple didn't buy the patent, they just licensed the right to use the technology. So how would Apple recoup any of the payment if Microsoft had to pay Creative?

It says exactly how in the first paragraph of the article. The $100m is reduced by any revenue that Creative can generate from licensing of this particular patent. If Microsoft licenses this patent from Creative, any monies coming from MS for this will reduce the $100m settlement that Apple is due. It is not clear, however, what portion of this settlement is Apple allowed to recoup through this way. Still, the statement further down in the article (Apple getting money from MS for the iPod navigation patent) is essentially true.

Now that Apple has "settled" and is a licensee, the patent has become more powerful. Now competitors will have an even tougher time proving that the patent is invalid. Just like they did with 1-Click shopping (see http://actsofvolition.com/archives/2000/september/apple )

This is a good way to keep out companies that cannot afford the fees. (And what new company can?)

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Rainy Day wrote:
Prof. Smith isn’t the sharpest tool in the shed.

I've always considered myself as more of a sledgehammer, anyway.

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Rainy Day wrote:
Whenever you go to court, you run the risk of losing. It’s always a crap shoot. Even with a strong case.

With the disputes that go to trial, that's a fair statement. But upwards of 95% of civil lawsuits filed are settled, which suggests that the cases that actually go to trial are ones where the facts or law are seriously in dispute. Apple might very well have decided that Creative had a strong case, particularly if it is infact using an "Automatic hierarchical categorization of music by metadata" system on the iPod (that's the title of Creative's patented technology) . This is particularly true with patent cases, where a patent is presumed valid. Apple would have had the burden to prove the patent is invalid.

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Rainy Day wrote:
And Apple did have a strong case (prior art and all that)

I did make the point in the interview that I was not familiar with the specific technology, and so could not comment on whether the case was strong. However, Apple filed a patent application for the same technology, just later than Creative (a point Steve Jobs conceded in the press release). I think it's US patent app. no. 20040055446. It's a fair assumption that Apple thought the technology was patentable, and that Creative would win, because Apple itself was trying to patent the same technology, prior art notwithstanding.

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Rainy Day wrote:
The deal boils down to this: Creative gets off Apple’s back and they can go off extorting lunch money from the other kids on the playground and, if successful, Apple pays less. Also, Creative now has to pay Apple royalties on its iPod accessories. All in all, not such a bad deal for Apple because it ends the threat to a lucrative line of business for Apple, and turns an enemy into an ally.

While I take issue with your characterization of asking people to pay for the right to use your property as extorion, I think these are good points, and probably factored heavily into Apple's decision making.

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Rainy Day wrote:
And it’s a lesson for Apple: Don’t forget to file your patents for things you invent, cause some other kid might come along and steal it away from you.

Isn't Apple the thief in this situation? I mean, putting aside the argument the patents weren't valid, Creative did file it's patent first (it beat Apple to the patent office by over a year and a half).

Hmmm do you mean the way that Bell managed to patent the phone first I wonder.

Often the patenting of things has little to do with the actual invention of them especially when one considers the complexity of determining what actually represents something new and patentable (as with Swan) and old and already covered by an existing patent as is arguably true in this case. While Bell was familiar with the importance of timing one's patent, the latter complex and grey area is something that Thomas Eddison in particular was additionally familiar with.

The information sources quoted spoke only of speculation. I believe there's much more to the deal than has been revealed. Apple established a vlaue to the Creative patents, limited the company's downside, picked-up some kind of patent participation through the settlement and provided Creative with a legal precedent to pursue other digital music player makers.

Further, Creative becomes an iPod ancillary product partner. We don't know the full terms of the deal, but Apple is recording the settlement as an asset on its balance sheet, not an expense. A simple patent settlement payment would ordinarily be recorded as an extraordinary expense, not an asset to be amoritzed.