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Creative Technology
V/s

Apple

Contents
Introduction
Companies Overview
Patent Involved
Case Description and Analysis
Facts in favor of/against both firms
The Judgement and its Analysis
Implications for the Industry

Introduction

The case is present in the digital music player domain

In May, 2006, Creative Technology filed a lawsuit for patent infringement against Apple for

using a similar hierarchical user interface in iPod as used in Creative Zen

The complaint was filed with the US International Trade Commission, while the lawsuit was filed
in a federal court in California

Both claim that the iPod infringes a patent on digital players owned by Creative Labs, the US
division of Singapore-based Creative Technology

In August, 2006, the two parties announced a broad settlement ending the dispute between
them

Apple paid $100 million for a paid-up license to Creative Technologys patent in all Apple
products and could recoup a portion of its payment if Creative licenses this patent to others

Also, Creative entered Apples Made for iPod program

Companies Overview- Apple

Apple ignited the personal computer revolution in the 1970s with the Apple II

It reinvented the personal computer in the 1980s with the Macintosh

Today, Apple continues to lead the industry in innovation with its award-winning desktop
and notebook computers, OS X operating system, iLife and professional applications

Apple is also spearheading the digital music revolution with its iPod portable music players
and iTunes online music store

With 394 retail stores (as of November 2012) spread across 14 countries, Apple has now
touched every part of the world building a nonpareil brand repute, difficult to tarnish

Apple is one of the leading companies to be involved in copyright infringement cases

Companies Overview- Creative Technology

Creative Technology is the worldwide leader in digital entertainment products for PC users

It is famous for its Sound Blaster sound cards and for launching the multimedia revolution

Creative Technology is now driving digital entertainment on the PC platform with products like
its highly acclaimed ZEN MP3 players

Creative Technologys innovative hardware, proprietary technology, applications and services

Creative is now well recognized as a global leader for product innovation in the audio and PDE
segments, offering consumers a complete, high quality digital entertainment experience

Patent Involved

The Patent, that Creative Technology claimed, was awarded to it for browsing hierarchical
listings of music files in MP3 players

Creative Technology had applied for it five years earlier in 2001, just barely nicking out
similar patents filed for Apple's then-nascent iPod

Creative Technology applied forthe U.S. Patent on January 5, 2001 and was awarded the
patent on August 9, 2005

The patent held true for Automatic hierarchical categorization of music by

A user interface is utilized to change the hierarchy, view track names, and select tracks for
playback or other operations

Case Description

The dispute involved various claims, defenses, and counterclaims for the patent
infringement and was filed on the basis of arguments of Prior Art and First to File

When Apple was gearing up for the launch of a revamped iPod mini, Creative Technology
sued Apple in a U.S. court over a patent that it said Apple's player infringed

According to Creative, it had won a patent, on a navigation interface for digital music players
that was being widely used by others, including Apple for both the iPod and iPod mini

Among other things, Creative also sought an injunction that would ban the import of the iPod
into the U.S. and also sale in U.S.

The ZEN Patent was awarded to the firm for the invention of user interface for portable
media players

This opened the way for potential legal action against Apple's iPod and the other competing
players. Creative immediately attempted to leverage the patent,filing suitagainst Apple for
infringement in May 2006. Apple responded by counter-suing on the basis of several other
Apple patents its lawyers found being infringed upon inCreative's Zen players

Case Analysis

This case came a month after the news that a Microsoft employee had won a patent on
another technology used in the iPod. Clearly, though, the Creative announcement appeared
more significant

What started off as a patent infringement, bloated into an all-out patent war

Eventually, Apple Computer and Creative Technology agreed to settle their legal dispute
over music player patents for $100 million

Apple agreed to break off $100 million in licensing fees to Creative (a pittance compared to
its $1.5 billion in iPod revenues thatquarter!) for rights to the disputed patent moving
forward

The $100 million, paid by Apple, thus granted Apple a license to aCreative patentfor the
hierarchical user interface used in that company's Zen music players

Although Creative didn't get the international injunction on iPod imports it wanted, but$100
million was an 85-cents-per-share boost for their quarterly profits

Facts in favor of/against both firms

couldn't have afforded to have an injunction slapped on imports of the iPod, and $100 million is a pittance
compared to the $1.5 billion in revenue Apple garnered on iPod sales in the previous quarter
Also, apparently Apple could have got back some of the $100 million payment if Creative was able to secure
licensing deals with other MP3 player manufacturers
This had the makings of a big battle, because the stakes were so high

Creative
Creatives

strategy was simple and bold: Attack Apple Computer's iPod business by competing on price,
features, and flexibility
Creative isone among the countless companiesattempting to chip away at Apple's runaway lead in the market for
portable MP3 players
As part of the agreement, Creative entered Apple'sMade for iPod program as an authorized seller of iPod
accessories.
Creative would be able to affix the "Made for iPod" logo to its speakers, headphones and other related products

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Judgement

Creative Technology and Apple entered into a

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Analysis of Judgement

The lawsuit was an act of desperation -- but it may be about the only thing that could have
saved Creative Technology's MP3 player business now

Apple was beaten to the patent punch by a matter of months

The computer maker first filed in October, 2002. Creative filed the previous May

While the final patent was awarded in August, 2005, Creative claims it first started using
the interface method on its Nomad hard-drive-based players in September, 2000, nearly a
year before the release of Apple's first iPod in October, 2001

Ironically, Apple had sought to obtain a patent on a similar interface pertaining to the iPod,
but its application was rejected in July, 2005

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Implications for the Industry

The dispute between Creative Technology and Apple has had long term impact on Apple
and the whole digital music player industry. The case has forced Apple to take patents
seriously

This has made companies to spend huge amount in obtaining patents and protecting them
or they also might get caught in some lawsuit as Apple did

Patent expenses now form a significant chunk of the total expenses but they just consider it
as a security expense

The patent portfolios of companies, as a result, is growing and so is the pressure to use
them against the competitors

Today, it is a warzone out there and we see several cases where Apple has filed a lawsuit
against companies like Samsung, HTC, Motorola Mobility and these companies are also
involved in several lawsuits of their own.

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References

http://news.cnet.com/2100-1047_3-6108901.html

http://en.wikipedia.org/wiki/Creative_Technology

http://gizmodo.com/5141575/apples-bloodiest-patent-and-copyright-clashes

http://www.businessweek.com/the_thread/techbeat/archives/2005/08/creative_vs_app.html

http://www.businessweek.com/stories/2006-05-16/creative-technology-takes-on-apple

http://en.wikipedia.org/wiki/Apple_Inc._litigation#Creative_Technology_v._Apple.2C_Inc._.28
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