Don't take things at face value
There seems to be a lot of misunderstanding about just exactly what the settlement means. But I would like to remind people not to take things at face value - Apple is smarter than that.
I suspect that it was Apple who proposed the settlement to Creative. More than that, I suspect it was Apple who dictated the actual terms. Creative had no choice but to accept, which was just as well because at first appearance, they look like the winner.
However, I believe Apple is playing corporate jujitsu here. The settlement is a strategic move that greatly benefits Apple in the long term even as Apple is willing to suffer an apparent loss of face.
Why?
Because the settlement gives Creative much needed ammunition (in both cash and legal standing) to go after every one of the iPod's competitors. You can be sure Creative is getting ready to send out letters to Sandisk, which has raced past them in the music player space this year. You can be sure Creative will be sending letters to iRiver.
And most certainly, you can be certain that Creative will be sending letters to Microsoft with regards to Zune.
Really, Apple was not playing from a weak position. There's no other way to say it, but that's a simplistic and naive interpretation. Patent battles are very, very expensive, lasting years and thousands of man-months of time. Creative not only had to fight Apple over its original patents, but simultaneously defends itself against Apple's countersuit (which were filed in a different state, just to make life more difficult for Creative's legal team).
Without any effort at all, Apple could drag the case through the courts for 5+ years and force Creative to cough up tens of millions of dollars in legal expenses. Creative simply does not have that kind of money, after blowing through $100 million in cash to write of unsold inventory last year. The company's cash position is very weak and the company was undoubtedly sweating blood trying to determine if it would have enough cash to see things through the end - an end which was far from guaranteed. Even if Creative won its original patent suit, they would have lost the countersuit for the same reasons.
The prospect of blowing $50 million over 5 years to pay lawyers for a net gain of nothing was weighing heavily on their minds, I'm sure.
I think what really motivated the settlement is the sudden appearance of Zune. That basically gave Apple the ace it needed to give it a four-of-a-kind. Why? Because while Creative might have been able to tough it out before Zune, the existence of Zune would basically kill the company before the case could wind through the court system.
I mean, we saw Creative's share of the music player market dive from 8% to just 4% in about a year. Sandisk, which was a virtually unknown brand in the music player space, went from nothing to 8% in a short time.
Even if Zune is far from being an "iPod killer", with Microsoft's marketing machine backing it up, I think any reasonable person could see that it is quite likely that Creative's marketshare would be dropping to nothing a year from now.
So Apple basically gave Creative an offer it couldn't refuse.
Settle with us now and forget this silly patent threat of yours. We'll give you $100 million to license your patents, if only because you got them first. And now that we're all family, why don't you go after some of our competitors. You'll probably be able to get just as much, if not more, which is a lot better than what you were getting trying to fight us with that Zen thing.
And if you want to let your pride get in the way, I don't think we need to remind you that Zune is just a few months away from demolishing what little is left of your company. A year from now, it will be iPod, Sandisk, Zune....everyone will have forgotten about Creative because frankly, you don't have any loyal customers like we do.
In fact, we'll be nice and help you gain some loyal customers, too. By making great iPod accessories, you'll be truly a welcome part of the family and more importantly, you'll have products that people actually buy. How about that!
Just remember, the $100 million is a kind of loan, of sorts. When you talk to that Microsoft fella, remember to share some of the payments you extract with us. We're all family, right?
Given that the writing was on the wall, I figure Creative realized that if you can't beat 'em, it was far, far better to join Apple.