Become a MacRumors Supporter for $50/year with no ads, ability to filter front page stories, and private forums.
mambodancer said:
Sorry folks, but you act as if the Patent office was some kind of arbiter for what makes sense.

Who acts this way? It doesn't matter to this situation whether the current patent system is logical or sensible. We can all agree that it's run amok, but that changes nothing.
 
Jovian9 said:
Definitely interesting......now I'll just have to remember to never buy Creative products :) I like Apple not Creative........so why support a company I do not like that sued a company I do like and got $100 million in a lawsuit over a BS patent.

Because buying from the company you don't love will pay 10% to the company you love! ;)
 
vitaboy said:
Creative joins the "Made for iPod" program and pays Apple a percentage of the revenue for iPod-only products? Doesn't sound like the kind of terms a confident victor would be making. Sounds more like a company trying to kick up a new revenue source in light of the fact that Zune is about to eat up its music player business.

The most interesting part is when Zune launches, and how long it will take Creative to sue Microsoft. Apple just turned a 90-lb weakling into a hired assassin!
These are probably the 2 most important points in all of this. Creative has NOT licensed this technology to other MP3 player manufacturers, and purchasing a license will be prohibitive for many manufacturers. And with Creative joining the Made for iPod program, it will likely soon learn that there is more money in making iPod accessories than in making iPod competitors.

All in all, this settlement will discourage iPod competitors.
 
IJ Reilly said:
No, but they lost in every other sense that matters. I am really failing to understand why some people are having such a tough time comprehending this. Apple capitulated on the patent challenge, Apple paid a huge sum of money to Creative so Apple could continue business as usual. Apple lost. That's all, folks.

Sorry, but I think you are taking the settlement at face value and making just a surface interpretation.

There are already several industry analysts who have now gone on record saying this is a win for Apple.

$100 million may be a big load of money for you, me and Creative, but it's chump change when we're talking about the fact that iPod makes $6+ BILLION PER YEAR (and growing) for Apple.

It's like Creative accused Apple of stealing the goose that lays golden eggs. In return, Apple gives Creative one of the eggs and Creative goes, "Wow! Thanks! You can keep the goose!"

The face-value interpretation says that Creative won because it was a pauper who now has a golden egg that's worth a lot of money. The deep interpretation is that Apple still has the goose and Creative just gave up all claims of ownership over it.

What's so hard to understand about that?

BTW, some months ago, Research in Motion coughed up $450 million to settle a patent dispute with NTP over the popular Blackberry devices. RIM made a total of $2 billion in fiscal 2006. NTP basically had RIM by the throat with its patents and extracted a heavy licensing fee as a result.

You're telling me Creative supposedly had Apple by the throat, and extracted 1/4 the licensing for a product that generates 4X the revenue of Blackberry? Riiiiiight....

To put it another way, $450 million was about 25% of RIM's entire annual revenue. $100 million is less than 1% of Apple's, and in fact, is less money than Apple makes on interest each year on its cash horde.
 
jholzner said:
There's not real precedence since Apple settled. If it had gone to court and Apple lost, then there would be a precedence.

Actually, I belive the strength of a patent is enforced if a company can show there are valid, paying licensees for it. It make the patent that much harder to overturn.

This was exactly the tactic Microsoft used when taking a big multi-million dollar license for SCO so-called patent for all things Uni (and Linux).

Now, SCO's patent claim is even more ridiculous than the Creative patent, and pretty much proven to be so, but Microsoft decided a few million would be worth the cost of helping SCO out because SCO winning would mean Linux losing big time. And we know how Microsoft feels about the Linux threat.

Basically, the settlement gives Creative the ammunition to go after other makers of music players. It's almost guaranteed that Zune will be hit with a lawsuit because Zune is an even bigger threat to Creative's existence than the iPod was....and a Zune lawsuit would definitely work to Apple's benefit.
 
vitaboy said:
Sorry, but I think you are taking the settlement at face value and making just a surface interpretation.

There are already several industry analysts who have now gone on record saying this is a win for Apple.

$100 million may be a big load of money for you, me and Creative, but it's chump change when we're talking about the fact that iPod makes $6+ BILLION PER YEAR (and growing) for Apple.

It's like Creative accused Apple of stealing the goose that lays golden eggs. In return, Apple gives Creative one of the eggs and Creative goes, "Wow! Thanks! You can keep the goose!"

The face-value interpretation says that Creative won because it was a pauper who now has a golden egg that's worth a lot of money. The deep interpretation is that Apple still has the goose and Creative just gave up all claims of ownership over it.

What's so hard to understand about that?

Nothing, but it's also not very accurate.

First, $100 million is load of money for anyone. Time was, not so long ago, that reporting a $100 million quarterly profit was a big deal for Apple. The iPod doesn't "make" $6 billion a year for Apple. That's just revenue. Profits are a faction of that revenue.

Second, Creative doesn't "give up" anything but a license to Apple for technology Apple was using before for nothing. No matter how you cut it, the license fee come right out of Apple's bottom line.

If this can be called a "win" for Apple, it's in their getting this issue squared away relatively quickly, so it doesn't overhang the next generation of iPod releases. The long-term impacts of allowing the suit to drag on could have been considerable, just as it was for RIM. Especially if in the end, they lost.
 
IJ Reilly said:
First, $100 million is load of money for anyone. Time was, not so long ago, that reporting a $100 million quarterly profit was a big deal for Apple. The iPod doesn't "make" $6 billion a year for Apple. That's just revenue. Profits are a faction of that revenue.

This might be a valid point, except that the $100 million payout isn't being charged against profits. Instead, it is being recorded as an asset and ammortized over many years, meaning it will have very minimal impact to the bottom line.


IJ Reilly said:
Second, Creative doesn't "give up" anything but a license to Apple for technology Apple was using before for nothing. No matter how you cut it, the license fee come right out of Apple's bottom line.

I believe this is incorrect. Just because Apple is paying the fee doesn't mean it comes directly out of Apple's profits. As stated above, the licensing fee will be ammortized over several years and thus the impact to the bottom line will be nil.

Secondly, the fee is conditional. If Creative manages to secure other licensing deals, they pay Apple back some of that $100 million. Perhaps all, if the other fees are substantial. That sounds more like a "loan" to me.

IJ Reilly said:
If this can be called a "win" for Apple, it's in their getting this issue squared away relatively quickly, so it doesn't overhang the next generation of iPod releases. The long-term impacts of allowing the suit to drag on could have been considerable, just as it was for RIM. Especially if in the end, they lost.

No disagreement with this. The only thing is that NTP never agreed to pay RIM back part of its licensing fee if it was successful in securing new licensees. And NTP didn't decide to become a maker of Blackberry add-on devices.

By officially becoming a member of the "Made for iPod" program, Creative is basically unofficially pre-announcing that it is exiting the player business (contrary to official denial, which are necessary in order for it to sell of remaining inventory). Zen's lost huge marketshare against Sandisk, of all companies, and there's no way Zen will hold on to what little marketshare it has with Zune entering the scene. Not to mention that "Zen" and "Zune" are phonetically similar, which all but guarantees the situation will be hopeless for the Zen line of players.

Creative realized it makes more sense to extract licensing fees from Microsoft for Zune than try to compete directly as it had against the iPod.

With that exit strategy tucked under its belt, it's now free to focus on creating great iPod accessories, which will require far less R&D than music players, and will actually be profitable.

Apple "lost" all right. Here's a summary from The Motley Fool

Apple Gets Creative

What's more, Apple is allowed to recoup costs if others agree to license Creative's patent. Will there be other deals? It's a good bet Creative will try to secure some; the $100 million the firm is getting from Apple will juice per-share earnings by $0.85 in the current quarter.

Plus, there are plenty of targets, with the biggest and most obvious being Microsoft (Nasdaq: MSFT). Its planned Zune player is expected out before the holiday season. Creative could get ahold of a beta version of the device and, if there's evidence of a patent violation, file suit and petition for an injunction.

Apple would love nothing better, of course. But even if Mr. Softy and other i-wannabes avoid the courts, they're unlikely to avoid the extra time and expense of working around Creative's patent. That, too, is a win for the Mac maker. Well done, Steve.

This is what would be called Pyrrhic victory for Creative. Sure, it looks like they won the battle, but only at such a cost that it ends up being a defeat in the long term.
 
vitaboy said:
This might be a valid point, except that the $100 million payout isn't being charged against profits. Instead, it is being recorded as an asset and ammortized over many years, meaning it will have very minimal impact to the bottom line.

This is really little more than a bookkeeping trick. The books will now report that Apple bought something for $100 million, something they thought they already owned. It's still the same dollar figure, no matter where the accountants put it in the books. The way I understand it, in theory at least, Apple could generate some revenue from this "asset" if Creative obtains more licenses. I'll believe it when I see it. I'm betting we never do see it.

The Microsoft Zune possibilities are interesting. We haven't seen the Zune interface yet, but you can be sure Creative is going to be taking a good, hard look at the device when it finally surfaces (sometime during this decade, almost without a doubt). We'll just have to wait and see. We'll also have to wait and see if Creative dumps their DMP business. If any of these events occur, I'm prepared to change my opinion about this settlement.
 
IJ Reilly said:
This is really little more than a bookkeeping trick. The books will now report that Apple bought something for $100 million, something they thought they already owned. It's still the same dollar figure, no matter where the accountants put it in the books. The way I understand it, in theory at least, Apple could generate some revenue from this "asset" if Creative obtains more licenses. I'll believe it when I see it. I'm betting we never do see it.

It may be a bookkeeping trick, but it's considered part of Generally Accepted Accounting Procedures (GAAP). The IRS and the SEC certainly doesn't have problem with it and ammorization is actually encouraged. Apple used the same method to record the $250 million cash investment in flash memory plants last year, as well as the $400 million it is setting aside for the new Cupertino campus. Neither of those big cash outlays really affected their profit recording.

IJ Reilly said:
The Microsoft Zune possibilities are interesting. We haven't seen the Zune interface yet, but you can be sure Creative is going to be taking a good, hard look at the device when it finally surfaces (sometime during this decade, almost without a doubt). We'll just have to wait and see. We'll also have to wait and see if Creative dumps their DMP business. If any of these events occur, I'm prepared to change my opinion about this settlement.

Well, despite my strong opinions, I have to again agree with you that only time will tell who was the real winner here.

My predictions are

1) Microsoft gets hit with a patent infringement lawsuit and settles rather quickly and

2) Creative exits the player business because it will be squeezed by the iPod and Zune from above, and Sandisk and iRiver from below. The field will just be too crowded with Zune. Because no matter how much money Zune will lose in the first few years, Microsoft will no doubt keep it afloat rather than cede defeat in this space. That might help Zune to take away some share away from the iPod eventually, but not before Zune eats the bulk of Creative's and Sandisk's share first. Creative has to be thinking about whether continuing to pour R&D and marketing into players is worth it with Microsoft competing directly against them. My guess it they'll bail as soon as they are able.

But again, only time will tell. :)
 
vitaboy said:
2) Creative exits the player business because it will be squeezed by the iPod and Zune from above, and Sandisk and iRiver from below. The field will just be too crowded with Zune. Because no matter how much money Zune will lose in the first few years, Microsoft will no doubt keep it afloat rather than cede defeat in this space. That might help Zune to take away some share away from the iPod eventually, but not before Zune eats the bulk of Creative's and Sandisk's share first. Creative has to be thinking about whether continuing to pour R&D and marketing into players is worth it with Microsoft competing directly against them. My guess it they'll bail as soon as they are able.

At the moment Sandisk is ahead of Creative in terms of profit and market shares because since Sandisk makes their own flash drives they can sell larger capacity drives at a lower price hence the 8gig Sansa being the same price as many 4gig players. And in Korea and Japan iRiver if I am not mistaken is doing better than creative because they have some items there that are actually meeting the demand of their consumers i.e. pocket dictionaries that play games, support audio and video. Yet Creative still enough made some profits in Q1 and Q2 of 2006.
 
vitaboy said:
It may be a bookkeeping trick, but it's considered part of Generally Accepted Accounting Procedures (GAAP). The IRS and the SEC certainly doesn't have problem with it and ammorization is actually encouraged. Apple used the same method to record the $250 million cash investment in flash memory plants last year, as well as the $400 million it is setting aside for the new Cupertino campus. Neither of those big cash outlays really affected their profit recording.

I didn't mean to imply that it was somehow illegal or improper. My point was, even an amortized expense is an expense, and booking it as an asset doesn't mean it will produce a return on investment. All those numbers go on the expense side of the ledger, one way or another. Spread out over years or taken as a lump sum, they're still spending the money.
 
Huge win for Apple, hands down.

$100m is not chump change but for a company with Apple's size it comes close.

On top of that Apple gets to recoup at least some of that if Creative decides to license the technology in question.

On top of that Creative is entering the "made for iPod" market, which only adds to the iPod allure.

On top of that iPod interface doesn't change.
 
In any case, it's over and the accessories market will have another player.

Apple can add the $100 mn expense to their stock options mess, which should produce some very ugly financial statements. However, never having to worry about Creative again is a good thing.

It's not cheap but it's a sound investment in keeping their iPod business solid. If Creative go after iRiver, Archos, or anyone else, it will also help Apple indirectly.
 
morespce54 said:
Because buying from the company you don't love will pay 10% to the company you love! ;)

Are we sure about that though? Maybe they have an exclusive deal that allows them to not have to pay that 10% for the "Made for iPod" program.
 
Register on MacRumors! This sidebar will go away, and you'll see fewer ads.