Apple Computer announced on Wednesday it would pay Singapore-listed Creative Technology US$100 million to settle a dispute over patented technology used in iPod and Nano MP3 players.
The deal ended a budding legal battle that began earlier this month after Creative was awarded what it referred to as a "Zen patent" on technology used to select and sort songs in its Zen MP3 player.
"It shows an understanding of the way of the world," analyst Michael McGuire of Gartner Research said.
"In this day and age, the folks who come to resolution quicker tend to be the folks who stick around longer and prosper. Lawsuits and patent disputes can be very expensive," he said.
Creative went to the US court, and the US International Trade Commission, to accuse Apple of infringing on its patent by using the technology in iPod and Nano players.
"Creative is very fortunate to have been granted this early patent," Apple chief executive Steve Jobs said in a statement.
"This settlement resolves all of our differences with Creative, including the five lawsuits currently pending between the companies, and removes the uncertainty and distraction of prolonged litigation," he said.
Apple would pay Creative US$100 million for a license to use the technology and would be able to recover some of the money if Creative licensed the patent to others, according to the companies.
Under the terms of the settlement, Creative, an Apple rival in the MP3 player market, would also begin marketing its own line of iPod accessories as part of Apple's "Made for iPod" program.
"We're very pleased to have reached an amicable settlement with Apple and to have opened up significant new opportunities for Creative," said Creative chairman and CEO Sim Wong Hoo.
"Apple has built a huge ecosystem for its iPod and with our upcoming participation in the Made for iPod program we are very excited about this new market opportunity," he said.
Creative's decision to make accessories for iPods and Nanos could be a precursor to abandoning its line of MP3 players, according to analyst Rob Enderle of Enderle Group in Silicon Valley.
Creative's share of the market has remained flat while sales of MP3 players made by rival SanDisk have tripled, making SanDisk the top competition to Apple's globally dominant iPods and Nanos, Enderle said.
Meanwhile, Microsoft has gone public with plans to introduce a "Zune" MP3 player and online content store this fall to challenge Apple's winning iPod-iTunes pairing.
Analysts were striving to learn nuances of the settlement and whether Creative's new focus was going to be on revenue from MP3 peripherals and licensing its patented technology.
"Where this shakes out for Creative is going to be interesting," McGuire said. "Given all the rhetoric of the CEO over the years about taking on iPod, you have to give him credit for focusing on business."
Creative expected the licensing windfall to boost its current fiscal quarter earnings by US$0.85 per share.
In financial results released two weeks ago, Creative revealed it had slipped into the red for the year to June.
Creative chalked up an annual net loss of US$118.2 million compared with a US$588,000 profit in the previous year.
Jonathan Ng, a technology analyst with CIMB brokerage, in Singapore has now increased his year-to-June 2007 net profit estimate for Creative to US$99.40 million from a previous forecast for loss of US$600,000.