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Wednesday, August 23, 2006, 03:00 pm PT (06:00 pm ET)

Apple to pay Creative $100M in settlement

Apple Computer on Wednesday said it reached an out-of-court settlement with Creative Technology, ending all legal disputes between the two companies.

Under the terms of the agreement, Apple will pay Creative $100 million for a paid-up license to use Creative's recently awarded software interface patent in all Apple products. The iPod maker said it can recoup a portion of its payment if Creative is successful in licensing this patent to other companies.

In a bizarre twist, the Cupertino, Calif.-based Apple also announced that Creative has joined its "Made for iPod" program and will be announcing their own iPod accessory products later this year.

Creative, which touts its own line of digital music players, has long been considered one of Apple's primary rivals in the digital music arena. However, sales of Creative's digital music players have combined for just a 4.3 percent share of the US digital music player market — a distant third to Apple's dominate 75.6 percent share.

"Creative is very fortunate to have been granted this early patent," said Steve Jobs, Apple's CEO. "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."

In May of this year, Creative filed a lawsuit against Apple in a California court, accusing the company of infringing on its "Zen Patent," which covers a software interface common amongst today's most popular digital music players. On the same day, Creative also submitted a complaint to the U.S. International Trade Commission (ITC), seeking an exclusion order to prevent Apple from importing its iPods into the United States.

Apple immediately counter-sued Creative, reversing the charges and stating that Creative's digital music players infringed on some of its own iPod patents. In the weeks that followed, Apple tacked on yet another suit, which similarly charged Singapore-based Creative with continuous infringement on three more of its iPod patents.

The tides began to swing Creative's way when the ITC in June said its governing body voted to institute an investigation into Apple's use of technology covered in Creative's Zen patent. The commission said it had referred the case to a judge who would schedule and hold an evidentiary hearing within five to eight months.

"We’re very pleased to have reached an amicable settlement with Apple and to have opened up significant new opportunities for Creative," said Sim Wong Hoo, chairman and CEO of Creative.  "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 for our speaker systems, our just-introduced line of earphones and headphones, and our future family of X-Fi audio enhancement products."

Hoo said Apple's one-time licensing payment of $100 million will contribute approximately 85 cents of earnings per share to Creative's September quarter results.