Apple Pays Creative $100 Million For Less Than Creative Patent License

from the go-back-to-using-your-iPod dept

About a year ago, Creative Technologies, who had struggled competing against Apple's iPod in the market place, announced that it had a patent on the basic interface of a digital music player and planned to aggressively go after Apple -- which is exactly what they did. Since patent stockpiling is the equivalent of nuclear stockpiling, Apple did exactly what you'd expect and sued Creative back for violating a bunch of their own patents. It's not clear what this has to do with innovation, but after sifting through the various patents and adding up the expected legal fees, it looks like Apple has just decided to pay $100 million to make the whole thing go away. Again, this seems to be about rewarding the loser in the marketplace. Creative failed to make a music device that the market liked as much as Apple's -- suggesting that, for whatever innovation they had created, it wasn't what drove the market. And, for that, they get to take $100 million from the company who did successfully figure out what the market wants.


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  •  
    identicon
    Bandito, Aug 23rd, 2006 @ 3:54pm

    Not only that...

    ... but the patent is for, if i recall correctly, a "hierarchical navigation system" for music. Um, I use a folder hierarchy on my desktop PC. Does that mean I'm infringing? Or does it, perhaps, mean that this was an OBVIOUS patent? Yet another case of the maladjusted patent system.

     

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    DittoBox, Aug 23rd, 2006 @ 3:57pm

    Apple deserves it.

    Just like all the other patent whore tech companies out there, Apple deserves this. Just looks at their patents on type Anti-Aliasing (specifically hinting) for such silliness, then going in and stopping OSS software like Freetype from using it (which is simply a byte code interpreter).

    I just want to know who's hiding in the dark that's all ready to back hand Creative into submission over another egregiously stupid software patent?

     

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    Aaron, Aug 23rd, 2006 @ 4:27pm

    Stupid Patent Laws

    I don't feel that bad for Apple, but this patent suing is out of control - they should simply ammend the law to state that you have up to 6 months after something is common knowlege to dispute the infringment or otherwise you forever give up that right. Its not like Creative didn't know there was this little product from Apple called an iPod years ago...

     

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      Bob, Aug 23rd, 2006 @ 5:45pm

      Re: Stupid Patent Laws

      Er, do your homework. Creative had one of the very first hard drive based MP3 players on the market - well before the i-pod ever shipped. OK it was pretty ugly, but it implemented the patented menu system and was on sale at a point in time that the i-pod was possibly not even a glint in Jobs' eye.

       

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    Aaron, Aug 23rd, 2006 @ 4:30pm

    Ammendment

    Actually, I want to amend my comment, the USPTO should have never given patents to Creative or Microsoft...

     

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    locoHost, Aug 23rd, 2006 @ 4:42pm

    Oh hell yeah!

    Creative bitch slaps Apple! What a fabulous day this is.

     

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    RCade, Aug 23rd, 2006 @ 4:46pm

    Yes the patent system isn't right, but you also cannot use logic when it comes to consumer spending. Nike, Apple, and others sell a lot of product because they are cool, hip, or trendy, and not necessarily the best products avaible.

     

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    scarlet1815, Aug 23rd, 2006 @ 4:59pm

    Apple may be the most popular...

    but it certainly isn't the best. Everyone knows the Prism Durosport is the best. They’re like an iPod, only they’re better. ‘Cause they’re chunkier and more solid.

     

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    mark, Aug 23rd, 2006 @ 5:04pm

    if they really want to have an imapct

    If they really want to have an impact they'd take the enitre settlement and invest it in better software. SO far all their growth has come from the other non-ipod players.

     

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    Phil Chimbolo, Aug 23rd, 2006 @ 5:19pm

    It's all about marketing!

    I own a Creative player. Why? I did my homework. The reason why iPod took the market by storm was... of course... ads. Apple inundated the public with ads, ads and more ads. We are a society that melts at the sign of "hip" ads playing the current popular music. Apple knows how to do that better than Creative. Have you EVER seen a Creative ad on TV ?

    Now, maybe, Creative can spend some of that $100M on developing a better consumer image and improved marketing plan for general consumers.

     

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    steve, Aug 23rd, 2006 @ 5:48pm

    it is all about the marketing

    I have to agree with Phil on this one. It is all about the marketing. I also own a Creative I tried the other players out there and they all sucked compared to the Creative so there was my reaserch.
    Just a side note
    I now work with one of the former CMO's of M&M Mars and when I found out whet year he left I compared the marketing from then and now and I have to say the marketing then was much better!
    I feel Creative needs to chuck their current CMO and find a new one.

     

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    bobby, Aug 23rd, 2006 @ 6:33pm

    creative

    I have no love for creative. They gave us soundcards that sucked(remember hard irq designation?) , then new models that were not compatible with older ones. I owned a Zen that refused to sync most of the time and I went through 3 of them until I had one that worked. I am using a three year old ipod that works and is simple to use.

     

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    UniBoy, Aug 23rd, 2006 @ 6:43pm

    Need a change...

    Crative needs to change their name. They haven't actually BEEN creative since the SoundBlaster days.

    Personally, I agree with the original post. Apple paid the settlement so that they could shift their focus back to important stuff, like making their industry leading products even better.

    Creative already had its heyday. They are well on their way to Chapter 11.

    Apple, in contrast, is currently enjoying its third major heyday since it was founded.

     

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    Steve, Aug 23rd, 2006 @ 6:45pm

    Apple does to Creative as Microsoft does to Apple

    We all know that Apple Computers are far superior to Windows machines. However, in the early days, the Microsoft marketing machine kicked Apple's ASS! Thanks to that battle, most of us in the business world are stuck living with Windows. It looks like Apple learned it's lesson and used the same Microsoft marketing tactic against Creative. Unfortunately Creative lost the battle with a better product maybe they should sing the $100M into marketing!

     

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    mandhiri, Aug 23rd, 2006 @ 7:10pm

    poda poda punnakku

    apple head job screwed creative head wife so creative head wants compensation for the hard screwing...it's as simple as that..
    both are stupid products.

     

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    Susheel Daswani, Aug 23rd, 2006 @ 7:25pm

    I usually agree with TechDirt's analysis, but I feel their analysis of the patent system is often incomplete. They often bemoan that that patent system has nothing to do with innovation. For example, in the Creative/Apple dispute, their reasoning is that Creative lost in the marketplace since their innovation was not 'innovative' enough to drive the market. It seems that TechDirt equates market success with innovative success. If you can provide the market what it wants, you'll succeed, so patent protection isn't necessary. This is a pretty naive view of the market - innovative leaps are not guaranteed success in the marketplace, as other considerations (marketing, ripeness of the marketplace and surrounding technology, etc.) often enter the success equation.

    The patent system is exactly about distilling and encouraging the innovative steps necessary for market success. Granting patents to innovators allow pure technologists to reap a reward from their purely innovative efforts. If the patent system did not exist, it is possible that entrenched businesses would just steal good ideas and monetize them most effectively since they have the best access to market success.

    This is not to say the patent system doesn't have huge problems. The biggest of them all has to do with the obviousness standard. It is way too low a bar. Hopefully the KSR v. Teleflex case will stem the tide.

     

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      Mike (profile), Aug 23rd, 2006 @ 10:29pm

      Re:

      Susheel,

      Thanks for your comments, though I would like to respond to your points. I would like to say, first off, that due to the nature of our short blog post style, we tend to condense things and assume that readers have read our past posts and/or links on certain topics. So, what you may call "incomplete" we think of as not rehashing what we've discussed before. Almost every point you claim we've simplified, we have discussed previously in more detail and with data to back up the claims.

      They often bemoan that that patent system has nothing to do with innovation. For example, in the Creative/Apple dispute, their reasoning is that Creative lost in the marketplace since their innovation was not 'innovative' enough to drive the market. It seems that TechDirt equates market success with innovative success.

      We've discussed this in great detail in the past. There is a huge difference between invention and it's an important distinction. In the grand scheme of things, if the goal is net societal gain, innovation is a lot more important than invention. Invention is coming up with something new. Innovation is successfully bringing something new to market -- and it's a continuous process. It involves both new products *and* successfully finding a market for it. So, yes, we do equate market success to innovative success -- as do many others.

      One important point, by the way, is that incentivizing invention is incentivizing a single event: creating something new. Then allowing the inventor to sit back and make money off of royalties and resting on his laurels. Innovation is an ongoing process. It involves continually improving the product so that the market keeps coming back. It's about continuous change and improvement -- which seems to have much greater societal gain (as noted in the study above).

      This is a pretty naive view of the market - innovative leaps are not guaranteed success in the marketplace, as other considerations (marketing, ripeness of the marketplace and surrounding technology, etc.) often enter the success equation.

      Well, again, we're using different definitions of innovation here, so I have to disagree. If those other considerations get in the way, then the innovation was a failure. There's no reason to promote that or encourage that. We should be focused on creating innovation that has a societal benefit -- otherwise, why bother? So if the marketing or ripeness of the market or whatever are not ready, then why bother wasting resources encouraging products that aren't going to succeed?

      The patent system is exactly about distilling and encouraging the innovative steps necessary for market success. Granting patents to innovators allow pure technologists to reap a reward from their purely innovative efforts.

      That's one way to look at things, but it doesn't make sense to me. In any other space, you don't have the same setup. If I am a writer, I still need to market and promote my writings to be considered a success. If I am an artist, the same is true. If I make the best pizza in the world, I still need to be able to sell them in a business model that makes sense. You see where this is going? Every "creative" job in the world requires some business component. Why should we separate out inventors/technologists and say they can get paid even if they can't succeed in the market? Success in the market *is* what encourages innovation. That's plenty of incentive. If customers want it, someone figures out a way to create it and sell it.

      If the patent system did not exist, it is possible that entrenched businesses would just steal good ideas and monetize them most effectively since they have the best access to market success.

      Again, this is shown as false by various studies and research. While there may be more competition, it drives everyone to innovate more to always "one up" the competitors. Also, the assumption that "big, entrenched" business can just steal good ideas and be a success is false. Generally, big entrenched companies are much slower to react, allowing new entrants to steal their market share (read the Innovator's Dilemma for more on this concept, or Dave Levine's "Against Monopoly" which shows many cases where a lack of patent rights encouraged more innovation). We've also discussed how some nations sped up innovation and industrialization in Europe when they did away with patents altogether.

      So, basically, I disagree that our analysis is simplified. We may condense things for the sake of blog posts, but I'll back up every point I make and can point to plenty of research that supports what we say about patents. I don't say the things I say lightly. It involves many years of study to reach these conclusions.

      I'm always willing to discuss these issues, though, as I find that it makes sure that we're really thinking through everything. However, I don't appreciate the suggestion that these views are "naive" in any manner.

       

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        Susheel Daswani, Aug 24th, 2006 @ 5:38pm

        Reply to my comments

        First off, I'd like to apologize for calling Mike's views naive or incomplete. I understand the shortcomings of this blog format, so I shouldn't conflate those failings with logical or theoretical failings of the ideas presented.

        That said, I still disagree with several of Mike's assertions.

        1) Mike asserts that the patent system, which rewards discrete invention instead of continuous innovation, "allow[s] the inventor to sit back and make money off of royalties and [rest] on his laurels." Sure, sometimes. Sometimes an inventor makes one invention, patents it, sells the patent, and lives the good life. Some of the time though, that same inventor makes improvements to that patent, or goes on to something else, etc. More importantly, rewarding that discrete invention abstracts away having to worry about bringing that invention to market (or innovating, as Mike woud have it). This is not a bad thing - it allows the inventor and the entrepreneur to specialize, which often leads to efficiencies. It also leads to a patent market, which can also lead to efficiencies. So I would disagree with Mike's implication that this feature of the patent system is a bad thing.

        Mike goes on: "Why should we separate out inventors/technologists and say they can get paid even if they can't succeed in the market? Success in the market *is* what encourages innovation. That's plenty of incentive." I believe this is a pretty harsh view - not only do you have to be inventive, but you have to have an MBA too (or have some business-savvy friends)! Otherwise, tough luck. It is easy to say inventors/technologist should have to have business acumen too, but it likely ignores or at least smooths over reality.

        2) Mike also asserts: "We should be focused on creating innovation that has a societal benefit -- otherwise, why bother? So if the marketing or ripeness of the market or whatever are not ready, then why bother wasting resources encouraging products that aren't going to succeed? " This is an easy assertion to make, but it has all the benefit of hindsight. Sure, now that we know that Creative failed in their mp3 player efforts, why should they be rewarded with a $100 million settlement? This ex post analysis ignores the ex ante effects of the patent system. The protection provided by patents gave Creative the incentive to even try to bring an mp3 player to market. One common failing of critiscm of the patent system is only focusing on the ex post detriments of the patent system without considering any ex ante benefits.

        This all said, I admit that we may be better off without a patent system. I forget who said this and how exactly it was said, but to paraphrase: "If we never had it patent system, it would be audacious of us to impose one. Now that we have one though, it is probably audacious of us get rid of it." Further, with regards to our current patent system, obviousness is still a HUGE problem.

         

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          Mike (profile), Aug 24th, 2006 @ 6:24pm

          Re: Reply to my comments

          Susheel, thanks for the response. I'd like to respond to a few of the points you raise.

          This is not a bad thing - it allows the inventor and the entrepreneur to specialize, which often leads to efficiencies. It also leads to a patent market, which can also lead to efficiencies.

          It does create a market, I'll grant you, but that market is inherently based on an inefficient system that gives monopoly rights to an individual. Any economist will tell you the downsides to a monopoly...

          I believe this is a pretty harsh view - not only do you have to be inventive, but you have to have an MBA too (or have some business-savvy friends)! Otherwise, tough luck. It is easy to say inventors/technologist should have to have business acumen too, but it likely ignores or at least smooths over reality.

          I don't believe it smooths over reality at all. I did not say you need to be business savvy yourself, but simply work with someone who is business savvy. That is, after all, pretty much how Silicon Valley works. You get an engineer, who teams up with a business person, and they team up with money people. Everyone specializes and it's the market that sets the incentives. There's no need for gov't granted monopolies.

          This is an easy assertion to make, but it has all the benefit of hindsight. Sure, now that we know that Creative failed in their mp3 player efforts, why should they be rewarded with a $100 million settlement? This ex post analysis ignores the ex ante effects of the patent system. The protection provided by patents gave Creative the incentive to even try to bring an mp3 player to market. One common failing of critiscm of the patent system is only focusing on the ex post detriments of the patent system without considering any ex ante benefits.

          I'm not ignoring the ex ante incentives... but I question how strong they really are. Are you really suggesting that Creative would never have come up with this invention if it could not have patented it? I find that hard to believe. The incentive for this creation (obvious or not) was not the patentability of it, but the supposed marketability of it.

          Gov't regulation should only get involved in cases of market failure. That's my problem here. There's no evidence of market failure. Companies are producing new innovations because they can sell them in the market and that's the incentive. Putting in regulations in the form of patent protection distorts the market, and solves a market failure that simply isn't there.

           

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    Jarvis, Aug 23rd, 2006 @ 8:11pm

    Apple vs Microsoft

    I agree that Apple computers are much better than PCs. I mean, everyone in the entire world is dumb not to realize this. It's sad really that even though Apple is so much better, software companies still refuse to make software for it, simply to make us mad! We, the intelligent, realize that even though not as popular as Windows, Apple is much better. This is proven by the lack of support that is currently offered by companies. It's a conspiracy. A gosh darn conspiracy.

    In all seriousness, I will disagree 100% that Apple is better than Microsoft until the numbers disagree also. I mean, if it's better, people will buy it. And if they don't buy it, then it's not better. In some way or other, the best will win. Whether it be best in advertising, cost, or some other avenue, the people buy what they want. And that's best.

     

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      Uche, Aug 23rd, 2006 @ 10:31pm

      Re: Apple vs Microsoft

      But more people buy Escalades than Range Rovers, toyota camrys over bmw 3 series etc. What criteria for better are you using? I know about "the wisdom of the crowds" and all, but c'mon there are many more factors figuring into what people buy than simply what is better.

      But again, better? Better--quality/style/value/hipness etc..?

       

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      Anonymous Coward, Aug 24th, 2006 @ 5:59am

      Re: Apple vs Microsoft


      In some way or other, the best will win. Whether it be best in advertising, cost, or some other avenue, the people buy what they want. And that's best.


      That may not always be the case. In fact these most marketing isn't "my product is better becuase..." it's more like "you must buy my product to be cool".

       

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    Susheel Daswani, Aug 24th, 2006 @ 8:55pm

    Mike, I'd like to respond again too. :)

    Any economist will tell you the downsides to a monopoly...

    Sure, but any economist will also tell you about how information/ideas suffer from a public goods problem.

    Next, I agree with you that in many cases, there is no need for government granted monopolies, i.e., patents. Nevertheless, the incentives a patent system provides can often be important. Consider the RSA algorithm patent, whose patent term expired not long ago. The RSA algorithm was surely not a trival patent a la software or business method patents. In my opinion (and I'm sure many others), it represents a truly astounding 'invention'. As other people see that such good work can be rewarded, they will be motivated to produce other encryption solutions. This is the canonical example of the ex ante benefits of a patent system, of course.

    Before I studied intellectual property formally, I also believed there was no need to the patent system. I'm not so sure anymore - my initial beliefs were influenced by all the bad examples of the patent system. Upon further study, I realize that the patent system has been perverted by big companies who wanted to change the patent system to reward the incremental inventions of their research departments. The patent system is not inherently broken - it just needs several major tweaks (a much higher obviousness bar is the most needed one).

     

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      Mike (profile), Aug 24th, 2006 @ 10:42pm

      Re:

      Susheel,

      I think we actually agree on a lot of this, despite the starting point of this discussion (and your perhaps unintentional dig at the end suggesting I somehow have not studied intellectual property). However, I think the need for a patent system is rare, and I'd argue that there are a number of improvements that could be made that help make it so that patents are really for new and innovative things that are unlikely to hit the market otherwise. I believe that, if there must be a patent system, the bar for granting patents should be very high -- to make sure that it really is dealing in situations where there actually is market failure. In the link above, I lay out some suggestions for patent reform that would make me a lot more comfortable with the system.

       

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    Susheel Daswani, Aug 24th, 2006 @ 11:23pm

    Yikes, I didn't mean to dig, but I understand how it came off that way. My point was simply that on its face the patent system can seem totally unnecessary. Until I took a deeper view of the theory and formation (and reformation) of the law did I come to a more balanced understanding. This isn't saying much, of course - I think most people would agree that examining something in depth will often lead to a better understanding.

    Anyways, I apologize for the unintentional dig. It is obvious that you have studied this issue.

    I'd like to discuss your recommendations but it is time to retire for the day.

     

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    Andrew, Aug 27th, 2006 @ 8:17am

    I completely disagree with your conclusions. For one, Apple, the iPod, and their crappy iTunes software is junk. Second, Creative has quite a few great MP3 players out there that work far better than the iPod crap.

    Suggesting that Creative is a loser in the market is ridiculous. Failed to make an MP3 player that people liked over Apple's iPod? Ridiculous. The iPod is just so overhyped and, in typical rabid Apple fan fashion, because sort of trendy. "Everyone has one." Well I don't and would never own one.

     

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      Mike (profile), Aug 27th, 2006 @ 12:24pm

      Re:

      I completely disagree with your conclusions. For one, Apple, the iPod, and their crappy iTunes software is junk. Second, Creative has quite a few great MP3 players out there that work far better than the iPod crap.

      Please read what I wrote. I didn't say that Creative wasn't good. I just said that they had failed in the market compared to Apple.

      Suggesting that Creative is a loser in the market is ridiculous. Failed to make an MP3 player that people liked over Apple's iPod? Ridiculous. The iPod is just so overhyped and, in typical rabid Apple fan fashion, because sort of trendy. "Everyone has one." Well I don't and would never own one.

      Um. Again, just because a product is good, doesn't mean it succeeds in the market.

      The FACT is that Apple has done a much better job delivering a product people will buy. Whether or not that product is actually better doesn't matter. Apple succeeded *in the market*. Creative has not succeeded to the same level. Whether or not the iPod is overhyped is irrelevant. The point is that the market spoke and Apple won... and there's no reason that Creative deserves a piece of Apple's success, when they were unable to match it. If it was all hype, then why didn't Creative create the same hype?

       

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  •  
    identicon
    Verônica Nogueira Fonteles, Apr 16th, 2008 @ 8:18am

    Computetion Teacher and English-Portuguese Teacher

    I can explain everythings about computetion,it is true.

     

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