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August 24, 2006
iPod patent settlement
Yesterday's announcement of the patent settlement between Apple and Creative Technology could be seen as a standard story of conflicting patents and how many patents can dance on the head of an iPod. As the WSJ Law Blog explains:
In May, Creative filed a patent infringement lawsuit against Apple. In addition to the federal lawsuit brought in San Francisco, Creative filed a trade complaint with the U.S. International Trade Commission to prevent Apple from importing its allegedly infringing iPod devices, which are manufactured in China.
Apple filed two countersuits, one in federal court in Madison, Wis., and the other in Texarkana, Tex., alleging that Creative infringed seven of Apple’s patents. Apple also filed a similar trade complaint with the U.S. ITC seeking to halt imports of Creative’s MP3 into the U.S.
The Washington Post captured what has become a routine part of these cases:
"From the point of view of Creative, their bitterness stems from the fact that when they approached Apple, they were arrogantly dismissive" about licensing their technology, said Phil Leigh, senior analyst with Inside Digital Media Inc., a Tampa-based market research firm. "Apple's point of view on this is, 'These guys are patent trolls,' " who are profiteering off of the technology patent process, he said
But, there is one element in this situation which caught my eye. According to the Journal's story today:
The deal will also allow Apple to recoup an undisclosed portion of its licensing fee if Creative is successful in licensing its patent to others. In fact, its agreement with Creative may lead to more such licensing deals. The agreement could strengthen Creative's patent in the eyes of competitors hoping to bring their own music players to market, spurring them to reach licensing agreements with Creative or giving the company a stronger hand in future licensing litigation.
"When you have a settlement with a large player, that sends a signal that this is a serious claim," said Allonn E. Levy, an intellectual-property attorney at Hopkins & Carley in San Jose, Calif.
In other words, the agreement with Apple may be just as valuable as the patent itself. And the value of the patent is now much higher than simply the value derived from the licensing fee. I realize that this is a standard dynamic in the industry -- validation of a technology by an industry leader raises the value. But I wonder how much a deal with Apple is worth compared to one with some other small fry? And how does that show up on the company books?
Posted by Ken Jarboe at August 24, 2006 11:51 AM
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