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Will Creative's patent suit sour Apple's core?

Posted: 29 May 2006 ?? ?Print Version ?Bookmark and Share

Keywords:patent suit? user interface? iPod? Zen? Apple?

Apple's success with the iPod is leaving competitors in the dust, but at least one of them is striking back. Creative Technology Ltd recently filed a patent suit against Apple Computer Inc. in the U.S. District Court for the Northern District of California, claiming the user interface in the iPod, iPod Nano and iPod Mini players directly infringes upon a patent used in its own portable media players.

At the same time, Creative asked the U.S. International Trade Commission to investigate whether Apple has violated Section 337 of the Tariff Act of 1930 by importing and selling iPods and offshoot products that infringe the patent, designated U.S. Patent 6,928,433 and referred to by Creative as the Zen patent.

Creative is asking the ITC to prohibit Apple from selling and importing iPod and iPod Nano products into the United States, as well as bar Apple from marketing and advertising the iPod and related products. Apple assembles its iPods in China, according to its 10-K report.

Apple was the leading supplier of MP3 players in 2005, with 32 million units shipped, according to iSuppli Corp. Creative was a distant second, with shipments of 8 million units. With iSuppli projecting a boom in both unit shipments and sales of MP3 players, the Creative moves may be a desperate attempt to prevent Apple from bolstering its market share, said Chris Crotty, an analyst for the market research firm.

"I'm skeptical about these patents," Crotty said. "I often wonder about suits that have to do with the look and feel of navigation. From a commonsense standpoint, how else can you navigate through electronics, other than menus and selections? It's like types of doors and windows on a house."

Rival plays
Given the soaring popularity of media players and other portable devices, the possibility of other patent suits is very real, said Martin Zoltick, an attorney and partner in the Washington-based intellectual-property (IP) firm Rothwell Figg, Ernst & Manbeck.

"There's a convergence of technologies in portable devices," he said. "Video and other multimedia technologies are finding their ways into cellphones, as is e-mail."

Zoltick believes rival consumer electronics companies, unable to put a significant dent in Apple's MP3 player market share, will try to attack the company at the IP level.

"Companies spend money to build patent portfolios to gain a competitive foothold," Zoltick said. "It is part of the business reason Creative might have decided to enforce their patents."

Creative declined to comment for this article, as did Apple. But iSuppli's Crotty said, "It seems Apple is not taking the threat [from Creative] very seriously."

Best known a decade ago for its SoundBlaster cards, used in PCs, Creative in recent years has also developed a line of MP3 players, including the Creative Zen and Nomad Jukebox models. It was issued the Zen patent for its MP3 player interface last August.

According to Creative's complaint, discussions between Creative and Apple took place as early as 2001. At one point, the two companies executed an agreement enabling Apple to license Creative's driver source code, with Apple co-founder and CEO Steve Jobs hinting the company was interested in a smaller version of Creative's Nomad Jukebox player.

But according to the complaint, talks soon soured, with Apple proposing that Creative not only license its technology but also spin off its portable media player business into a separate company in which Apple would take a stake. Creative refused that offer.

Apple subsequently introduced its first iPod in October 2001.

Crotty is skeptical whether Creative's legal action can generate much traction for the company. "Why did they wait until now to file the lawsuit?" he said. "Maybe this is the end result of trying to negotiate with Apple and not getting anywhere. It reeks of desperation."

Crotty and attorney Zoltick agreed the burden of proof will be on Creative Technology. But Zoltick noted that the decision to file a complaint with the ITC "puts a lot of pressure on Apple. They had better get their defenses ready."

He also noted that Apple previously filed a patent application for an MP3 player interface but that the application was rejected because Microsoft had patent applications covering similar technology.

In a tailspin
Meanwhile, even without the added expense and distractions of a patent dispute, Creative has its hands full as it tries to reverse a tailspin. In its most recent quarter, the company posted a $114.3 million loss, which it said doubled the $55 million to $65 million shortfall expected in its April guidance.

Creative blamed the huge loss on falling memory prices, though the company said in a statement at the time that it hoped the trend would also erode Apple's ability to undercut its competitors on volume purchase agreements.

Adding to its woes, Creative's Zen portable players have had some teething pains in the marketplace. The company acknowledged last August that 4,000 of the players had been infected with the Wullik.b worm, a mass-mailed worm code. The company wound up temporarily suspending shipments.

- Spencer Chin
EE Times

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