Creative scores another win in patent battle with Apple

Creative expects Apple's licence payment to contribute about 23 US cents in earnings per share to the quarter ending Dec 31. The settlement with Apple could strengthen Creative's case against Samsung.
Creative expects Apple's licence payment to contribute about 23 US cents in earnings per share to the quarter ending Dec 31. The settlement with Apple could strengthen Creative's case against Samsung. PHOTO: AGENCE FRANCE-PRESSE

As part of settlement, Apple will obtain licence for Creative unit ZiiLabs' patents

Nearly a decade after Creative Technology reached a landmark US$100 million settlement with Apple over patent infringement claims, the Singapore sound card maker has scored yet another legal victory against the iPhone giant.

Creative unit ZiiLabs Inc had sued smartphone giants Samsung and Apple in Texas in March last year, alleging that several ranges of Galaxy phones, tablets, laptops as well as iPhone, iPad and iMac products infringed 10 of its patents.

The dispute with Samsung is ongoing. But Apple has thrown in the towel. As part of the settlement, Apple will obtain a licence for ZiiLabs' patents.

"That means Apple has acknowledged Creative has IP (intellectual property) rights and is therefore taking a licence," said Mr Bryan Tan, a partner at Pinsent Masons law firm.

The settlement with Apple could strengthen Creative's case against Samsung because there is "tacit acknowledgement that someone has recognised those are valid IP rights," he said.

Creative, in a statement to the Singapore Exchange, said it expects the licence payment will contribute about 23 US cents in earnings per share to the quarter ending Dec 31.

Based on the company's issued and paid up capital of 70.3 million shares as of the first quarter ended Sept 30, this would suggest a licence payment of around US$16 million on a post-tax basis, according to calculations by The Straits Times. But it is not clear if this is a one-time or recurring payment.

When contacted yesterday, Mr S. Sivananthan, Creative's vice-president of legal services, said terms of the settlement are confidential.

Creative shares rocketed up 32 per cent, or 32 cents, to close at $1.315 yesterday.

"These days, companies see their intellectual property rights in particular patents as an important part of the business arsenal," Ms Stefanie Yuen Thio, joint managing director at law firm TSMP Law Corp, noted. "Filings to protect their intellectual property rights are no longer purely defensive measures, but proactive methods to shore up a company's value. This is because these rights feature heavily in the valuation of a technology company's worth. Technology disputes are likely to continue to increase as the world becomes increasingly wired up," she said.

Mr Tan called the settlement "a positive for Creative, as it has been some time since it has turned a profit".

The company recorded a net loss of US$13.9 million in the first quarter, compared with a US$9.9 million net loss a year ago. Sales fell 7 per cent over last year to US$22.5 million due to the uncertain and difficult market conditions, it said in its earnings results yesterday.

Creative, which is restructuring to reduce global headcount and costs, incurred employee severance charges of US$4.1 million, of which US$500,000 was charged to cost of goods sold, US$1.3 million to selling, general and administrative expenses, and US$2.3 million to research and development expenses.

Excluding the effect of the severance charges, net loss for the first quarter was US$9.8 million.

Selling, general and administrative expenses jumped 52 per cent to nearly US$12 million from a year ago, due mainly to an increase in legal expenses for ongoing litigation, Creative said.

While the overall market remains challenging, it said revenue is expected to be "higher for the holiday season in this quarter ending Dec 31 compared to the current level, and the group expects an improvement in operating results for the quarter from the current level."

A version of this article appeared in the print edition of The Straits Times on October 31, 2015, with the headline 'Creative scores another win in patent battle with Apple'. Print Edition | Subscribe