ITC Could Speed Resolution of Apple, Creative Dispute

Creative Technology, a Singapore-based company that sells digital music players under the names "Zen" and "Nomad," has announced that the International Trade Commission will investigate its complaints that Apple's (Nasdaq: AAPL) iPod product line infringes on patents it has secured for its own products.

Creative has also sued Apple in the U.S. District Court of San Francisco, but the ITC's involvement, while not unexpected, introduces a new dynamic into the struggle between the two companies.

Alternative Forum

The ITC is rapidly gaining in popularity as an alternative forum for patent litigants to resolve disputes, according to Steve Chang, a partner in Banner & Witcoff. Indeed, the number of cases presented to the ITC has increased dramatically since 2000, rising especially rapidly since 2004.

In some ways, the Creative-Apple dispute is an exception to the majority of these cases, though, which tend to be aimed at Asian companies -- especially those based in China.

The main reason for seeking relief from the ITC is simple -- and, to a defendant, no doubt frightening. Its decision-making process is very quick, taking anywhere from six months to 18 months to complete.

"If one party files a motion," Chang told MacNewsWorld, "under the ITC rules, the other party has between seven to 10 days to respond -- compared to 30 days in a federal court. Going to the ITC puts pressure on both parties, but mostly the defendant."

Another reason that explains why the ITC is gaining favor among plaintiffs is that it has the authority to stop imported products from entering the country. Although plaintiffs cannot be awarded damages if an infringement is determined, an exclusionary ruling "is like a sledgehammer," said Joe Potenza, also a partner in Banner & Witcoff.

"Damages are not always the most important end result; stopping a product from entering a prime market, though, usually is," he told MacNewsWorld.

Discretion Over Injunctions

The Supreme Court's recent decision in eBay (Nasdaq: EBAY) v. MercExchange, makes it even more likely that patent litigants will head to the ITC when it has jurisdiction. In the eBay decision, the Supreme Court reversed earlier interpretations regarding the granting of an injunction, ruling that plaintiffs are not automatically entitled to them, and must demonstrate that one is necessary and in the public's interest.

The ITC typically follows the same case precedents that the district courts follow. eBay v. MercExchange would also have an impact on ITC's actions -- but at the preliminary stage of events. Given the speedy nature of the ITC's proceedings, a few months would make little difference.

Long and Winding Road

It is unclear whether Creative would stand to gain if iPods were to suddenly be denied entrance into the United States. More likely, the company is using the lawsuit as a negotiating ploy to force Apple to the table. The majority of cases that go before the ITC tend to be settled, according to Potenza. Between 1999 and 2004, 52 percent of all cases investigated by the ITC were resolved out of court, he noted.

Reportedly, Creative and Apple discussed Apple licensing Creative's technology in 2001, along with the possibility of Apple investing in a spinoff of Creative's line of MP3 players -- but Creative turned down both proposals, according to accounts.

The legal battle between the two companies began in earnest earlier this year, when Creative filed suit in the U.S. District Court in San Francisco claiming that the technology in the iPod that allows users to search for content on the device is based on technology for which Creative was granted a patent in 2005.

Since then, Apple has responded with two countersuits. The first, filed in May in district court in Wisconsin, claims Creative violated four of its patents. The most recent, filed earlier this month in district court in Texas, claims Creative infringed on three of its patents.