Apple Spills $10M to Settle Burst Suit

Burst.com has agreed to settle its patent infringement case against Apple (Nasdaq: AAPL), ending nearly two years of litigation. Under the agreement, Apple will have to shell out a one-time payment of US$10 million to Burst in exchange for a non-exclusive license to Burst's patent portfolio that will likely cover Apple's QuickTime, iPod and iTunes solutions.

The agreement, according to Burst, comes with a few caveats, however.

Apple doesn't get access to one U.S. patent and three pending U.S. patent applications related to new DVR (digital video recorder) technology, but Burst says it won't sue Apple for any future infringement of the DVR patent and any patents that might arise from the pending DVR-related applications.

Why Apple may be interested in Burst DVR patents or technology remains a mystery, but the Apple TV product, which bridges the gap between a Mac and a high definition television, might be a candidate for future DVR-like features.

In Any Event, Burst Isn't Done

While Apple is in the clear with Burst, the small software technology company appears to have shifted gears, moving away from being a company that produced "faster-than-real" video and audio delivery solutions that stream content to devices faster than a device would play the content in real time. Instead, it appears to be moving toward an identity as a company more focused on licensing opportunities and litigation for patent infringement. Any company that distributes audio and video content on computer networks may run afoul of Burst's patents.

In 2005, Burst settled a lawsuit with Microsoft (Nasdaq: MSFT) in which Microsoft licensed Burst's patent portfolio for a cool $60 million. Burst said it has been pursuing, and will continue to pursue, licensing agreements with other companies. Apple, of course, was a likely candidate given its market size and huge iPod and iTunes customer base. Burst won't name other companies that may be infringing on its patents, it said.

After court costs relating to the Apple lawsuit, Burst will take home $4.6 million.

Chump Change for Apple?

Considering that a judgment against Apple could be based on the company's massively successful iTunes and iPod-based products, including the iPhone, potential damages for patent infringement might have gone through the roof. Apple was able to convince a judge that some patents were obvious and therefore unenforceable -- and thus dismissed -- but there was enough left in the other patents to make the final outcome in court a mystery.

"Ten million [dollars] isn't insignificant, and Apple went to a lot of trouble to try to unsuccessfully invalidate the patents first, and I'll bet they spent a lot of time and money doing that as well," Rob Enderle, principal analyst for the Enderle Group, told MacNewsWorld.

Tough World for the Little Guy

With competitors like Microsoft and Apple in the world, it can be tough for small software startups to get ahead. Licensing -- or the outright sale of the company -- are the end-game plans for many organizations. Some, though, turn to patents and infringement as a business model, and while the space has its share of trolls looking for lottery-like paydays, it's still a tough game.

"If you are going to go up against a big company, you need to make sure you can take the heat. As Apple's behavior demonstrated, big firms are capable of attacking you first and, if you don't have the resources or the team, force you to settle for either nothing or pennies on the dollar," Enderle explained, noting that Apple also filed its own lawsuit against Burst.

"This [case] also showcases the increasing problems that big companies have with small patent holders, and firms like Apple and Microsoft are increasingly having to pay settlements in eight figures for patents from companies that seem more like patent trolls than any legitimate business," Enderle added. "This is a lot of what is driving us towards patent reform."