Apple resolves creative differences by paying off its pioneering rival

The iPod has given its name to a generation, revolutionised the world's music industry and become a modern icon.

But in a dramatic announcement yesterday, the makers of the iPod, Apple, revealed it was to pay £52m to the makers of the first portable digital music player to settle a potentially devastating patent dispute.

Singapore's Creative Technology was preparing to take on its rival in a legal battle that, if successful, could have seen the sale of iPods halted. Despite producing the first MP3 player a few months before the iPod came out, Creative has become a distant and faltering number two in the global media player market.

Yet the technological David suddenly appeared to pose a tangible threat to the iPod Goliath earlier this year when it claimed that Apple had infringed its patent-protected interface ­ the album, artist, playlist filing system. But rather than slog it out in a long-running, costly legal battle, Apple announced an out-of-court settlement.

Sing Wong Hoo, Singapore's youngest billionaire and chairman and chief executive of Creative, had sought an injunction preventing Apple shipping players from its manufacturing base in China to the US market.

While many analysts saw the legal challenge as a last-ditch attempt by the loss-making Asian manufacturer to stay alive in the portable media player market, its resolution delivered an immediate 36 per cent boost to the value of its shares.

Steve Jobs, the chief executive of Apple, said the agreement resolved five outstanding disputes between the companies, including one lodged with the US International Trade Commission. He said Apple was dropping its three counter-claims against its smaller rival and would, in future, licence the technology to other companies, as well as allowing Creative to supply accessories for the iPod. "This settlement ... removes the uncertainty and distraction of prolonged litigation," said Mr Jobs.

Industry experts believe Apple has cleared the decks to focus on the " iPod killer" coming from Microsoft, the Zune. Adam Vaughan, the on-line editor of Stuff magazine, said: "This is a good symbolic victory for Creative but I doubt it will stop people buying iPods. The attention is now all focused on what Microsoft is planning, and when."

In just three months this year, Apple sold 8.1 million of the players, worth $1.5bn (£800m). The iPod commands 90 per cent of the market. All that could change, said Mr Vaughan, when Microsoft launches its Zune range in the United States, possibly in time for Christmas. As well as offering portability and a huge memory, pre-launch rumours suggest it will offer wi-fi networking, allowing users to share their music collections remotely.

For Creative, the iPod's success has been particularly galling. Long ranked as equally good in terms of features and price it has struggled in the face of overwhelming opposition.

* Apple has recalled 1.8 million laptop batteries over fears they could overheat and catch fire. The voluntary recall follows the decision by Dell to recall more than four million laptop batteries last week. The batteries are made by Sony.The Apple laptop computers affected include the iBook G4 and Powerbook G4 ­ sold between October 2003 and August 2006.