Microsoft sues Immersion over Sony payments

Stephen Withers
Wednesday, 20 June 2007 05:21

IT Industry - Strategy

Microsoft is running a breach of contract case against touch feedback developer Immersion, claiming it is entitled to a percentage of money received from Sony Computer Entertainment.

Back in 2002, Immersion sued Sony and Microsoft for patent infringement. Microsoft settled in 2003, and part of the agreement (according to Microsoft's complaint) was that Immersion would pay Microsoft certain amounts contingent on the value of any subsequent settlement by Sony.

If Sony settled for up to $US100 million, Microsoft would get $15 million. A larger settlement would result in Microsoft receiving a percentage of the excess. Why did Immersion accept these terms? One possibility is that the immediate cash flow from Microsoft's $26 million settlement allowed continued funding of the case against Sony, and in return Immersion was willing to share some of the potential gains. In the meantime, Microsoft could use Immersion's force-fedback patent in connection with the Xbox, while the PlayStation family was out in the cold.

Immersion and Sony came to an agreement in March. Microsoft wants its cut, but Immersion says it isn't entitled to anything. To quote from an SEC filing, "The Company has determined that the conclusion of its litigation with Sony Computer Entertainment does not trigger any payment obligations under its Microsoft agreements."

The case appears to revolve around the definition of 'settlement.' Microsoft says its agreement with Immersion covers "all amounts, including all royalty payments and upfront, annual or other licence fees". But Immersion CEO Victor Viegas characterised the arrangement with Sony as "a new business agreement".

In a brief statement, Immersion officials said the company "believes that it is not obligated under the sublicense agreement with Microsoft to make any payment to Microsoft relating to the conclusion of its litigation with Sony Computer Entertainment. Immersion intends to defend this lawsuit vigorously."