Touch-Feedback Creator Immersion Sued by Microsoft Over Sony Settlement

Did Immersion - the patent holder for tactile feedback devices used in game controllers - settle its lawsuit against Sony for building "rumble" into its PlayStation 2 joysticks without a license? BetaNews reported in March the sides did settle, but now Immersion may be trying to characterize the pact with Sony as a licensing agreement instead.

The difference is very, very material, because it makes all the difference as to whether Immersion owes Microsoft as much as $20.8 million. This morning, Microsoft sued Immersion in US District Court in Washington State, claiming that as part of the terms of settlement of Immersion's lawsuit against Microsoft -- which came at the same time as the one against Sony -- Microsoft only agreed to pay Immersion $26 million if it would agree in turn to repay Microsoft a portion of any settlement payments it received from Sony.

One year after an appeals court declined to overturn a $90.7 million verdict against Sony in March 2006, Sony and Immersion jointly announced that they had reached a "business agreement."

While the press (including BetaNews) reported this as a settlement, and many legal observers would still characterize it as one, the two companies carefully refrained from invoking that word in their joint statement.

Immersion CEO Victor Viegas was quoted as saying, "We are pleased to have put this litigation behind us. Our new business agreement with Sony Computer Entertainment is specifically intended to enable advanced vibration capability for the benefit of the PlayStation gaming community. We are happy to provide our technology in this regard and hope to make technical proposals very soon with respect to use of our technology in the PlayStation products."

Indeed, an examination of the agreement between the two companies filed with the US Securities and Exchange Commission, shows the term "settlement" was not used directly in reference to their business arrangement. Rather, Sony agreed to pay Immersion royalties, the redacted amount of which reportedly and not coincidentally approximates the amount of the judgment against Sony.

In addition, Sony agreed to pay $22.5 million, as "partial consideration" of those licenses - which could be taken to mean partial payment toward the $90.7, or an additional payment. In exchange, both companies would enter into a covenant not to sue one another, and Immersion would agree never to sue Sony's game developers or users.

In its lawsuit this morning, Microsoft termed its settlement with Immersion as a "Sublicense Agreement" (SLA), perhaps as evidence unto itself that a license agreement often forms the basis of a settlement.

The argument in favor of Microsoft's recouping the settlement amount reads as follows: "Immersion breached the SLA by failing to make payments to Microsoft following Immersion's settlement with failing to promptly provide Microsoft with full documentation of its settlement with Sony...[and] by violating the covenant of good faith and fair dealing by actively attempting to characterize its agreements with Sony as something other than what they are - a settlement."

In its own press statement this morning, Immersion acknowledged the formula under which it would owe Microsoft a payout in the event of a settlement - if that's what this was.

"Immersion 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," its statement reads. "Immersion intends to defend this lawsuit vigorously."

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