Microsoft checkmates Sony with Immersion tie-up; will get $20.75 million settlement

Microsoft Corp. will receive $20.75 million from Immersion Corp. after the companies agreed to settle a lawsuit that revealed the software giant's behind-the-scenes manoeuvring against video-game console rival Sony. The suit had been pending in the United States District Court for the Western District of Washington since June 2007.

As part of the deal, Immersion said it would become a Microsoft partner and aim to make its technologies work with the next version of Microsoft's Windows operating system. The San Jose, California, company specializes in "touch feedback" - including a method of making video-game controllers "rumble" in conjunction with action on screen.

The partnership arrangement between the companies was "a very important component, I think, both for Microsoft and for us," said Clent Richardson, CEO of Immersion. "We are pleased to resolve our outstanding dispute with Microsoft and to put this litigation behind us.''

The deal, announced Tuesday, concludes a saga that started in 2002. Immersion sued Microsoft in 2002, alleging that the Xbox controller infringed on a patent for force feedback, Immersion's specialty. Microsoft agreed to pay Immersion $26 million to settle the lawsuit.

Immersion also sued Sony Corp., which makes the PlayStation game console. That suit was resolved in March last year, when the Japanese major agreed to pay Immersion $22.5 million over three years, plus more than $100 million in costs, royalties and patent license fees.

Although it wasn't made public at the time, that previous settlement included an unusual provision that required Immersion to give a sizable chunk of money back to Microsoft once Immersion settled with Sony, depending on the size of any Sony-Immersion deal. The deal was a minimum of $15 million, plus percentages of any amount over $100 million.

In other words, Microsoft was providing Immersion with funds as the smaller company waged a legal battle against Microsoft's rival. The payback clause meant Microsoft would essentially receive a refund if Immersion prevailed.

In March 2007, Sony and Immersion announced that they had "agreed to conclude their patent litigation" and enter into "a new business agreement." Microsoft's June 2007 lawsuit alleged that Immersion was trying to pretend the Sony deal wasn't really a settlement, to avoid making the return payment required under their 2003 settlement.

Immersion counterclaimed that Microsoft breached a confidentiality agreement. Both the Microsoft suit and Immersion's counterclaim have now been settled, Immersion said.

"We are pleased to have reached a resolution to our legal dispute with Immersion that includes a $20.75 million payment to Microsoft," Steve Aeschbacher, an associate general counsel for Microsoft, in a statement. "We are gratified that we have successfully resolved our claims under the 2003 settlement we negotiated with Immersion, which provided benefits to both companies and specific rights to Microsoft."

Microsoft already uses rumble technology for its Xbox 360 game controllers. With its new status as a Microsoft partner, Immersion's Richardson said, the company will focus on making its technology work with Windows 7, the code name for the next version of the Microsoft PC operating system, due out in 2010.

Microsoft has been showing plans for new touch-screen technologies in Windows 7. With Immersion's technology, that concept can be extended to let a screen subtly vibrate in correlation with the way it's touched.

"Then all of a sudden it's not just a mere flat experience - it's actually a feedback experience," Richardson said. "It's a confirmation. It's a validation that you've actually touched that part of the screen, or you're moving a window from one corner to another."

Immersion is hoping to work with screen manufacturers and software developers to enable that technology in conjunction with Windows. Richardson said laptops and desktop PCs with Windows-based touch screens would be "ripe candidates for touch feedback."