Immersion to Pay Microsoft $20.75 Mln

How is it that Microsoft can settle a patent suit over a game controller's rumble feature for $26 million...and get paid back $20.75 million five years later?

If this doesn’t teach companies to be wary of making deals with Microsoft’s legal team when they think they have the Redmond software giant over a barrel…we don’t know what will.

Here we go: Back in 2002, haptics developer Immersion filed a lawsuit against both Microsoft and Sony, alleging that the biofeedback tech—a.k.a. rumble—in PlayStation and Xbox controllers violated Immersion patents. Microsoft settled for $26 million in 2003. End of story, right? Oh, no.

It seems that Microsoft’s attorneys, eyeing the size of a potential Immersion payoff from Sony—which, you may recall, utterly dominated the console market in 2003—slipped a little extra something into their settlement agreement with Immersion: in the event of a settlement with Sony, Microsoft would get a minimum of $15 million for any amount Immersion received from Sony over $100 million, along with 25 percent of any amount between $100 and $150 million, and 17.5 percent of any amount over $150 million.

In 2004, a jury ruled that Sony had violated two Immersion patents. Sony appealed the decision and the case toddled along through the courts, but in 2007 the PlayStation 3 was rumble-free and the companies agreed to settle the dispute and work together to bring haptics back to the platform. The price? Sony paid Immersion $97.2 million in damages and interest, and an additional $22.5 million for licenses.

You can see what happened next: Microsoft came to collect. In 2007, Microsoft filed suit against Immersion, claiming Immersion owed it $27.5 million, including a slice of the licensing fees Sony was scheduled to pay to Immersion to license technology through 2009.

Well, we might be able to put the rumble behind us once and for all: in a settlement agreement reported by Todd Bishop of the Seattle PI, Immersion will pay Microsoft some $20.75 million to settle Microsoft’s lawsuit over its share of Sony’s payout.

One interpretation of these events is that that Microsoft infringed on Immersions patents—allegedly—and paid a $26 million penalty…and through legal trickery managed to get almost $21 million of that money refunded five years later. Microsoft’s total cost for infringing on a small company’s patent that gives a crucial feature to the company’s Xbox gaming platform? A little over $5 million.

Another view is that Microsoft essentially provided seed money for Immersion’s more-lucrative litigation against Sony, which was potentially on the hook for a much larger figure than Microsoft if Immersion could make its case. By giving Immersion $26 million up front, Microsoft enabled Immersion to stay in business and pursue its claim against Sony…and Microsoft would expect a return on that investment if everything worked out. In fact, if Immersion managed to wrangle more than $144 million out of Sony, Immersion would have been paying Microsoft money for having—allegedly—infringed on its patents in the first place.