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Pay Judgment Or Game Over, Sony Warned

By Mike Musgrove
Washington Post Staff Writer
Tuesday, March 29, 2005; Page E01

Sony Corp. has been warned that it will have to either pay $90.7 million or halt U.S. sales of its PlayStation video-game consoles should it lose an appeal in a case that found it had infringed on patents owned by another company.

Immersion Corp. of San Jose sued Sony in 2002, claiming the consumer-electronics giant infringed on its patents with the PlayStation's "Dual Shock" controllers. Such controllers are designed to enhance games and make them more realistic by, for example, vibrating in sync with driving games when players drive over bumpy roads in a video game's virtual world.

Playstation 2. (Koji Sasahara -- AP)

A federal jury sided with Immersion last year and awarded the company $82 million in damages; U.S. District Judge Claudia Wilken on Thursday upheld the decision and added $8.7 million in interest to the amount. But she also granted Sony a stay while the consumer electronics giant appeals the verdict. Sony Computer Entertainment America spokeswoman Monica Wik would not comment on the matter yesterday, saying that it was against company policy to talk about ongoing litigation.

Immersion originally sought $299 million from Sony Computer Entertainment and Sony Computer Entertainment America. Immersion chief executive Victor Viegas said the amount his company was awarded works out to about 1.37 percent in royalties on $5 billion in sales of the PlayStation 2. As Immersion usually negotiates 5 percent royalties, he said, "it was something of a compromise."

Viegas said he expects Sony's appeals will take 12 to 18 months. "Before that time, obviously, [Sony] could approach us and begin to negotiate a settlement or a license," he said.

Immersion settled another patent dispute on a similar matter in 2003 with Microsoft Corp., maker of the Xbox console. Microsoft paid Immersion $26 million out of court.

Whatever happens, analysts were mostly predicting negligible impact on Sony's business as a result of the lawsuit.

"This is not going to have any impact on Sony's ability to sell PlayStation 2s to consumers," said Schelley Olhava, an analyst at IDC. "Immersion just wants to get paid or compensated for technology Sony used without paying for it."

"It's a joke," said Michael Pachter, an analyst at Wedbush Morgan Securities Inc. Even if Sony ends up having to pay Immersion, he said, "We're talking a dollar or two in royalties per PlayStation. Who cares?"

In its 2002 lawsuit against Sony, Immersion named the Dual Shock controllers and 47 popular video game titles, such as Grand Theft Auto: Vice City, Medal of Honor Frontline, and A Bug's Life.

Though analysts said it was unlikely the Sony news had any material impact on game publishers, shares of game-publishing giant Electronics Arts Inc. took a tumble. EA shares opened at $55.63 yesterday and dropped to $52.92 before climbing to around $54. Shares of game publisher Activision Inc. took a hit as it slid from $16.50 to about $16.20 for most of the day.

Viegas said that Immersion's dispute is with Sony and not directly with the game publishers but that they could be greatly affected if Sony loses the appeal and does not pay Immersion.

Sony has sold 33 million PlayStation 2s in North America since its launch in 2000. Sony's latest gaming device, the PlayStation Portable, went on sale in the United States last week. The new PSP game player does not use the type of tactile-feedback technology that attracted Immersion's lawsuit.

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