Sony Stop Selling Playstations?

"Ruling Could Halt Sony's PlayStation

A federal court ruling that could force Sony Corp. to pull the plug on its popular PlayStation video game consoles marks the latest in a series of underdog victories in legal disputes over intellectual property.

U.S. District Judge Claudia Wilken on Thursday ordered the Japanese electronics giant not to manufacture, use, sell or import into the United States PlayStations that incorporate so-called force feedback technology developed by San Jose-based Immersion Corp.

Immersion won an $82-million judgment against Sony in September over use of Immersion's patented technology that makes game controllers shake and vibrate to enhance realism.

Although Wilken stayed her order while Sony appeals, the threat of stopping the flow of one of Sony's most lucrative products — PlayStation accounted for 32% of Sony's operating income last quarter — highlights the legal risks in an era of rapid technological change.

"Where innovation goes on at a torrential pace … it puts a real premium on intellectual property" such as patented technology, said attorney Bruce D. Sunstein of Bromberg & Sunstein in Boston. "If you don't have any, you're likely to die. You're definitely forced big-time to innovate."

A spokeswoman for Sony declined to comment on the case.

The defeat was one of several handed to big technology companies in recent weeks.

A jury in Santa Clara County last week ordered consumer-electronics giant Toshiba Corp. to pay Lexar Media Inc. of Fremont, Calif., $465.4 million for stealing and revealing Lexar's trade secrets. And on March 16, a federal appeals court in Virginia set the stage for tiny MercExchange of Great Falls, Va., to win an injunction preventing online auction powerhouse EBay Inc. from infringing MercExchange's patented online-buying technology.

Jason Schultz, a staff attorney for the Electronic Frontier Foundation, said the companies most likely to wage patent battles were large manufacturers and small companies that specialize in selling the rights to use patented technology. An entire industry of patent-holding companies that acquire patents and enforce them is emerging, he said, and wins like the ones recorded by Immersion and MercExchange will only encourage that approach.

The problem, Schultz said, is that companies with such a narrow focus "can poison the ecosystem for innovation in technology."

Immersion Chief Executive Victor Viegas agreed but said Immersion was no mere patent mill. The company, which reported almost $24 million in sales last year, has come to dominate the force feedback market. Its technology is used not only in video games but also in car navigation systems, medical equipment and, soon, cellphones, he said.

Viegas said Immersion licensed its technology in exchange for a portion of the revenue generated by the products involved — typically 5% of the wholesale price. In its lawsuit, it asked for nearly $300 million, or 5% of the more than $5 billion that Sony collected on PlayStation products in the 2 1/2 years leading up to the trial.

After the jury awarded $82 million, or about 1.4% of the PlayStation sales, Wilken ordered Sony to pay Immersion the same percentage of its sales from July 1, 2004, on. Later, she awarded Immersion $8.7 million in interest.

Immersion acquired the two patents at issue in the Sony case through its purchase of Virtual Technologies Inc. in August 2000. Although the patents were not granted until 2001 and 2002, Virtual Technologies had filed for them in 1996 and published them in 1997, before Sony put its disputed technology into the PlayStation consoles, controllers and games.

Analyst Michael Pachter of Wedbush Morgan Securities in Los Angeles said Sony was expected to sell 5 million to 7 million PlayStation 2s this year and make $40 to $45 per unit. Given how much PlayStation contributes to the bottom line, he said, Sony is likely to strike a deal with Immersion if it loses its appeal.

"There's no way Sony stops selling PS2s," Pachter said.

Immersion shares rose 55 cents, or 9.6%, to $6.30 on Nasdaq. Sony shares were unchanged at $41.16 on the New York Stock Exchange."