Q&A: Immersion Corp. Pres and CEO Vic Viegas

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Immersion Corp. is more than the force-feedback company gamers are familiar with through the various controllers that deliver its technology. The San Jose-based company (which owns close to 300 patents) is also vested in areas that include medical simulation for physician training, cell phone technology, and programmable knobs and touch panels that are applicable in the automotive space (BMW and Alps are both licensees of the company's technologies).

Immersion partners also include Samsung and Qualcomm in the mobile phone space as well as Medtronic in the medical space.

But those clients or business partners do something Sony does not, which is to pay Immersion license fees for Immersion technology--at least that's the story Immersion tells.

We spoke with Immersion Corp. president and CEO Victor Viegas who commented on the recent ruling by United States District Judge Claudia Wilken. Earlier this week, Wilken ordered the electronics giant to pay Immersion $90.7 million in patent infringement damages.

GameSpot: Is this week's decision a victory? Is the heavy lifting over for Immersion Corp.?

Victor Viegas: On September 21, 2004, the jury reached a meaningful verdict, a unanimous verdict. They found that 16 claims of two patents were both infringed and valid, and they awarded us damages of $82 million. The judge's decision [this week] was consistent with the jury's findings, and she added to that interest of $8.7 million, for a total award of $90.7 million.

GS: You sound pleased.

VV: We're happy that she eliminated or dismissed a number of defenses and arguments made by Sony. I wouldn't call it a victory. [The decision] is still subject to appeals, number one. Number two, it's a judgment based on a verdict of $82 million, which is a 1.37 percent royalty for infringing products that were sold. Our typical license is approximately 5 percent of the wholesale selling price.

GS: Sony got quite a bargain in the decision.

VV: That's right. It will be hard to call it a real victory because it's a lower royalty rate than we would be happy with.

We believe any infringing product should cease to be sold. [The judge] stayed a permanent injunction, but she allowed Sony to continue to sell those products while they appeal this judgment.

GS: Let's say they appeal, but the court or the judge does not recognize their argument. Does Sony then become a long-term licensee of your technology, conforming to the 1.37 percent royalty fee?

VV: Let's say that we go through appeals, and Immersion wins the appeal, and the judgment is enforced, then they could no longer sell these products. That's the big risk to them.

If, on the other hand, they feel that that risk is too great, they could begin negotiations with Immersion on acceptable licensing terms.

GS: Have negotiations been taking place with that in mind over recent years since you brought the initial complaint, back in February of '02?

VV: We've had a number of discussions from before the trial began, or the lawsuit was filed in February of '02, and we've had subsequent discussions throughout the process. But none of those discussions have led to any meaningful resolution or settlement.

I would say, at this stage, Sony has taken the position that they feel they're better off trying to win this in court, or through appeals.

GS: This is not just an appeal to overturn the verdict, but an appeal for resolution entirely in their favor, right?

VV: That's right.

GS: In what way do you think that this legal argument affects gamers, or should be of interest to gamers?

VV: The most meaningful thing to a gamer would be the risk of this permanent injunction. If suddenly Sony can't sell games, obviously consumers will be affected. Retailers, obviously will be affected. Third-party providers, suppliers to Sony, game publishers who publish these games won't be able to sell them. So there would be a dramatic impact for anybody who currently is using a PlayStation product.

And it probably is very good for the Xbox product line.

The question is, will Sony allow this to occur, will they at some point decide that it's better to resolve this than risk losing their PlayStation franchise? You can only assume that they would, but we've been at this for three years and they haven't decided to go in that direction. So they decided to fight it at all costs through court--and that, I think, does subject their customers and their partners to some risk, if, in fact, the permanent injunction is in place without stay.

GS: Had you pitched Sony in terms of them incorporating your technology prior to the Feb. '02 lawsuit?

VV: Oh, yeah. We've talked about not only the technology they're currently using that infringes our patents, but we've talked about new technology that includes better, more precise effects. We have technology that would work on the wireless platform, so wireless controllers with high fidelity effects are available. We have lots of new technology above and beyond that which they're currently using.

GS: Any crossover into the PSP camp here?

VV: I can't honestly say that we've talked about the wireless platform, the PSP, but we've shown them demonstrations of wireless controllers that could clearly work on any PlayStation embodiment. And we also have shown them technology that is about to be launched by Samsung in the cell phone market. That's the same technology that could easily be incorporated in a handheld gaming device.

GS: How important is the gaming industry to the Immersion business model?

VV: It's very important. We have in excess of 20 other licensees in the gaming space. People like Apple, Microsoft, Logitech, Intec, Mad Catz...we have a lot of licensees. In fact, we just signed three additional licensees in the last few months, including Joytech and Gemini.

The gaming industry is a very important part of our business. It's also the number one volume product which incorporates Immersion technology. From purely a consumer awareness standpoint, it's important that the experience be high quality, and high volume. Yet the largest shipper of Immersion technology is not licensed.

That is not fair to our existing licensees or to our shareholders.