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Sony Hit On Two Game Fronts

31 Mar, 2005 By: John Gaudiosi

Sony has been hit on two fronts last week with bad news in its gaming division — one from a lawsuit ruling and the other from a launch hardware issue.

Sony must pay Northern California technology company Immersion Corp. $90.7 million in patent infringement damages for its use of the rumble feature that allows PlayStation and PlayStation 2 (PS2) Dual Shock controllers to vibrate in conjunction with in-game action. U.S. District Judge Claudia Wilken ordered Sony to pay the full amount and also issued an injunction for Sony to stop selling PlayStation and PlayStation 2 hardware, Dual Shock Controllers and 47 games that utilize the technology. That includes third-party games such as Tony Hawk's Pro Skater 3, Grand Theft Auto: Vice City and first-party titles such as Gran Turismo 3. A jury last year awarded Immersion $82 million in damages and the additional amount accounts for interest, as post-trial motions have come to a close.

Sony appealed the decision and was granted a stay of permanent injunction, but will have to pay Immersion a licensing fee for the duration of the stay. As a result, the sale of all PlayStation and PS2 hardware and software will continue uninterrupted. The injunction is limited to sales in the United States.

“The court-ordered permanent injunction to stop the shipment and sale of infringing products in the United States is an important indicator of the strength of our case and the potential risks involved in this litigation,” said Immersion CEO Victor Viegas in a statement. “We have always believed, and continue to believe, in the strength of our intellectual property. We remain confident of our position in the appeals process.”

“Force feedback has become standard in many games, and this ruling will get Sony and Immersion to the table to settle the issue,” said John Taylor, video game analyst, Arcadia Research. “It feels like this dispute will take place in the courtroom and won't have any impact on the consumer.”

Immersion filed its suit in February 2002 against Sony and Microsoft, which uses rumble technology in Xbox controllers. In 2003, Microsoft settled out of court for $26 million and was awarded a 10 percent stake in Immersion. Sony decided to let the battle go to the courts, and will now pay more for its decision.

Michael Pachter, SVP of Research, Wedbush Morgan Securities said the Immersion suit should have no impact at retail. “If Sony owes Immersion a royalty, they will pay, and if not, they won't,” he said.

On the PSP (PlayStation Portable) front, Sony's launch has been plagued by pixelation problems with the LCD screen that causes certain machines to have “dead pixels” that remain light or dark at all times. The same problem occurred in the Japanese launch last year. Many consumers who purchased the PSP have returned to retailers for an exchange. One source said the return rate may be as high as 17 percent on the PSP, which is already in short supply because of high consumer demand and limited inventory.

Sony's PSP instruction manual includes information on pixelation, stating that “red, blue or green spots (bright spots) or black spots (dark spots) may appear in certain locations on the LCD screen.”

“The appearance of such spots is a normal occurrence associated with LCD screens and not a sign of malfunction,” it goes on to say. “LCD screens are made using highly precise technology. However, a very small number of dark pixels or continuously lit pixels exist on each screen.”

The manual also gives instructions and a phone number for consumers to exchange the problem PSPs via mail with Sony. In online reports, Sony representatives have encouraged consumers to try playing games on PSP for a week or two before calling the number.

“The PSP pixelation issue could limit supply, but I can't see how it will impact demand,” Pachter said. “Even at a 17 percent return rate, which sounds high, Sony should fix the problem in a few weeks and will catch up in a month or so. It should not have any impact on software sales, but will limit supply to Sony's capacity.”

Taylor said that most new hardware launches have problems, including the initial launch of PS2. Glitches are not uncommon for new technology. Taylor believes this issue will soon be forgotten by consumers once adjustments are made.

“PSP will live or die by how good its games are and if consumers feel there's a positive price-value relationship for the games they buy,” Taylor said.

Another issue that has been impacting retailers has been an initial shortage of software for PSP games. Some retailers' software orders have been trimmed back by as much as one-third.

Despite the setbacks, Sony's initial shipment of 1 million PSP hardware units has sold through at retail and has received positive press on both the hardware and software fronts from mainstream and gaming press.

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