San Jose (CA) – The never ending story of Immersion’s Touchsense patent infringement suit against Sony and Microsoft has finally come to an end, with an example of legal brilliancy. While Microsoft was sued and was ordered to pay $26 million, the company made a deal that in the end enabled it to get Immersion’s technology for free and a profit on top of it.

Immersion said that it has agreed to resolve a Microsoft's May 1, 2007 for a $27.5 million claim under a 2003 Sublicense Agreement between the two companies, as well as Immersion's counterclaim that Microsoft breached a confidentiality agreement. The dispute appears to be entirely cleaned up, as Immersion is now also admitted to Microsoft's Certified Partner Program.

The background story involves Immersion’s huge patent infringement suit against Microsoft and Sony and today’s outcome puts a perfect ending to one of the great soap operas in IT and legal lessons how to deal with a patent infringement suit.

It all began with Immersion’s suit against Sony and Microsoft in February 2002. Microsoft chose to settle in July 2003 and pay a cash-strapped Immersion $26 million for the Touchsense license. Microsoft also loaned Immersion $9 million through the purchase of convertible bonds and bought a 10% stake in the company.  Back in 2003, Immersion shares were trading in the $2 per share range, which put the value of the 10% stake at just under $1.3 million.

Over time, the shares were worth more than $30 million and it is widely believed that Microsoft sold most of these shares before June 2007. Microsoft has not filed a Form 13G/A with the SEC since 2006, which is required when someone owns more than 5% of a company's common stock.

But Microsoft also entered into a separate agreement with Immersion, a “sublicense agreement” that would require Immersion to pay Microsoft $15 million if Immersion won up to $100 million from the Sony lawsuit. Microsoft would get 25% for amounts from $100 to $150 million and 17.5% for everything above $150 million. Immersion ended up getting $152 million, prompting Microsoft to play nice and ask for its share of $150 million – $27.5 million.

Microsoft ended up getting $20.75 million of its $26 million license payment back and, if you count in the stock gains, ended up with a substantial profit – while Sony financed Immersion’s suit and the company’s future. Immersion currently has about $129 million in the bank.