Here's how I thought it all happened.
Right after Nintendo unveiled the N64 and surprised everybody by having analog, there was a lot of talk about how "force feedback" was going to be the next frontier of controller design. There were some force feedback controllers available for PC's, but they cost more than the entire N64 did. Immersion was a leader in that field, and Nintendo was having meetings with them, which everyone thought was crazy.
Then (obviously inspired by Immersion's work) Nintendo came up with the idea of putting a $1 vibrator motor inside a controller, called it "rumble" (not true force feedback), patented it (patent # 6,200,253), and unveiled the Rumble Pak. Immersion got the rug yanked out from under them, and Sony had their face in the mud because they had just finished redesigning their controller to steal analog.
Immersion and Sony both dove on Nintendo's patent and tore apart some Rumble Paks, trying to find a loophole. Immersion found one, and patented their own brand of rumble (patent # 6,693,622). Then Sony supposedly found the exact same loophole, applied for a patent, made the Dual Shock, slapped "patent pending" on it, and shipped it out the door. Immersion won the rights to the loophole, because they were quicker on the draw, most likely because of their greater experience in force feedback.
I don't know what the loophole was, but Nintendo's patent seems to describe two pieces, the controller's shell and a "vibration source", while Immersion's talks about three pieces, the controller's shell, a "rotation actuator" (motor) and a weighted mass. They're both the same thing (a motor with a weight glued to the shaft), but I guess that if you describe your product to the authorities as a one piece unit you're Nintendo's bitch, and if you break it down into it's primary components you're Immersion's.
Either way, Sony's patent was rejected and ownership of the technology (unless you go through Nintendo) belongs to Immersion. Supposedly Immersion brought this up with Sony in the PSX-era, but they were unwilling to negotiate anything. Immersion had no means to fight Sony in court, and Sony knew it, so they didn't give a rat's ass about them.
Then Sega used rumble in the Dreamcast (optionally), but I don't know what it's legal status was.
Then Sony deliberately shipped the PS2 with the Dual Shock 2 sporting illegal technology.
Then Microsoft shipped the XBox with illegal rumble technology, because everyone else seemed to be doing it, and when they were contacted by Immersion they apologized and paid the royalty. Then they decided to lend Immersion enough money to sue Sony, probably just for the amusement value.
Immersion won a fair amount that's essentially a piddling sum compared to what Sony earned on the Dual Shock and DS2, but Sony's refusing to pay and now they're dropping the technology altogether.
Immersion would like the money they're owed, and they'd also like to continue working for people. They think that Sony can earn more money by working with them and having a good controller than they can by fighting. Sony wants us to forget about rumble and brush the whole thing under the rug. Immersion would like to keep reminding us, in order to keep their's and Sony's financial interests together.
Sony fanboys would like Immerison to forgive Sony's two generations worth of debt on the off chance that Sony might be willing to hire them for at least one generation, because that would deliver a better controller. It holds some odd business sense, as it seems that's the only way Immersion will ever get a dime out of Sony.
