Sony has been ordered by a court to stop selling its blockbuster PlayStation consoles in the US and to pay damages of $90.7m (£48m) to a small Californian software company.
Immersion Corporation sued Sony last year on the grounds that the giant Japanese electronics and media company had violated its patent rights. The dispute is over a technology which makes games consoles vibrate in time with actions in games.
The David-and-Goliath struggle has so far gone against Sony in two court decisions. Sony denies its Dual Shock technology infringes Immersion's patent. It said yesterday it would launch an appeal against the latest ruling by a federal court in Oakland, California.
Until the appeal is concluded, Sony is allowed to continue selling PlayStations in the US. The 47 individual games that are also affected by the patent infringement allegations will also continue to be on the shelves.
A final decision against Sony could be hugely damaging, and its shares slid on Tokyo's stock market yesterday.
Computer games are vital to the company's growth, as profits from its consumer electronics business have slid in recent years. Sony has lost out to Asian competitors such as Matsushita, which makes Panasonic products, which have been quicker to introduce ground-breaking technology to the market.
In a surprise announcement earlier this month, Sony said the Welsh-born Sir Howard Stringer - who currently runs its US division - would become its new chief executive. Top of Sir Howard's agenda will be to shake up the electronics arm to try to make it more competitive.
Sony's PlayStation models have, however, been enduringly popular. Along with Microsoft's Xbox, PlayStation 1 and 2 are the best-selling games platforms in the world.
Shares in Immersion, which develops and licenses digital technology, soared 36 per cent but fell back to close up 16 per cent in New York. The compensation Sony has been ordered to pay is three times its total revenues last year of $23.8m.
Games accounted for 44 per cent of Sony's operating profit during the three months to December. Last week Sony's next big hope for a sales boost, the Portable PlayStation, or PSP, went on sale in the US.
The pocket-sized device, which costs $250, is an attempt to take on Nintendo's handheld Game Boy, and is also a response to the massive popularity of Apple's sleek products, such as the iPod digital music player.