<PAGE>
                                                                    EXHIBIT 10.5

CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
EXHIBIT, WHICH PORTIONS HAVE BEEN OMITTED AND REPLACED WITH [****] AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                              SUBLICENSE AGREEMENT
                              --------------------

     This Sublicense Agreement ("Sublicense Agreement") is entered into and is
effective on this 25th day of July, 2003 (the "Effective Date") by and between
MICROSOFT CORPORATION, a Washington corporation with principal offices in
Redmond, Washington ("Microsoft") and IMMERSION CORPORATION, a Delaware
corporation with principal offices in San Jose, California ("Immersion"), each a
"Party" and collectively, the "Parties."

                                    RECITALS
                                    --------

     WHEREAS, Immersion has the right to grant a license to Microsoft and its
Subsidiaries to enable Microsoft and its Subsidiaries to grant the below
described sublicenses to third parties, under certain patent rights more fully
described below; and

     WHEREAS, Microsoft desires to acquire a sublicensing right under such
patent rights and Immersion desires to grant such a sublicensing right, all on
the terms and conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Parties agree as follows:


                                    AGREEMENT
                                    ---------

1.   Definitions.
     -----------

     a.   "ADULT PRODUCT" means: [****].

     b.   "CONDITIONAL PATENTS" means [****].

     c.   "FOUNDRY PRODUCT" means a product which is designed by or for a [****]
          without substantial [****] and manufactured, reproduced, sold, leased,
          licensed or otherwise transferred from the [****] on essentially an
          [****].

     d.   "GAME PLATFORM" means: (i) a [****] manufactured for the purpose of
          [****] for that platform; (ii) any [****] intended to be used with the
          [****] referenced in (i) above, so as to [****] (iii) [****]
          referenced in (i) above; (iv) [****] described in (iii) above; and (v)
          [****] are examples [****]

     e.   "GAME PLATFORM VENDOR" means an entity which distributes a Game
          Platform under its own name.

     f.   "LICENSED PATENTS" means all Patents under which Immersion or any of
          its present or future Subsidiaries owns or has as of the Effective
          Date (or as of the acquisition date in the case of future
          Subsidiaries), or thereafter obtains, the ability or right to grant
          licenses, releases or freedom from suit, with the exception of
          Conditional Patents.
<PAGE>
                             PROVIDED UNDER RULE 408


     g.   "MEDICAL PRODUCT" means any [****] product, [****] product, or
          combination of [****] that uses [****] for the [****] or the [****] of
          any [****] General purpose hardware or software whose primary function
          is not the delivery of one of the foregoing is not a Medical Product.

     h.   "PATENT" means any patent, patent application, ____ provisional
          application, ____ continuation, continuation-in-part, divisional,
          reissue, renewal, reexamination, utility model, design patent, and
          foreign counterparts thereof.

     i.   "ROYALTY-BEARING [****] PRODUCTS" means:

          (i)  [****] or [****] or a [****] and [****] or [****] distributed in
               connection with [****] or [****] except to the extent that such
               devices constitute Adult Products, Medical Products, or Foundry
               Products; and

          (ii) [****] distributed under a [****] or [****], except to the extent
               that such devices constitute Adult Products, Medical Products, or
               Foundry Products.

        A handheld device having a primary purpose of playing games shall be
        deemed to fall within the "Game Platform" definition and is not a
        Royalty-Bearing [****] Product.

     j.   [****]

     k.   [****] means the [****] for the [****] as such [****] pertains to
          [****]

     l.   "SUBLICENSEE" means any entity to which Microsoft may grant a
          sublicense in accordance with this Sublicense Agreement.

     m.   "SUBSIDIARY" means a corporation, company or other entity: (i) fifty
          percent (50%) or more of whose outstanding shares or securities
          (representing the right to vote for the election of directors or other
          managing authority) are, now or hereafter, owned or controlled,
          directly or indirectly, by a given entity, but such corporation,
          company or other entity shall be deemed to be a Subsidiary only so
          long as such ownership or control exists; or (ii) which does not have
          outstanding shares or securities, as may be the case in a partnership,
          joint venture or unincorporated association, but fifty percent (50%)
          or more of whose ownership interest representing the right to make the
          decisions for such corporation, company or other entity is, now or
          hereafter, owned or controlled, directly or indirectly, by a given
          entity, but such corporation, company or other entity shall be deemed
          to be a Subsidiary only so long as such ownership or control exists.

     n.   "TOUCH TECHNOLOGY" means technology related to calculating,
          processing, amplifying, communicating, transmitting, controlling,
          applying, producing, using, or enhancing touch sensations or
          information related to the sense of touch (e.g., resistance, texture,
          force). Examples include force feedback, vibration, and tactile
          response applications.

2.   SUBLICENSING RIGHTS AND PAYMENTS.
     --------------------------------

     a.   SUBLICENSE RIGHTS FOR GAME PLATFORM VENDORS.

          (i)  Grant of Rights. Immersion on behalf of itself and its
               Subsidiaries, hereby grants to Microsoft and its Subsidiaries the
               worldwide, irrevocable, non-terminable right, subject to and
               during the period set forth in Section 2(j),

                                       2
<PAGE>
                             PROVIDED UNDER RULE 408


               to sublicense Game Platform Vendors and their Subsidiaries under
               the Licensed Patents (excluding Patents not directed to Touch
               Technology) to:

               (1)  make, have made, use, lease, distribute, have distributed,
                    publish, have published, import, provide as a service, offer
                    to sell, sell or otherwise dispose of such Game Platform
                    Vendor's and its Subsidiaries' Game Platforms; and

               (2)  further sublicense third party software developers to use
                    such Game Platform Vendor's and its Subsidiaries' Game
                    Platform software development tools to develop games solely
                    for such Game Platforms.

          (ii) Delivery of Copy of Game Platform Sublicense. Microsoft's grant
               of such a sublicense to a Game Platform Vendor is referred to
               herein as a "Game Platform Sublicense." Except as set forth in
               the last sentence of Section 2(c), Microsoft shall provide
               Immersion with a copy of the fully executed Game Platform
               Sublicense within ten (10) days after the Game Platform
               Sublicense is executed by Microsoft and the applicable Game
               Platform Vendor.

     b.   COMPENSATION FOR GAME PLATFORM VENDORS [****] As Immersion's entire
          compensation with respect to each individual sublicense granted under
          Section 2(a) above to a particular Game Platform Vendor [****], (a)
          Microsoft shall pay Immersion [****] within ten (10) days of
          Microsoft's granting any such Game Platform Sublicense, and (b)
          thereafter Microsoft shall pay Immersion [****] of the cash amounts
          (if any, and including royalty payments and upfront, annual or other
          license fees) received by Microsoft from such Game Platform Vendor for
          the Game Platform Sublicense in excess of [****] ("Additional
          Sublicensing Revenue") within thirty (30) days of Microsoft's receipt
          of any such Additional Sublicensing Revenue.

     c.   COMPENSATION FOR [****] GAME PLATFORM SUBLICENSE. In the event
          Microsoft grants [****] a Game Platform Sublicense on the terms set
          forth in Section 2(a) above, the following terms shall apply in place
          of the terms of Section 2(b). Within ten (10) days after Microsoft
          grants [****] the Game Platform Sublicense, Microsoft shall pay
          Immersion:

          (i)  [****] if the Game Platform Sublicense is entered into prior to
               the date that is thirty (30) days prior to the then most recently
               [****] in the [****];

          (ii) [****] if the Game Platform Sublicense is entered into within the
               thirty (30) day period immediately prior to the then most
               recently [****] in the [****];

          (iii) [****] if the Game Platform Sublicense is entered into during
               the time period the [****] of the [****] is underway, but prior
               to the delivery of [****] for the [****] to be [****] to
               Immersion (if any) in the [****]; or

          (iv) the greater of [****] or the amount that is [****] of any [****]
               that has been [****] in the [****] if the Game Platform
               Sublicense is entered into after the delivery of the [****]
               referenced in (3) above. Microsoft shall be


                                       3
<PAGE>
                             PROVIDED UNDER RULE 408


               entitled to deduct [****] of the [****] received by Microsoft
               [****] for the Game Platform Sublicense from the amounts payable
               under this clause (4); provided that the amount payable by
               Microsoft under this clause (4) will in no event be less than
               [****].

          In any of the cases described under clauses (1) - (4) above, the
          Parties shall each be entitled to [****] of the cash amounts (if any,
          and including royalty payments and upfront, annual or other license
          fees) received by Microsoft [****] for the Game Platform Sublicense in
          excess of the applicable amount specified in such clauses (1) - (4)
          (after implementation of the calculation specified in clause (4)). Any
          license grant [****] under the Game Platform Sublicense shall not
          become effective until [****] renders all compensation required under
          the Game Platform Sublicense to be paid [****] as of the effective
          date of such Game Platform Sublicense. At the time of making payment
          to Immersion for [****] Game Platform Sublicense, Microsoft shall also
          provide Immersion with a fully executed copy of the [****] Game
          Platform Sublicense.

     d.   MICROSOFT'S RIGHT TO SUBLICENSE [****] FOR ADDITIONAL [****].
          Immersion on behalf of itself and its Subsidiaries, hereby grants to
          Microsoft and its Subsidiaries the worldwide, irrevocable,
          non-terminable right, subject to and during the period set forth in
          Section 2(j), to sublicense [****] under the Licensed Patents
          (excluding Patents not directed to Touch Technology) to make, have
          made, use, offer to sell and sell or otherwise distribute
          Royalty-Bearing [****] Products, subject to the royalty obligations
          set forth in Exhibit A. In the event Microsoft and [****] execute an
          agreement for such a sublicense, Immersion shall pay Microsoft [****]
          within ten (10) days after the execution thereof. Within ten (10) days
          after execution of any sublicense under this Section 2(d), Microsoft
          shall provide a fully executed copy thereof to Immersion.

     e.   PAYMENTS TO MICROSOFT IN THE EVENT IMMERSION [****] PRIOR TO MICROSOFT
          GRANTING [****] A GAME PLATFORM SUBLICENSE. In the event Immersion
          elects in its discretion to [****] prior to Microsoft's granting
          [****] the Game Platform Sublicense (and regardless of whether such
          [****] occurs during or after the twenty-four (24) month period
          following the Effective Date), then Immersion shall pay Microsoft an
          amount determined as follows:

          (i)  If Immersion [****] for an amount of [****] up to and including
               [****], then Immersion shall pay Microsoft the sum of [****].

          (ii) If Immersion [****] for an amount in excess of [****] up to and
               including [****], then Immersion shall pay Microsoft the sum of
               [****] plus an additional amount equal to 25% of the amount of
               the settlement in excess of [****] up to and including [****].

          (iii) If Immersion [****] for an amount in excess of [****], then
               Immersion shall pay Microsoft the sum specified in the preceding
               clause (3) plus an additional amount equal to [****] of the
               amount of the settlement in excess of [****].

                                       4
<PAGE>
                             PROVIDED UNDER RULE 408


          The [****] amounts specified in clauses (i) - (iii) above shall
          include all amounts, including all royalty payments and upfront,
          annual or other license fees (regardless of when received), received
          by Immersion on account of any license, [****], or similar
          consideration granted by Immersion to [****] in respect of the
          Licensed Patents, including for fields of use outside of the area of
          Game Platforms, and(a) in connection with the [****], including any
          agreement, license, sublicense, option, investment, or other
          transaction associated with [****], and (b) with respect to any other
          agreement, license, sublicense, option, investment, or other
          transaction entered into during the time period that is the lesser of
          (1) the period set forth in Section 2(j), or (2) eighteen (18) months
          after [****]. Any amounts due under this Section 2(e) shall be paid to
          Microsoft within ten (10) days of Immersion's [****]. Immersion
          further agrees to promptly provide Microsoft with sufficient
          documentation of [****] to enable Microsoft to determine and confirm
          the payment owed to Microsoft in the event of such a [****].

     f.   [****]. Within five (5) days after Microsoft grants [****] a Game
          Platform Sublicense and pays Immersion the amount due under Section
          2(c), Immersion, for no additional consideration or payment whatsoever
          (whether from Microsoft or [****]) will: (i) [****]; and (ii) [****]
          licensees, distributors, and customers, direct and indirect, from any
          [****] or could have [****]. The Immersion obligations set forth in
          the foregoing sentence shall be contingent on [****] (for no
          additional consideration or payment whatsoever from Immersion) [****]
          or that could have been [****] or based on or [****].

     g.   SUBLICENSING REVENUE FROM [****] JOINT VENTURE. If, during the period
          set forth in Section 2(j), Immersion grants a third party the right to
          grant licenses for the equivalent of Royalty-Bearing [****] Products
          to [****], Microsoft shall be entitled to receive [****] of all
          amounts received on account of the grant of such rights, including all
          royalty payments and upfront, annual or other license fees (regardless
          of when received). All such amounts shall be paid to Microsoft no than
          thirty (30) days after receipt by Immersion. In the event that [****],
          the aforementioned percentage shall be increased to [****].

     h.   CONDITIONAL PATENTS. Immersion on behalf of itself and its
          Subsidiaries, agrees that [****].

     i.   OWNERSHIP. Except as expressly licensed to Microsoft in this
          Sublicense Agreement, Immersion retains all right, title and interest
          in and to the Licensed Patents. Immersion reserves all rights not
          expressly granted in this Sublicense Agreement.

     j.   LIMITATION. Microsoft's right to grant sublicenses to [****] or other
          third parties pursuant to this Section 2 shall only be effective
          during the twenty-four (24) month period following the Effective Date;
          provided, however, that any such sublicense granted by Microsoft
          pursuant to this Section 2 during such twenty-four (24) month period
          shall be effective for the life of the Licensed Patents or for such
          lesser duration as Microsoft and the applicable sublicensee may agree,
          in their sole discretion.

                                       5
<PAGE>
                             PROVIDED UNDER RULE 408


3.   PAYMENT. Within five (5) days after the Effective Date, Microsoft shall pay
     Immersion by cashier's check, wire transfer or other immediately available
     funds, one hundred thousand dollars (USD $100,000), in consideration of the
     rights and covenants set forth herein. The payment referenced in this
     Section 3 is in addition to any payments that Microsoft may be obligated to
     make to Immersion under Sections 2(b), 2(c) or 2(h) of this Sublicense
     Agreement.

4.   CONFIDENTIALITY. The terms, conditions, and existence of this Sublicense
     Agreement shall be treated as confidential information by the Parties, and
     neither Party shall disclose the existence, terms or conditions of this
     Sublicense Agreement to any third party (other than, in the case of
     Microsoft, to [****] and to any other Game Platform Vendor entering into a
     Game Platform Sublicense) without the prior written permission of the other
     Party. Each Party, however, shall have the right to make disclosures to the
     extent required by an order of court, regulation of another governmental
     body, or otherwise by law or by a stock exchange, provided that the Party
     shall promptly provide written notice to the non-disclosing Party of the
     intended disclosure and of the court order or regulation prior to such
     disclosure and that the Party shall take all reasonable steps to minimize
     such disclosure by, for example, obtaining a protective order and/or
     appropriate confidentiality provisions requiring that such information to
     be disclosed be used only for the purpose for which such law, order,
     regulation or requirement was issued. Additionally, (i) each Party may
     disclose the terms and conditions of this Sublicense Agreement to the
     extent reasonably necessary, under a suitable confidentiality agreement, to
     its accountants, attorneys, financial advisors and in connection with due
     diligence activities relating to the sale of the stock or a portion of the
     business of a Party or its Subsidiaries, and (ii) Immersion shall be
     permitted to disclose to [****] and any other Game Platform Vendor entering
     into a Game Platform Sublicense the permitted scope of Microsoft's
     sublicense rights under this Sublicense Agreement, provided that Immersion
     gives Microsoft notice of such proposed disclosure and Microsoft does not
     respond within thirty (30) days after such notice.

5.   Warranties.
     -----------

     a.   IMMERSION. Immersion represents, warrants, and covenants that:

          (i)  it has the full power and has taken the necessary and appropriate
               steps to enter into this Sublicense Agreement and assume the
               obligations hereunder;

          (ii) it has the right to license the Licensed Patents, and it has the
               full power and has taken the necessary and appropriate steps to
               enter into this Sublicense Agreement and assume the obligations
               hereunder, and to grant the license rights and covenants set
               forth herein;

          (iii) it has not previously and will not grant any rights in the
               Licensed Patents to any third party that are inconsistent with
               the rights granted to Microsoft herein;

          (iv) it has not previously and will not grant during the period set
               forth in Section 2(j) to any third party the right to grant
               [****] the sublicense rights granted in Sections 2(a) herein;

                                       6
<PAGE>
                             PROVIDED UNDER RULE 408


          (v)  it has not assigned or otherwise transferred or subrogated any
               interest in any of its [****] that are the [****] the [****],
               and, except in connection with an assignment by Immersion
               permitted by Section 8(d), will not assign or otherwise transfer
               or subrogate any interest [****] in any of its [****] that are
               the [****] the [****];

          (vi) [****];

          (vii) as of the Effective Date, [****] owned by Immersion [****] and
               have not [****];

          (viii)as of the Effective Date, there are no actual or threatened
               lawsuits or claims relating to the Licensed Patents other than
               the action in the United States District Court for the Northern
               District of California entitled Immersion Corporation v. Sony
               Computer Entertainment of America, Inc., Sony Computer
               Entertainment Inc., and Microsoft Corporation, Northern District
               of California Case No. C02-00710 CW (WDB), contract, business or
               licensing discussions with existing or potential licensees and
               customers, and as set forth in Schedule 3.12 to the Series A
               Redeemable Convertible Preferred Stock Purchase Agreement
               executed by the Parties on even date herewith; and

          (ix) as of the Effective Date, Immersion believes, in good faith, that
               the issued Licensed Patents owned by Immersion are valid and
               enforceable.

b.   BY MICROSOFT. Microsoft represents, warrants, and covenants that it has the
     full power and has taken the necessary and appropriate steps to enter into
     this Sublicense Agreement and assume the obligations hereunder.

c.   DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN SECTIONS 5(a) AND 5(b) ABOVE,
     THE PATENTS ARE PROVIDED "AS IS" AND WITHOUT WARRANTY OF ANY KIND. EACH
     PARTY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
     PARTICULAR PURPOSE, OR NON-INFRINGEMENT.

     Nothing in this Sublicense Agreement shall be construed (i) as a warranty
     or representation by Immersion as to the validity or scope of any Licensed
     Patents; (ii) as a warranty or representation that anything made, used,
     sold or otherwise disposed of under any license or sublicense granted in or
     under this Sublicense Agreement is or will be free from infringement by
     patents, copyrights, trade secrets, trademarks, or other rights of third
     parties; (iii) as granting by implication, estoppel or otherwise any
     licenses or rights under patents or other intellectual property rights of
     Immersion other than expressly granted herein; or (iv)(a) to require
     Immersion to file any patent application, (b) as a warranty that Immersion
     will be successful in securing the grant of any patent or any reissue or
     extensions thereof, or (c) to require Immersion to pay any maintenance fees
     or take any other steps to maintain Immersion's patent rights. Immersion
     does not assume any responsibility for the manufacture of any product that
     is manufactured or sold by or for Microsoft or Microsoft's Subsidiaries, or
     their sublicensees. All warranties

                                       7
<PAGE>
                             PROVIDED UNDER RULE 408


     in connection with such products shall be made by the manufacturer or
     seller of such products.

6.   TERM; TERMINATION.
     -----------------

     a.   TERM. Unless terminated by Microsoft pursuant to Section 6(b), the
          term of this Sublicense Agreement shall be from the Effective Date
          until the expiration of the last to expire of the Licensed Patents.

     b.   TERMINATION. The parties expressly agree that this Sublicense
          Agreement may not be terminated by Immersion, even in the event of
          Microsoft's breach of this Sublicense Agreement. Notwithstanding the
          foregoing, Microsoft may terminate this Sublicense Agreement in its
          sole discretion and at any time upon thirty (30) days' written notice
          in advance to Immersion. In the event Microsoft elects to terminate
          this Sublicense Agreement, (i) such termination shall not terminate or
          otherwise affect any sublicenses granted by Microsoft under this
          Sublicense Agreement prior to such termination, and (ii) Sections 4,
          5, 6(b), 7, 8, and 9 shall survive. Termination of this Sublicense
          Agreement by Microsoft shall not in any way affect or relieve either
          of the Parties of the payment obligations set forth in Sections 2(b),
          2(c), 2(d) and 2(h) of this Sublicense Agreement.

     7.   LIMITATION OF LIABILITIES.
          -------------------------

NEITHER PARTY WILL BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL,
PUNITIVE OR SPECIAL DAMAGES RELATING TO THIS SUBLICENSE AGREEMENT, EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

                                       8
<PAGE>
                             PROVIDED UNDER RULE 408


8.   General.
     -------

     a.   NOTICES. All notices and requests in connection with this Sublicense
          Agreement will be given in writing and will be deemed given as of the
          day they are received either by messenger, delivery service, or in the
          mails of the United States of America, postage prepaid, certified or
          registered, return receipt requested, and addressed as follows:

<TABLE>
<S>                                                   <C>
     TO: MICROSOFT                                    TO: IMMERSION
     Microsoft Corporation                            Immersion Corporation
     Attention: Vice President, Intellectual          Attention: Vice President,
     Property                                         Legal Affairs
     One Microsoft Way                                801 Fox Lane
     Redmond, Washington 98052-6399                   San Jose, California 95131
     Phone: (425) 882-8080                            Phone: (408) 467-1900
     Fax: (425) 936-7329                              Fax: (408) 467-1901
     Copy to: Vice President, Litigation
     Fax:  (425) 936-7409
</TABLE>

          or to such other address as the Party to receive the notice or request
          so designates by written notice to the other.

     b.   INDEPENDENT CONTRACTORS. The Parties are independent contractors, and
          nothing in this Sublicense Agreement will be construed as creating an
          employer-employee relationship, a partnership, or a joint venture
          between the Parties. Neither Party will have the power to bind the
          other Party or incur obligations on the other Party's behalf without
          the other Party's prior written consent.

     c.   DISPUTE RESOLUTION. This Sublicense Agreement shall be construed and
          controlled by the laws of the State of Washington, and each Party
          consents to exclusive jurisdiction and venue in the federal courts
          sitting in King County, Washington, unless no federal subject matter
          jurisdiction exists, in which case each Party consents to exclusive
          jurisdiction and venue in the Superior Court of King County,
          Washington. Each Party waives all defenses of lack of personal
          jurisdiction and forum non-conveniens. Process may be served on either
          Party in the manner authorized by applicable law or court rule. In any
          action to enforce any right or remedy under this Sublicense Agreement
          or to interpret any provision of this Sublicense Agreement, the
          prevailing Party shall be entitled to recover its reasonable
          attorneys' fees, costs and other expenses.

     d.   ASSIGNMENT. This Sublicense Agreement will be binding upon and inure
          to the benefit of each Party's respective successors and lawful
          assigns. Microsoft will have the right to assign this Sublicense
          Agreement or any or all of its rights under this Sublicense Agreement,
          in whole or in part (in any case together with all restrictive terms
          continuing with such assignment) to any purchaser of any Microsoft
          business that grants the sublicenses authorized herein; provided, that
          Microsoft may not make any such assignment to [****]. This Sublicense
          Agreement may be assigned by Immersion to any acquiror of all or
          substantially all of the business or assets of Immersion, or in
          connection with a merger.
                                       9
<PAGE>
                             PROVIDED UNDER RULE 408


          Microsoft and Immersion will each have the right to merge or
          consolidate without the prior approval of the other Party. Except as
          permitted above, assignment of this Sublicense Agreement, whether by
          contract, operation of law, or otherwise, will be void.

     e.   CONSTRUCTION. If for any reason a court of competent jurisdiction
          finds any provision of this Sublicense Agreement, or portion thereof,
          to be unenforceable, that provision of the Sublicense Agreement will
          be enforced to the maximum extent permissible so as to effect the
          intention of the Parties, and the remainder of this Sublicense
          Agreement will continue in full force and effect. Failure by either
          Party to enforce any provision of this Sublicense Agreement will not
          be deemed a waiver of future enforcement of that or any other
          provision. This Sublicense Agreement has been negotiated by the
          Parties and their respective counsel and will be interpreted fairly in
          accordance with its terms and without any strict construction in favor
          of or against either Party.

     f.   ENTIRE AGREEMENT. This Sublicense Agreement constitutes the entire
          agreement between the Parties with respect to the subject matter
          hereof and merges all prior and contemporaneous communications
          regarding the subject matter hereof. This Sublicense Agreement will
          not be modified except by a written agreement dated subsequent to the
          Effective Date and signed on behalf of Immersion and Microsoft by
          their respective duly authorized representatives. This Sublicense
          Agreement may be executed in any number of counterparts, each of which
          when so executed shall be deemed to be an original, and all of which
          taken together shall constitute one and the Sublicense Agreement.
          Delivery of an executed counterpart of this Sublicense Agreement by
          facsimile transmission shall be effective as delivery of an originally
          executed counterpart of this Sublicense Agreement.

                  [Remainder of page intentionally left blank]


                                       10
<PAGE>
                   -------------------------------------------

                              SIGNATURE PAGE TO THE
                        GAME CONSOLE SUBLICENSE AGREEMENT

                   -------------------------------------------


        IN WITNESS WHEREOF, the Parties have entered into this Sublicense
Agreement as of the Effective Date written above.


                                 IMMERSION CORPORATION


                                 By:
                                    --------------------------------------
                                    VICTOR VIEGAS
                                    President, Chief Executive Officer and
                                    Chief Financial Officer


                                    MICROSOFT CORPORATION


                                    By:
                                       --------------------------------------
                                       Name:
                                       Title:


                                    By:
                                       --------------------------------------
                                       Name:
                                       Title:


                                    By:
                                       --------------------------------------
                                       Name:
                                       Title:


                                    By:
                                       --------------------------------------
                                       Name:
                                       Title:




<PAGE>

                                    EXHIBIT A

                  ROYALTIES FOR ROYALTY-BEARING [****] PRODUCTS

1.   In the event Microsoft grants [****] the additional license rights
     referenced in Section 2(d), Microsoft shall arrange for [****] to pay
     royalties directly to Immersion as described below.

     a.   The royalty applicable to each unit of a given type of Royalty-Bearing
          [****] Product that is licensed, sold, or otherwise distributed or
          disposed of by any entity licensed under the sublicense granted
          pursuant to Section 2(d) of the Sublicense Agreement (a "UNIT") shall
          be the greater of:

          (i)  [****] per Unit; or

          (ii) [****] of the wholesale cost of production of such Unit.

     b.   Alternatively, at [****] option, in the event that Immersion has
          entered into an agreement with a party other than [****] (excluding
          (i) the License Agreement entered into by Microsoft and Immersion
          simultaneously with the execution of this Agreement, (ii) any other
          agreement with a third party in connection with the [****]; and (iii)
          any agreement under which Immersion receives a license or [****] from
          such third party) (a "THIRD PARTY AGREEMENT") in which Immersion
          grants such third party rights under the Licensed Patents of
          equivalent scope to the rights sublicensed to [****] under Section
          2(d), if, taken as a whole, the terms of such Third Party Agreement
          are more favorable than the terms of the agreement entered into by
          [****] and Microsoft pursuant to Section 2(d) ("SECTION 2(d)
          AGREEMENT"), [****] may elect that all material terms of such Third
          Party Agreement shall apply to [****] in place of the Section 2(d)
          Agreement. In the event of such an election by [****] and Microsoft
          shall terminate the Section 2(d) Agreement, and Immersion and [****]
          will enter into an agreement containing all such material terms of
          such Third Party Agreement.

2.   Except as otherwise agreed by [****] and Immersion, royalties payable for
     Units shall be paid within 30 days after the end of the calendar quarter in
     which [****] receives revenue for such Unit and to a bank account
     designated by Immersion.

3.   [****] bundled with [****] shall not bear a separate royalty; the only
     royalty payable shall be on the underlying [****] with which such [****]
     intended to be used.