After three weeks of a court trial, the lawsuit of ZeniMax vs Oculus has been settled by a jury. ZeniMax Media, the owner of Bethesda and id Software, sued Facebook and Oculus in 2014 for the theft of trade secrets and copyrighted information, though the trial didn't start until January 2017. Facebook has been ordered to pay $500 million on behalf of Oculus, for breaking the non-disclosure agreement, copyright infringement, and false designation.
ZeniMax sought up to $6 billion in damages, originally $2 billion in compensation and later added $4 billion in punitive damages. Oculus was sold to Facebook in 2014 for $2 billion plus $700 million for retention of key people and $300 million for milestone earnouts.
Oculus was found guilty of the following counts and ordered to pay:
- $200 million for breaking the NDA.
- $50 million for copyright infringement.
- $50 million from Oculus for false designation.
- $50 million from Palmer Luckey (Oculus founder) for false designation.
- $150 million from Brendan Iribe (former Oculus CEO) for false designation.
- Trademark infringement, no payout.
Oculus was cleared of the following counts:
- Common law misappropriation of trade secrets.
- Unfair competition.
The reason Oculus was bound by Luckey's NDA is that it functioned as a "mere continuation" of Luckey's prior business and it "manifested its acceptance of that agreement through its conduct." Not only does Oculus have to pay for copyright infringement and false designation, but co-founders Palmer Luckey and Brendan Iribe have to pay as well.
Oculus was cleared of using ZeniMax's trade secrets or code in their software, but guilty of breaking the NDA, copyright infringement, trademark infringement, and false designation. Basically Oculus used ZeniMax's property, but not the really incriminating ones.
Oculus directly infringed on ZeniMax's copyright, which includes ZeniMax's code. John Carmack and Brendan Iribe tried to claim it was outside the statute of limitations and that they had a license. The jury found that Palmer Luckey and Brendan Iribe vicariously infringed; Palmer Luckey, Brendan Iribe, and John Carmack contributorily infringed. All three also knowingly and intentionally engaged in false designation. John Carmack was found to have copied over 10,000 ZeniMax documents onto his USB drive, as well as taken ZeniMax's Rage source code.
Oculus tried to claim they did everything on their own, but the false designation counts are the really damning part. False designation is implying that ZeniMax approved and/or was part of Oculus' process, granting legitimacy to the product. If Oculus did it on their own, and claimed ZeniMax was just jealous in their response, why did they need to use their name or products to imply legitimacy?
ZeniMax is pleased with the verdict. ZeniMax's chairman and CEO, Robert Altman, told Polygon:
"Technology is the foundation of our business and we consider the theft of our intellectual property to be a serious matter. We appreciate the jury's finding against the defendants, and the award of half a billion dollars in damages for those serious violations."
Oculus may not be guilty of the most egregious accusation of stealing trade secrets via ZeniMax employees (or, at least, ZeniMax wasn't able to prove it), but the ruling does indicate there were shifty dealings going on. And they've been vindicated in their filing of the suit, rather than merely just the jealous ex-girlfriend Oculus tried to present them as.
Oculus is dismayed, but remains positive:
"The heart of this case was about whether Oculus stole ZeniMax’s trade secrets, and the jury found decisively in our favor. We’re obviously disappointed by a few other aspects of today’s verdict, but we are undeterred. Oculus products are built with Oculus technology. Our commitment to the long-term success of VR remains the same, and the entire team will continue the work they’ve done since day one – developing VR technology that will transform the way people interact and communicate. We look forward to filing our appeal and eventually putting this litigation behind us."
I.e. "We didn't steal their trade secrets, but we stole their copyrighted intellectual property."
Facebook itself doesn't really care, because money.
Facebook's stock went up. Their fourth quarter earnings are up. Users are up. They predict over 5 million VR units to be sold in the next 10 years. For a $383 billion company, $500 million is pocket change, especially considering VR sales in the years to come. Facebook's CFO spoke about the ruling:
"The verdict is nonmaterial to our business. We had a really strong quarter, capping off a really great year."
John Carmack is outraged.
ZeniMax presented evidence that John Carmack not only googled how to wipe his hard drive after he received notice of the lawsuit, but he destroyed data and wiped other Oculus computers as well. In a hilarious exchange suitable for staircase wit (those responses you're not witty enough to come up with on the spot but rather hours or days after the fact), Carmack let everyone know his real opinion of the trial and computer expert.
"Early on in his testimony, I wanted to stand up say, 'Sir! As a man of (computer) science, I challenge you to defend the efficacy of your methodology with data, including false positive and negative rates.' After he had said he was 'absolutely certain there was non-literal copying' in several cases, I just wanted to shout, 'You lie!' By the end, after seven cases of 'absolutely certain,' I was wondering if gangsters had kidnapped his grandchildren and were holding them for ransom."
I can only imagine he wants a pistol duel at dawn.
- ZeniMax may seek an injunction to stop the sale of Oculus headsets, even if only temporary.
- Oculus plans to appeal the ruling.
ZeniMax may try to stop sales of Oculus Rift headsets to make sure they aren't using the copyrighted code. And if they are, to make sure they change it. If Oculus wins an appeal, they may get off scot-free. If they lose the appeal, their sales will be put on hold until they can put out a product free of ZeniMax's intellectual property.
Facebook can afford the money, but it mars Oculus' reputation. This could potentially stop sales for Oculus if ZeniMax comes out on top with their injunction and Oculus loses their appeal. But the VR tech is out there and seems to be the future of gaming. If Oculus production is stalled, gaming developers may look to other companies for hardware. Even if ZeniMax doesn't manage to stop sales, even temporarily, the $500 million payout alone is predicted to be more than the first two years of sales for the Oculus Rift headset, which is estimated to be $425 million.
When Facebook bought Oculus, they undoubtedly hoped to embrace the future of technology (and make lots of money!) rather than inherit its many legal issues. However, had they done more than 3 days' due diligence, perhaps they could have nipped the problem in the bud before it became so public. This likely won't hurt Facebook itself in the long run, though VR tech may find itself flourishing elsewhere if Oculus is stymied.