Facebook Loses $500 Million Virtual Reality Headset Verdict

Updated on
  • ZeniMax wins verdict it was betrayed over Oculus Rift design
  • Mark Zuckerberg testified stolen technology claims were false

Facebook Loses $500M Oculus Verdict

The virtual reality headset maker that Facebook Inc. bought in 2014 for $2 billion used stolen computer code, a jury said in awarding $500 million to ZeniMax Media Inc.

The case was over the Oculus Rift, the device that has put the social media giant at the forefront of the virtual reality boom.

Wednesday’s verdict in Dallas federal court is a rebuke to Facebook Chief Executive Officer Mark Zuckerberg, who isn’t a defendant but who told jurors in his first-ever courtroom testimony that it was important for him to be there because the claims by ZeniMax were “false.” An Oculus spokeswoman said the company will appeal.

ZeniMax claimed it was responsible for key breakthroughs in the development of software and hardware for the headset, only to be betrayed when one of its star employees joined with two other entrepreneurs and purloined ZeniMax’s intellectual property for their own startup, Oculus VR.

Facebook’s acquisition of Oculus gave it a head start against Microsoft Corp., Sony Corp., Alphabet Inc.’s Google and others competing for a piece of the virtual reality market that’s forecast to exceed $84 billion in sales in 2020. Facebook began shipping the ski-goggle-like Rift for $599 in March.

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The case centered around the defection of video-game programmer John Carmack from ZeniMax, where he had designed blockbuster games Doom and Quake, to Oculus, where he was named chief technology officer in 2013. He acknowledged in testimony that he took with him e-mail records including computer code related to virtual reality.

While the jury rejected trade-secret theft claims, it ordered Oculus to pay $200 million for violating a non-disclosure agreement, $50 million for copyright infringement and $50 million for improper use of ZeniMax’s trademarks. Jurors also hit Oculus’s co-founders, Brendan Iribe and Palmer Luckey, with $150 million and $50 million in damages, respectively, for the trademark misuse. The jury found that Carmack took property belonging to ZeniMax but didn’t order him to pay damages.

“The heart of this case was about whether Oculus stole ZeniMax’s trade secrets, and the jury found decisively in our favor,” Oculus spokeswoman Tera Randall said in a statement. “We’re obviously disappointed by a few other aspects of today’s verdict, but we are undeterred. Oculus products are built with Oculus technology.”

ZeniMax said in a statement that while it regrets having to go to litigate to vindicate its rights, “it was necessary to take a stand against companies that engage in illegal activity in their desire to get control of new, valuable technology.”

Oculus ‘Heist’

ZeniMax’s lawyer, Tony Sammi, argued at trial that Oculus committed a “heist,” covered it up by destroying evidence and made off with “a lot of money” when it was bought out by Facebook. He told the jury Oculus went from “zero to hero” using Carmack’s innovations at ZeniMax to improve on the crude prototype for the Rift designed by Oculus co-founder Palmer Luckey.

“If they could make it, why’d they take it?” Sammi asked the nine-member jury in his closing argument.

Zuckerberg testified for five hours during the three-week trial, denying ZeniMax’s allegations and saying it’s common for companies to “come out of the woodwork” and make such claims following an acquisition.

Facebook’s lawyer, Beth Wilkinson, underscored that point in her closing argument, saying ZeniMax ceased all work on virtual reality in early 2013 and didn’t accuse Oculus of wrongdoing until Facebook announced the takeover in March 2014.

Jealous, Angry

“They’re jealous. They’re angry,” Wilkinson told jurors. “They’re embarrassed because they had the opportunity to get in on this.”

Zuckerberg had a vision and followed through on it, she said. He “saw what these guys could do in the future and invested.”

ZeniMax had sought $2 billion from Facebook and Oculus to compensate for losses and unspecified punitive damages.

The case is ZeniMax Media Inc. v. Oculus VR Inc., 3:14-cv-01849, U.S. District Court, Northern District of Texas (Dallas).

— With assistance by Sarah Frier

(Updates with Oculus vowing appeal in third paragraph.)
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