Why Oculus Lost a Half Billion Dollar Lawsuit to ZeniMax

Overview

A judge has awarded ZeniMax and id Software half a billion dollars after an ongoing lawsuit against Oculus, where the court found that Oculus and its founder, Palmer Luckey, did violate a non-disclosure agreement. It was also deemed that Oculus VR was not guilty of misappropriating trade secrets, which ZeniMax had alleged in the same lawsuit.

Since this lawsuit took a few years, it might be hard to fully understand the timeline of everything that happened and why Oculus is paying for breaking the NDA and copyright infringement, despite not being guilty of the worst of the accusations, misappropriating trade secrets. Here’s a short overview of everything that has led up to the lawsuit, what exactly the lawsuit was about, and the end results.

The Beginning

According to the complaint filed by ZeniMax and id Software, the company had researched VR for years, putting forth several millions of dollars by the time John Carmack become Technical Director of id Software. His job was to pinpoint what the problems were with VR, and find ways to fix it.

The complaint stated that Carmack began his interactions with Luckey in April of 2012. Luckey had worked on a “primitive” VR headset that featured a display with a wide field of view. Carmack believed that field of view was the key to the best VR experience and was given a prototype which he worked on with other ZeniMax employees, this opinion can be viewed on page three of the complaint.  They gave the prototype new hardware and specialized software, which allowed the headset to run Doom 3: BFG Edition, a game by id Software.

Luckey then signed a non-disclosure agreement in exchange for ZeniMax to tell him what it was exactly they added in to make that template of the Rift work; this was the same model that was shown off at E3 in 2012. Not only did this include disclosing the physical aspects of this early Rift, but also copyrighted computer code. It was that same VR headset that gained traction in the media after the demo, and according to ZeniMax, they wanted to start discussions on how Oculus could compensate for the help they had provided, a discussion that lasted for two years. 

In that timeframe, Oculus had launched its Kickstarter and funded the project with millions of dollars. Carmack left id Software to work for Oculus because he couldn’t work on VR at id according to an interview by USA Today.  This is also when reports by way of Polygon began to appear, with both companies releasing statements about several matters from canceled demos due to equity demands, and allegations that Carmack and other former id Software workers were providing trade secrets to Oculus.

The Lawsuit

In May, 2014, ZeniMax officially filed a lawsuit against Oculus VR and its founder, Palmer Luckey, which held a number of allegations such as:

• Common law of misappropriation of trade secrets against all defendants, which included the use of secrets and the hiring of former employees who had access to crucial research.
• Copyright infringement against all defendants for the use of Doom 3: BFG Edition without permission on the VR.
• Breach of contract by all defendants, singling out the NDA that Luckey signed and breached by disclosing proprietary information.
• Unfair competition against Oculus. Due to the breach of the NDA and using ZeniMax technology without a license, it deprived ZeniMax of the opportunity to make money from its work.
• Unjust enrichment against all defendants, who “refuses to compensate ZeniMax” for the work it has done and has gained an “unauthorized access to ZeniMax intellectual property” by hiring former employees.
• Trademark infringement against all defendants, for when Oculus used franchise names such as Doom, Rage, and Skyrim.
• False designation against all defendants, because Oculus products use brands associated with ZeniMax, it can imply that they come from or have permission to be used by ZeniMax.

ZeniMax submitted several pieces of evidence, ranging from code to YouTube videos in efforts to showcase that Luckey could not have done this on his own. ZeniMax also submitted several emails from people on the Oculus team, such as Oculus CEO Brendan Iribe, seeking help from ZeniMax about software development. 

There was also issue with what exactly Carmack provided for Oculus once he left id Software. According to his employment agreement, whatever he worked on had to be disclosed to the company, and anything that could be copyrighted would be done so by ZeniMax. They argued that without Carmack and his knowledge from id Software, the Oculus Rift couldn’t reach the stage acceptable for sale. 

A few days after the lawsuit, Facebook bought Oculus for $2 billion, and over a year later a judge decided to not dismiss the lawsuit, meaning both parties were heading to court.

In January of this year, both sides argued over who is actually responsible for the Rift and if any of the claims made by ZeniMax had any merit. There were several witnesses called to the stand including Carmack and experts who testified about allegations of computers being wiped and whose code the Oculus was running, according to a report by Polygon.

Results

In the end, the court concluded that Oculus must pay ZeniMax $200 million for the breaking of the NDA, $50 million for copyright infringement, and $50 million for false designation. Luckey has to pay the same fine for false designation, while Iribe has to pay $150 million for the same fines as stated above.

Oculus was cleared of stealing trade secrets, which means no one such as Carmack or any other former employee was found to have stolen information they had worked on previously at id Software. Where Oculus is getting hit hardest is the copyright infringement, as there is no denying that Doom 3: BFG Edition was used as a promotional aspect for the VR headset. ZeniMax has the emails of Luckey asking to use it and that same game can be found several times on the original Kickstarter campaign. 

Since the copyright infringement is confirmed to have happened, it’s not far-fetched to see how Oculus was found guilty of false designation also. Since Oculus was using a well-known name, such as Doom, it would appear to the average consumer that Oculus had the backing of ZeniMax and id Software.

While it might seem that Oculus can just pay the fines and then go back to its normal business, there is one major problem. The jury found Oculus and Luckey guilty of breaking the NDA, the same contract that ZeniMax said included copyrighted code when the complaint was filed. ZeniMax is now considering using this to go back to court to halt the sales of the Oculus Rift.  It’s not clear what direction that ZeniMax may go in, but the potential for a case is clear.