Oculus lawsuit may undercut VR industry, not just Facebook's bottom line

The January trial that pits the creators of games like Doom and Dishonored against Facebook is about more than a potential $2 billion payout.

If ZeniMax wins its case against Facebook and Oculus, the company could seek an injunction against the Oculus Rift headset and potentially the Samsung Gear VR headset, preventing the sale of the devices and delivering a devastating blow to the still emerging retail VR industry.

“Injunctions are often granted to a plaintiff that proves misappropriation of trade secrets because the theories of damages ... are difficult to show and don't capture the harm, particularly if the device with the misappropriated trade secrets is still being sold,” said Joe Ahmad, a founding partner at Houston law firm Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C. “So the court could stop the device from being sold (assuming plaintiff proves misappropriation) to stop the harm.”

We’ve reached out to ZeniMax to ask if it would seek an injunction and to Samsung and Oculus to ask if it has any plans in place if it were to come to that.

Both Zenimax and Samsung declined to comment, citing an ongoing trial. We’ll update this story when Oculus responds.

The trial, which kicked off last week, has already heard from Oculus CTO and former id Software co-founder John Carmack as well as Facebook co-founder Mark Zuckerberg. Others expected to testify include Oculus founder Palmer Luckey and former CEO Brendan Iribe.

ZeniMax, parent company of id Software, filed suit against Oculus in May 2014. In the suit, ZeniMax accused Oculus of building the Oculus Rift on technology that the company built over years with “tens of millions of dollars” in research.

ZeniMax’s version of what happened has Carmack befriending Luckey, who at the time was still working on the guts of the system while at USC’s MxR Lab. At some point, according to the suit, Carmack and others at id Software started tweaking Luckey’s early hardware, taking it from crude prototype to a working device. Those efforts by ZeniMax employees, according to the suit, "represented an enormous technical advance in the development of virtual reality entertainment."

Carmack and others then showed off the new take on the headset to Luckey under a non-disclosure agreement. This headset was later showed off by Carmack at E3 in 2012.

ZeniMax says that when it tried to negotiate a deal with Oculus about the creation, the company refused to participate and instead began hiring away employees including Carmack.

Oculus says that’s not how things went down. According to the company, ZeniMax canceled virtual reality support for Doom 3 BFG after Oculus VR refused to give the company a “non-dilutable equity stake in Oculus.”

Ben Kuchera / Polygon

The company also told Polygon in 2014 that ZeniMax “did not pursue claims against Oculus for IP or technology, ZeniMax has never contributed any IP or technology to Oculus, and only after the Facebook deal was announced has ZeniMax now made these claims through its lawyers.”

Finally, Oculus writes that ZeniMax is misstating the “purpose and language of the ZeniMax non-disclosure agreement that Palmer Luckey signed.”

Last year, ZeniMax amended its lawsuit, directly accusing Carmack of theft, saying he copied thousands of documents containing ZeniMax's intellectual property from his computer at ZeniMax to a USB storage device which he wrongfully took with him to Oculus. After he had joined Oculus, according to ZeniMax, Carmack returned to ZeniMax's premises and took without permission a customized tool that Carmack and other ZeniMax personnel had developed for work on virtual reality.

To win the case, Ahmad told Polygon, prove three things:

“That the ZeniMax code was a trade secret and that the code was used to develop the Rift or at least acquired by Oculus who knew or should have known that it was ZeniMax’s trade secret,” he said. “Finally it will have to prove damages which could be loss that ZeniMax suffered, or the monetary amount of gain attributable to taking the ZeniMax code, or the value of a royalty that a reasonable person would pay for the ZeniMax code taken.

“Typically, ZeniMax would try a combination of approaches here depending on which leads to a higher result, or is easier to prove. Keep in mind, that showing damages under any of the three models above can be difficult depending on the circumstances.”

Facebook, for its part, likely doesn’t have a burden of proof, Ahmad said.

“But it will likely try to show or disprove that ZeniMax’s trade secret was not used at all in the development of the Rift, and that they had no idea that Carmack took any code from ZeniMax.”

While Ahmad declined to say how strong a case he thinks ZeniMax has, he did say that it wasn’t good that Carmack downloaded information, including some ZeniMax code, on his last day, something Carmack confirmed during testimony last week.

During his testimony, Zuckerberg was mostly pushed on the sort of due diligence Facebook did before buying Oculus.

Polygon reached out to a number of influential virtual reality researchers but most declined to comment, citing ongoing work they were doing with both companies. It’s notable that outside of this lawsuit, the people involved in virtual reality development tend to be supportive of one another as the industry continues to strive to emerge as a full-blown consumer-friendly form of entertainment.

Nonny de la Pena, who Luckey worked with while at USC’s MxR Lab, says that Oculus had and continues to have a significant impact on VR industry.

“Without Facebook taking on the risk, I don’t even think Snapchat would have tried to make Spectacles,” she said. “Where Google Glass was a failure, the Rift has always delivered more. And Samsung’s Gear VR created this whole mobile distribution portal. Oculus has put so much money into the industry, it has been one of the crucial linchpins in making virtual reality real.

“We aren’t there yet with VR, we have a ways to go. To take out one of the players at this stage could have a crippling effect on the industry.”

The trial, which kicked off last week, is expected to run about three weeks. Follow along with our coverage from Dallas by watching this thread of stories.