This week the eyes of the virtual reality industry are on a federal court in Dallas, Texas where ZeniMax (and child company id Software) and Facebook (and child company Oculus) have been engaged in legal battle over a dispute which could cost Facebook $4 billion. ZeniMax alleges that a former employee used VR code that it owned after being hired by Oculus, and further that Facebook should have known that the code was ZeniMax property. With jury deliberations now starting, a verdict could come as soon as today. Here’s what you need to know about the case.


brian-Sommer-HeadshotGuest Article by Brian Sommer, IME Law

Brian is an interactive media and entertainment attorney at IME Law, where he focuses his practice on the intersection of traditional entertainment and immersive media. He also serves as Co-Chair of the VRARA Licensing Committee. You can follow Brian on Twitter @arvrlaw, and @IME_Law.


Update (2/1/17, 2:45PM): The verdict in the case has been reached, awarding $500 million to ZeniMax. Details here.

For 13 days, attorneys in the Dallas federal court have been selling the jury very different stories. “One of the biggest technology heists ever” is how ZeniMax attorney Tony Sammi described to jurors Facebook’s acquisition of Oculus in opening statements. In Thursday’s closing arguments, Oculus attorney Beth Wilkinson told jurors ZeniMax and Id Software are “jealous, they’re angry and they’re embarrassed” over the success of Oculus and the acquisition by Facebook.

At first blush, this lawsuit appears to be a complicated mess involving two plaintiffs, five defendants, nine causes of action, over 900 court filings (many sealed from the public) and a demand for more than $4 billion in damages. Without having access to many of the critical motions filed in the case (due in part to the Court’s order sealing such filings), it is not possible to assess in exacting detail certain critical arguments made by each side. But, from arguments, publicly-available filings and reports that have been made available to the public, it appears that the essence of the lawsuit can be distilled down to this: this is a dispute about who owns the intellectual property (“IP”) that was vital in creating the Oculus Rift.

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Will the jury agree with ZeniMax that its proprietary computer code was a foundational component of Oculus’ success, or will the jury side with the defense’s argument that Oculus code was developed independently and based upon publicly known code and different solutions?

Starting today, jurors begin sorting through hundreds of facts and applying them to the issues contained in the jury instructions, weighing the credibility of witness testimony and evidence presented. Here are three key issues that could drive jury deliberations:

1. Did Palmer Luckey and Oculus Misappropriate IP That Zenimax Disclosed Through a Nondisclosure Agreement?

palmer luckey oculus rift price facebook
Palmer Luckey, Founder of Oculus

Defendant John Carmack is heralded as one of the most recognized and accomplished video game programmers and virtual reality engineers in the industry today. He co-founded Id Software (plaintiff), which was later acquired by ZeniMax (plaintiff). In April 2012, while employed as Id Software’s Technical Director, Carmack discovered through an Internet forum that Palmer Luckey (defendant)—who would go on to become the founder of Oculus—had developed a prototype virtual reality headset called the “Rift.” Carmack contacted Luckey, and Luckey sent Carmack a very early Rift prototype. Carmack is alleged to have immediately started to evaluate, analyze and modify the Rift prototype using research, software code and tools owned by id Software.

Carmack and Luckey’s friendship quickly turned business-like by May 2012 when Luckey in his personal capacity signed a nondisclosure agreement (“NDA”) with Id Software’s parent company ZeniMax, according to information from the case.

Companies use NDAs to ensure ideas or trade secrets disclosed to another party remain confidential. NDAs usually prohibit the recipient of confidential information from using or disclosing any information that they receive under the NDA, except for agreed purposes. Since an NDA is a contract, all of the legal principles surrounding contract law (e.g., elements needed to form a contract, defenses, etc.) are used to analyze an alleged breach of an NDA.

In June 2012, Luckey formed Oculus on the heels of successful demonstrations by Carmack (employed at the time by ZeniMax) and Luckey at the E3 Convention. ZeniMax alleges that through early 2013, and while bound by the NDA, Carmack and other Id Software employees collaborated with Oculus and Luckey to debug and refine the Rift.

SEE ALSO
Oculus Founder Issues Statement After Developer Backlash to Polarizing Politics

ZeniMax alleges Luckey breached the NDA by taking ZeniMax-owned proprietary information and then using it without permission and disclosing it to Facebook. Oculus and Luckey contend the NDA is unenforceable for a number of reasons, including because the NDA was signed by Luckey in his personal capacity before Oculus was founded, a key material term was never defined, and for other legally nuanced reasons. In response, plaintiffs assert that Oculus is bound by the NDA because Oculus is a mere continuation of Luckey’s prior work. The jury’s outcome may hinge on the many factual findings related to the NDA.

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  • John

    Fantastic summary of the trial. Thanks!

  • Great article. Now I wanna see how this will end!

    • Get Schwifty!

      LOL- I notice its an outside correspondent… thankfully this was on RoadToVR and not one of the other other notable VR sites or the title would have been “Oculus and Luckey to Face Day of Judgement in Zenimax Pirating Trial”.

  • Caven

    That part about Mark Zuckerberg knowing about John Carmack’s game history only proves that he knew about Id Software. Considering how long it took me to find out that Bethesda is owned by Zenimax, despite playing Bethesda games since the ’90s, it wouldn’t surprise me that Mark Zuckerberg could miss hearing about a company that had nothing to do with Id Software during its glory days.

    • Dynastius

      I was thinking the same thing. Id Software is a well known name, Zenimax not so much. Sure hard core gamers know that name, but if Zuck played back before Id was bought out, he may well have never heard of Zenimax.

      • Get Shiddy

        It is well known Id was purchased for about 105 million!

    • NooYawker

      But if you were buying a company and doing normal vetting, you’d know that zenimax was suing the company you were trying to buy. Ignorance is no excuse .

      • ra51

        Yep, zuckerberg would have known about the whole zenimax thing even before the purchase. Probably just brushed it off as zenimax wining about trying to get money.

        But also true, most of us never even heard of zenimax up until a few weeks ago. Not to mention how their office are just down the road from where I use to live.

        • Get Schwifty!

          It’s as simple as a corporate profile as part of the purchase… I’m no expert in these things in the least but I am sure a dossier of some kind had to be assembled and reviewed which no doubt included Zenimax’s name somewhere in association.

      • Caven

        How is Facebook supposed to know about a lawsuit that was filed two months after the purchase of Oculus was announced? Due diligence can’t see into the future.

        At any rate, sure, Zuckerberg probably should have known about Zenimax if proper due diligence was done, but that has nothing to do with knowing who John Carmack is. Zuckerberg knowing of John Carmack and not knowing of Zenimax are not contradictory statements.

        • Get Schwifty!

          Any time companies buy other companies, particularly in leading edge technology these sticky situations arise because its a relatively small number of folks with experience working in these areas.

          I am certain Zuckerberg would know of Zenimax, but its not his direct responsibility to vet the circumstances with NDA’s etc. that people working for him would, mainly Legal and HR.

          On a certain level, taking on Oculus was a gamble, one Zuckerberg apparently felt a gut calling to move quickly on and I am sure knowing some risks of this kind were in the picture. as they always are with tech company acquisitions. On a certain level, they (we?) all play this game, pushing the edge legally to do what they want.

          I love it when people are happy to wag their finger and tongue at the rich guy pushing the legal edge but are all too happy themselves to cheat on their taxes, not report incorrect financial transactions in their favor, etc.

          • Sam Reynolds

            The crazy thing is a third party much have been employed to manage the takeover, someone like KPMG.

            Whoever they paid to do this job, look into forecasts, staffing, budgets, turnovers, legal contracts, DID NOT do their job properly. That saying, still doesnt have any outcome on the case as far as im concerned

    • newbedave

      Zuckerberg said he has been interested in virtual
      reality since he was a student but never heard of
      Zenimax?? BULL SHIT

      • Caven

        And just why is that bullshit? When the Oculus Rift started making headlines, it was because of publicity from John Carmack–not Zenimax. At the time, I remember it sounding like a passion project for John Carmack, rather than something Id as an entire company was planning to get behind–especially since we’re talking patched support for a fairly old game, rather than a newly developed title. I don’t see how someone would automatically come to the conclusion that since John Carmack is interested in VR, the company that owns the company he works for must also be interested in VR. Do we also extend that to Providence Equity Partners, which owns more than over 1/4 of Zenimax? I haven’t seen that name mentioned anywhere in any articles about the lawsuit, but surely anyone highly interested in VR should know the name of the company that has a stake in the company that owns the company that had a worker that moved to the company that Mark Zuckerberg decided to buy, right?

        • Sponge Bob

          Welcome to corporate America, dude

  • Ainar

    A good article but it might be worth adding more details regarding how defense sought to debunk Dobkin’s testimony, otherwise it seems a bit biased. From what I understand they called in their own SME who teaches a VR class at a university to prove that what was reported as copied code were in fact known solutions among people working on VR.

    • Get Schwifty!

      Yeah…. I mean unless it’s literally a line by line copy, those concepts are not unique to Zenimax code AFAIK, I would almost guarantee that code for Vive and other systems looks very similar. If it turns out is a direct copy (or very poor knowledge jurors), the defense (Oculus) are going to be in trouble. OTOH, if the code just does similar functions, they should be okay. If Carmack is on record saying the code written by Oculus engineers was “better”, then I suspect there would be enough differences to get them off the hook.

      I also think the fact Zenimax appears to have waited until things were most beneficial to them from a financial standpoint will help the defense, at least if they have to go to settlement.

      I will say no matter what happens even worst case Oculus will survive with FB, and Zenimax is not about to get $4 billion dollars as a settlement.

      • Sponge Bob

        copyright infringement goes a little further than line-by-line copy…
        they would look at overall program structure, some particular methods/functions, data structures, sequences of operations etc.
        like tea leaf reading…
        The only good defense is “clean-room” engineering.
        But then they can still claim trade secret mis-appropriation because NDA was signed and there was apparent exchange of tech artifacts and employees between two companies
        Depends on local state laws also – in California it’s more lax I believe,
        in Texas – not so sure

        • Get Schwifty!

          Good explanation – and it makes sense, I can see where functions and data structures would be very telling, including overall algorithms (though this is dubious to me, one could easily re-invent the wheel here I would think).

          I suspect the ruling might then be wrapped around the mis-appropriation of secrets in the code then….

        • I wouldn’t think the NDA could be enforced though given that Zenimax wasn’t acting when they first heard about the violation (or so I understand from what I read). If that’s true, what SHOULD happen here is a modest licensing scheme paid to Zenimax, who should have taken the offer they got earlier instead of declining THEN suing for more than they originally asked for.

          • Sponge Bob

            I signed NDA once (when I sued SillyCon Valley corp for patent infringement)
            A typical NDA is in force for 3 years with some clauses staying in force forever…

      • NooYawker

        Carmack is also on the record saying yes he took files with him and that it was wrong. Him saying oculus devs code was better is opinion, admitting he took files with him from zenimax is fact.

        • Get Schwifty!

          Yeah, he took files, but that doesn’t necessarily mean the contents of those files found there way into Oculus code though.

  • Frogacuda

    The way in which Zenimax is making their case that code was copies seems weak to downright fraudulent. The mere fact that code performs the same function — filtering signal noise, correcting for chromatic aberration, whatever — does not mean that the code itself the same. By Zenimax’s logic, Carmack “stole” the code from Ultima Underworld to make Doom.

    NDA stuff is trickier. I believe Luckey’s claim that Doom BFG Edition was the impetus for the NDA, but that doesn’t automatically mean it’s the only thing it applies to and without seeing the actual NDA, it’s hard for me as an observer to form much of an opinion.

    I can’t imagine this suit is going to result in a billion dollar+ reward for Zenimax, but it might yield something enough to justify its cost. We’ll see.

    • agatha D

      Wrong. Implementation always varies. People don’t write “the same working function”, they write “the implementation.

  • David Herrington

    Since many aspects of this case are still sealed, its hard to say who is in the wrong. The timing alone, however, appears to point to Zenimax trying to get a big payout. Zuckerburg not knowing about Zenimax seems entirely possible as he is my age and I have never heard of them up until now.

    I own a Vive and don’t have any plan to purchase anything Oculus related, but I would still side with Oculus and Facebook after reading this article.

    That being said, regardless of the facts at times, usually the company with the best lawyers will win. I’m guessing Facebook has deeper pockets and so they will win, or there will be a very “modest” payout of 10-20 million USD or so.

  • Sponge Bob

    I am wondering why everyone hates patents ?

    Properly issued patent or two on the original inventive functionality awarded to proper original inventor (Luckey or Carmack or whoever else) would resolve this dispute immediately

    And code can be written and rewritten many times, by the same or different guy, implementing identical functionality, in any suitable programming language, so pursuing stolen code assumption would be very problematic as copyright infringement is very difficult to prove unless large chunks of copyrighted code are shamelessly copied (can’t imagine Carmack and Luckey are that stupid… hm… maybe they are…)

    • dogtato

      It’s more likely Zenimax would have patented it, but fundamentally code is math and you can’t patent math but the courts have so far been unable or unwilling to understand that.

      • Sponge Bob

        dude,

        what is math ?

        and what is code ?

        And what does fpga bitstream have to do with math formulas written on paper ? (clue: “almost” nothing)

        better know the subject before opening your mouth in public

        • Get Schwifty!

          I think his point is the underlying logic is essentially mathematical in nature, so a solution to a problem in code will look very close “mathematically” to someone else’s answer to coding for a problem… I see the point but I can also see where someone would argue, well, can’t you just “mathematically” use different formulas for a given problem?

          • Sponge Bob

            all logic is math
            but the legal outcome depends…
            if you can find your “math” in some textbook or published paper (or expired patent) then you can code it up and nobody can sue you for patent infringement (you will win the case by showing “prior art”)
            But if that “math” is not publicly disclosed anywhere prior to your effort and it solves some hard technical problem then it’s an original tech invention, not just “math” (math too btw, and of very high quality cause its original)

          • Get Schwifty!

            Oh I get it and agree…. just saying one school of thought is because it’s “math”, therefore it is an idea that exists independently of human thought (there is a school of philosophy that believes this) and code reuse is never an issue. That is clearly not our legal basis for code currently.

    • Caven

      A patent would be useless on something built entirely on prior art. And even if patents were involved, if the dispute involves something that can’t be patented for whatever reason, you still have a lawsuit. And what happens if Oculus files a patent based on something that Zenimax can prove was stolen from them? What if there’s a dispute over whether some technology should even be patentable? Patents still leave plenty of room for lawsuits.

      As an aside, when it comes to computer code, I have a lot of trouble accepting the idea of letting technology stagnate for 17 years every time someone decides to be the first to bother to implement something obvious–or just patent it without lifting a finger. Games during loading screens and the concept of multimedia should not have been patentable, yet those both happened.

  • Sponge Bob

    Well, in the absence of patents with clearly stated inventor’s name(s), priority dates and assignees, it all boils down to copyright on software code: was it infringed (aka “stolen”)or not ?

    It’s like tea leaf reading if codebase is rewritten or thoroughly massaged but who knows ?

    we’ll see…

    First juicy scandal with VR tech

  • sfmike

    Seeing Luckey’s support of crooked Trump only makes me think the worse of him and his company. Amoral punk.

    • NooYawker

      everyone is free to support who they want but he was so sneaky about what he was doing. Shows that he accustomed to that kind of behavior.

    • Get Schwifty!

      I guess that would be also what, half the nation that voted? All amoral punks? We do like to paint with a broad brush don’t we… can we see your credentials for being the arbiter of what is “moral”?

  • NooYawker

    Zenimax definitely deserves something, nothing close to what they’re asking which is beyond outrageous.
    Also I notice alot of people falling for Zucks claims that he never heard of Zenimax. And even if he didn’t know, basic vetting of a company being purchased would have shown Zenimax was suing Oculus and 30 seconds of research would have let you know who Zenimax is. The information was all there, Zuck chose to ignore it, that’s no ones fault but his own.

    • Arv

      Zenimax didn’t sue until after Facebook bought them. This is a blatant cash grab after they realised that they made the wrong decision in not joining Oculus as a stakeholder. They weren’t even going to sue them after the Kickstarter raised $2m+.

      • Get Schwifty!

        Yeah – I think this point will undermine them if the Oculus lawyers can get it to stick in the minds of the jurors. The lawyers jump and parade around like Leghorn Foghorn, and the one better at it usually wins…

    • Caven

      30 seconds of research would have revealed that at the time the Oculus purchase was announced, Zenimax had not yet filed any lawsuits.

  • wow

    hey Brian – I would’ve actually been interested in reading this article had I not seen your stupid mug posted all over the very top of the page – have a little humility for crying out loud.

  • Towfiq I.

    Greedy fu***rs! 4 bln for a chunk of code? What does it do? Solve world poverty??

    • Get Schwifty!

      No that would be something called birth control….

      • Max Kekingston

        No, that would be called working. Something that liberal authoritarians dread having to do. How about instead of birth control you solve world hunger by euthanizing yourself? ;)

  • Ghostdad

    Before reading the details, I was kind of siding with Facebook. But their witnesses made some pretty damning admissions. This could go either way.

  • Get Schwifty!

    Yawn… is there any news yet on this? Want to know if we need to start referring to the system as the “Zenimax Rift”….

  • Blargh

    can’t believe that something this technical is left to a jury to decide. a fucking jury, like, walk down the street and randomly pick some random fuckers type of jury. “honey, why is the interwebs not working… where is the power button…” jury

    • Sponge Bob

      perhaps you should know that juries are not allowed to decide on technical issues – they simply can’t
      They only decide on factual and moral issues

      And I would rather trust some “random fuckers” if I were to sue some big ass corporation – cause they are unbiased, unlike tech people employed by same corporations

  • TechnoHunter

    Zenimax is a big whining baby who bullies others in my opinion. This is bullshit.

  • Sponge Bob

    So the moral of this story is this:
    if you buy a shitty 300K house in US you do all kinds of inspections and checks like ensuring that the title is clean etc etc – this all costs significant $$$ and added time.
    Why on Earth Zuck would think that buying a startup (with the max of 10M valuation at the time) for 2B(!!!) could come without any checks on personalities involved, their prior employments contracts and the exact origin of the technology – who developed it and when and was there any binding contract with outside parties ???

    Welcome to corporate America

  • Independent Thinker

    From that picture, I guess they all buy their suits from the same place.

    • Sponge Bob

      but not from “goodwill”

      although, who knows? Zuck’s new house looks like tiny pos anyway so he probly doesn’t even care