Facebook’s Oculus Faces Injunction and Sales Ban of Its Virtual Reality Headset

The saga continues for Oculus VR Inc., the virtual reality startup company acquired by social media giant, Facebook, in 2014 for $2 billion. Shortly after its acquisition, video game maker, Zenimax Media, sued Facebook and Oculus, alleging that Zenimax’s former employee, John Carmack, who later became Oculus’ Chief Technology Officer, stole the company’s proprietary code to create the Oculus Rift, a virtual reality gaming headset. ZeniMax alleged that Oculus stole trade secrets, violated non-disclosure agreements, infringed their copyrights, and committed numerous counts of false designation as to the true origin of Oculus’ products.

After a trial in Dallas federal court earlier in the year, a jury awarded ZeniMax an astounding $500 million in damages after finding that ZeniMax’s own computer coding and technology was used by the defendants to develop the Oculus Rift. While the jury rejected the claim that Facebook stole trade secrets, it awarded ZeniMax $200 million in damages for the violation of the company’s non-disclosure agreement, $50 million in damages for copyright infringement, and another $50 million for Facebook’s improper use of trademarks. The jury also ordered the individual defendants, former Oculus CEO, Brendan Iribe, and Oculus founder, Palmer Luckey, to pay $150 million and $50 million in damages, respectively, for false designation of the trademarks. Interestingly, although the jury found that Carmack used ideas belonging to ZeniMax, Carmack was not ordered to pay any damages.

The Game Isn’t Over: Zenimax and Facebook Continue Their Fight

Litigation in this matter is far from over, as both parties immediately filed post-trial motions with the court after the verdict was reached. Facebook, seeking a judgment as a matter of law, contends that there was insufficient evidence at trial to prove the jury’s copyright and trademark infringement findings. The company claims that the code at issue does not constitute “creative expression” that may be copyrighted but rather, is a functional solution not protectable under the Copyright Act. Facebook also challenges the basis of the damages and has requested sanctions against the plaintiff for failing to timely produce the company’s financial information.

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Following its $500 million verdict, ZeniMax filed a request for an injunction against Facebook’s sales of Oculus virtual reality products, on the basis that the company is committing copyright infringement by using ZeniMax’s code. ZeniMax contends that the equitable remedy is “manifestly warranted,” and that the parties agreed to the possibility of an injunction in the non-disclosure agreement at issue during trial. Facebook is vehemently against the injunction, arguing that it “would create a windfall for ZeniMax while detracting from the public’s enjoyment of Oculus’s groundbreaking products,” and that the injunction would “impose significant and unfair hardship on Oculus’ customers, employees and business partners.” Facebook asserts that ZeniMax has failed to establish that it faces ongoing harm to warrant such a remedy, as the two companies are not competitors. Facebook also maintains that ZeniMax improperly waited years to disclose its issues with Oculus’ source code, and that if divulged sooner, the companies could have worked around the use of ZeniMax’s functionalities. To rewrite their code now would be unduly burdensome on the company, Facebook argues.

If the court does not grant the injunction, ZeniMax seeks, in the alternative, a royalty fee of at least 20% over the next ten years of Oculus sales. ZeniMax also argues that the $500 million verdict is too low, and given the defendants’ misconduct, seeks additional damages totaling $1 billion. In the wake of this post-trial battle, Facebook has recently unveiled a less expensive, wireless virtual reality headset to be released in 2018. While virtual reality headsets have not reached mainstream popularity just yet, projections by Bloomberg Intelligence predict that the virtual reality hardware market may exceed $40 billion in sales in 2020. If these projections come to fruition, Facebook stands to lose significantly more than the $500 million verdict.

A hearing was recently held before Judge Kinkeade of the United States District Court of the Southern District of Texas, but he did not yet order a ruling. The judge encouraged the parties to reach a settlement, as he wants to “resolve the heck out of [this] big hairy fight.”

How the Experts Can Weigh In

As to be expected in a case about virtual reality technology and computer coding, both parties heavily relied on expert testimony at trial. ZeniMax’s experts concluded that they were “absolutely certain” that Oculus copied ZeniMax’s code in developing the Rift. David Dobkin, a Princeton University computer science professor, testified on behalf of ZeniMax, and explained to the jury the numerous examples of computer code in Oculus software that contained trade secrets. Meanwhile, Facebook’s experts testified that the code used to develop the virtual reality headset were not copyrighted by ZeniMax and did not constitute trade secrets.

Whether the parties reach a settlement or continue to file requests with the Court until a decision is rendered, experts for each side will undoubtedly need to be involved. Although already litigated, ZeniMax’s request for an injunction has resurfaced the issue of whether Facebook and Oculus are improperly using code belonging to ZeniMax. Computer science experts will be needed throughout the settlement negotiations, to pinpoint exactly which code ZeniMax are contesting. Engineering experts on both sides can attest to whether the disputed software can be “worked around,” or if changing Oculus’ technology at this stage would be unduly burdensome.

Another major issue is whether the code themselves are protected by copyright, which Facebook maintains they are not. Again, though already litigated, the future of both companies hinge on this question. Prior to any Court rulings, intellectual property experts will be needed during any potential settlement negotiations to clarify the extent that ZeniMax is protected by copyright law.

Likewise, because both parties are seeking to drastically change the amount of damages awarded, a damages expert can be useful to both sides in justifying these numbers.

Overall, until a settlement is reached (and until the Court renders a decision), the litigation between Facebook and ZeniMax is far from over.