Posted on May 21, 2014, Phil Hornshaw ZeniMax Suit Could Cost Oculus, Its Founder $2 Billion or More
UPDATE, 2:31 PDT: After consulting with two lawyers on civil suits that include “disgorgement” claims, GameFront has determined that, if ZeniMax wins its suit, the company could be entitled to Oculus profits generated from the use of what ZeniMax claims is its technology. That would mean ZeniMax would receive those profits. We’ve corrected the story below.
ZeniMax Media announced today it filed a law suit against Oculus VR, claiming its technology was integral to the creation of Oculus’ Rift display and asking for Oculus to be forced to give up all profits generated from ZeniMax tech.
According to a press release issued by ZeniMax, the suit, which names Oculus and its founder, Palmer Luckey, alleges the VR company stole trade secrets for use in its Rift head-mounted display. Basically, ZeniMax claims, Luckey’s Rift went from simple garage startup prototype to viable product because of access ZeniMax gave Oculus to technology, hardware and software.
“The suit arises from the defendants’ unlawful exploitation of intellectual property, including trade secrets, copyrighted computer code, and technical know-how relating to virtual reality technology that was developed by ZeniMax after years of research and investment,” the press release states. “ZeniMax provided this valuable intellectual property to defendants under a binding Non-Disclosure Agreement that specifies such intellectual property is owned exclusively by ZeniMax and cannot be used, disclosed, or transferred to third parties without ZeniMax’s approval. ZeniMax’s intellectual property has provided the fundamental technology driving the Oculus Rift since its inception. Nevertheless, the defendants refused all requests from ZeniMax for reasonable compensation and continue to use ZeniMax’s intellectual property without authorization.”
Oculus said in a statement to GameFront that it means to fight the suit:
“The lawsuit filed by ZeniMax has no merit whatsoever. As we have previously said, ZeniMax did not contribute to any Oculus technology. Oculus will defend these claims vigorously.”
In its statement, ZeniMax said its attempts to come to a resolution with Oculus have failed. ZeniMax claims damages in the suit and asks for restitution and licensing fees for the tech it alleges was taken. It also goes further to seek “disgorgement,” which would force Oculus and Luckey to give up all profits generated by what ZeniMax claims was illegal action.
Lawyers consulted by GameFront said ZeniMax would be entitled to those profits if it wins its disgorgement claim..
The suit comes as Oculus is working through a deal to be acquired by Facebook at a price of $400 million in cash and $1.6 billion in Facebook stock, and could put that deal in jeopardy. If the Facebook deal goes through and ZeniMax wins its suit, ZeniMax could be entitled to that $2 billion and possibly more.
Both ZeniMax and Facebook declined requests for comment on the situation.
The allegations first started flying earlier this month after id Software co-founder John Carmack departed from his role as technical director at id Software, a subsidiary company of ZeniMax, to join Oculus as chief technology officer. At the time, ZeniMax claimed programming and technology Carmack had developed while he worked for ZeniMax belonged to the company — a common component of employment contracts — and that he had essentially stolen intellectual property by giving what he’d developed to Oculus when he left to work there full time.
For its part, Oculus dismissed ZeniMax’s allegations as “false” earlier this month, and released its own counter-statement on May 5 denying any wrongdoing:
“We are disappointed but not surprised by Zenimax’s actions and we will prove that all of its claims are false. In the meantime, we would like to clarify a few key points:
- There is not a line of Zenimax code or any of its technology in any Oculus products.
- John Carmack did not take any intellectual property from Zenimax.
- Zenimax has misstated the purposes and language of the Zenimax non-disclosure agreement that Palmer Luckey signed.
- A key reason that John permanently left Zenimax in August of 2013 was that Zenimax prevented John from working on VR, and stopped investing in VR games across the company.
- Zenimax canceled VR support for Doom 3 BFG when Oculus refused Zenimax’s demands for a non-dilutable equity stake in Oculus.
- 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.
- Despite the fact that the full source code for the Oculus SDK is available online (developer.oculusvr.com), Zenimax has never identified any ‘stolen’ code or technology.”
You can read a copy of the full lawsuit right here. The ZeniMax press release is included below in full.
ZENIMAX MEDIA INC. AND ID SOFTWARE LLC FILE SUIT AGAINST OCULUS VR, INC. AND ITS FOUNDER, PALMER LUCKEY
May 21, 2014 (Rockville, MD) — ZeniMax Media Inc. and its subsidiary, id Software LLC, filed suit today against Oculus VR, Inc. and its founder, Palmer Luckey, for illegally misappropriating ZeniMax trade secrets relating to virtual reality technology, and infringing ZeniMax copyrights and trademarks. ZeniMax is also asserting claims for breach of contract, unjust enrichment, and unfair competition against the defendants. The suit was filed in federal court in the U.S. District Court for the Northern District of Texas.
The suit arises from the defendants’ unlawful exploitation of intellectual property, including trade secrets, copyrighted computer code, and technical know-how relating to virtual reality technology that was developed by ZeniMax after years of research and investment. ZeniMax provided this valuable intellectual property to defendants under a binding Non-Disclosure Agreement that specifies such intellectual property is owned exclusively by ZeniMax and cannot be used, disclosed, or transferred to third parties without ZeniMax’s approval. ZeniMax’s intellectual property has provided the fundamental technology driving the Oculus Rift since its inception. Nevertheless, the defendants refused all requests from ZeniMax for reasonable compensation and continue to use ZeniMax’s intellectual property without authorization.
All efforts by ZeniMax to resolve this matter amicably have been unsuccessful. Oculus has recently issued a public statement remarkably claiming that “ZeniMax has never contributed IP or technology to Oculus.” Meanwhile, Luckey has held himself out to the public as the visionary developer of virtual reality technology, when in fact the key technology Luckey used to establish Oculus was developed by ZeniMax.
“Intellectual property forms the foundation of our business,” said Robert Altman, Chairman & CEO of ZeniMax. “We cannot ignore the unlawful exploitation of intellectual property that we develop and own, nor will we allow misappropriation and infringement to go unaddressed.”
“ZeniMax and id Software take their intellectual property rights seriously,” said P. Anthony Sammi, a Partner of Skadden, Arps, Slate, Meagher & Flom LLP which represents ZeniMax and id in this matter. “We now look to the federal courts and will pursue all appropriate measures available under the law to rectify defendants’ egregious conduct,” he added.