Why It Doesn’t Matter That Facebook Lost a $500 Million Lawsuit

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Oculus whiz-kid Palmer Luckey. Photo: Kevork Djansezian/Getty Images

Facebook can’t win everything. On the same day that the company announced another quarter of eye-dropping earnings, a jury in Texas awarded $500 million to ZeniMax, a video-game studio suing Facebook and its virtual-reality subsidiary Oculus, over allegations that Oculus founder Palmer Luckey and chief technology officer John Carmack had stolen and used proprietary ZeniMax technology for Oculus’s VR headset.

But while $500 million is no small amount, it’s a significant reduction from the $4 billion ZeniMax, the company behind popular franchises like The Elder Scrolls and Fallout, was initially seeking — largely because the jury didn’t buy the central contention that Oculus had stolen trade secrets from ZeniMax.

So what was that $500 million for? It helps to understand what the suit itself was about. Luckey (the story goes) developed his first prototype headset in 2011, and launched a Kickstarter to build a line of developer kits the following year. The 41-year-old Carmack, a legendary game designer who’d met and collaborated with Luckey online, became the company’s CTO in 2013; the next year, Facebook bought Oculus for $2 billion.

Before joining Oculus, Carmack had been working at ZeniMax, which had acquired his studio, id Software. In departing ZeniMax, he took with him a cache of emails and software files related to VR development — an action that he admitted to in testimony. While at ZeniMax, he also showed some of his work to Oculus co-founder Palmer Luckey, who was required to sign a nondisclosure agreement in order to see the work.

In its lawsuit, ZeniMax alleged that the Oculus platform was essentially built on work owned by ZeniMax — “copyrighted computer code and technical know-how” developed by the company and therefore belonging to it. This central charge was rejected by the jury, which accepted Facebook’s version of events. But the defendants were found culpable on specific, lesser charges. The $500 million award is broken into a few sections. Oculus owes $200 million for violating the NDA, and $50 million for copyright infringement. Oculus and Lucky each owe $50 million for “false designation of origin” (that is, misrepresentation), and Oculus CEO Brendan Iribe owes $150 million for the same charge.

Ultimately the case was most notable not because of the judgment itself — which isn’t large enough to cripple Facebook, which is appealing anyway — but because of the involvement of Mark Zuckerberg, who testified in the case for five hours (in a suit!), claiming not without reason that ZeniMax was making a predictable cash grab after failing to take advantage of Oculus’s early potential. (And it was hard for reporters to resist following an appearance from Palmer Luckey, who hadn’t been seen in public since it was revealed that he was funding right-wing trolls through the Nimble America PAC.) The window provided by the trial into the workings of one of the planet’s largest companies was similarly fascinating: Transcripts of messages from Zuckerberg showed that the Oculus–Facebook deal was put together and signed over the course of a weekend. The apparent lack of due diligence in resolving outstanding legal obligations — and, to be clear, NDAs like the one Luckey signed are standard among secretive technology companies — has come back to bite Facebook.

“The heart of this case was about whether Oculus stole ZeniMax’s trade secrets, and the jury found decisively in our favor,” Oculus said in a statement to Ars Technica. “We’re obviously disappointed by a few other aspects of today’s verdict, but we are undeterred.” Facebook has vowed to appeal. There is also the possibility that ZeniMax could halt the sale of Rift headsets with an injunction, imposing another bottleneck through which the nascent VR industry must pass.

Facebook Loses $500 Million Lawsuit