The Oculus Rift has been one of the most anticipated technology
developments in modern video game history. Now — as a result
of avoidable mistakes— it is also a teaching case for lawyers
advising clients in the interactive entertainment space. Here's
a rundown of the case and the traps the developers fell into.
According to the complaint, ZeniMax initially approached Oculus
founder, Palmer Luckey, while Luckey was still a college student
tinkering away on a "primitive virtual reality headset that he
called the 'Rift'." Luckey provided his prototype to
John Carmack of ZeniMax. Thereafter, Carmack modified the headset,
including adding what ZeniMax alleged was the critical component
— the virtual reality-specific software. ZeniMax disclosed
its proprietary hardware and software enhancements to Luckey.
ZeniMax asked Luckey to sign a non-disclosure agreement. According
to the complaint, Luckey recognized the value that ZeniMax
incorporated into the modified Rift headset because Luckey formed
his original company, Oculus LLC, approximately two months
ZeniMax continued to fine-tune the device and demonstrated it at
various industry events. Although there was no formal written
development agreement in place between ZeniMax and Oculus, ZeniMax,
including John Carmack, continued to share information about its
virtual reality technology with Oculus and its employees.
Eventually, against ZeniMax's instruction and without their
involvement, Luckey began demonstrating and exploiting the device
(including ZeniMax's proprietary software) to attempt to raise
funding for Oculus. Facebook ultimately acquired Oculus for $2
Complaint and Trial
In February 2014, ZeniMax filed a $2 billion complaint against
Oculus, alleging theft of trade secrets, unfair competition, breach
of the non-disclosure agreement, false designation, and copyright
and trademark infringement. Particularly, ZeniMax claimed that the
software code and virtual reality innovations created by John
Carmack (former ZeniMax employee and current CTO of Oculus) paved
the path for Oculus to exist as a funded company.
The jury found Oculus liable for $300 million in damages for
copyright and trademark infringement, as well as breach of the
non-disclosure agreement with ZeniMax. The jury also found against
Oculus executives as follows:
Former Oculus CEO Brendan Iribe was
found individually liable to ZeniMax for trademark infringement and
false designation of origin in the amount of $150 million;
Oculus founder Palmer Luckey was
found individually liable to ZeniMax for false designation of
origin in the amount of $50 million; and
Although Oculus chief technology
officer and former ZeniMax employee John Carmack was not found
liable for any monetary damages to ZeniMax, he was found liable for
conversion, meaning Carmack utilized ZeniMax's IP against
ZeniMax's legal rights held in such IP.
It was not a complete win for ZeniMax as the jury did clear
Oculus of other claims, including alleged trade secret theft and
While ZeniMax's contributions to the Oculus have been
recognized and vindicated by the jury award, the litigation may
have been avoided if ZeniMax had entered into a more formal working
relationship with Luckey and Oculus before it began submitting
ideas, code and other materials to the Rift project. While a
non-disclosure agreement may be sufficient for early stage
discussions (and did provide ZeniMax with some protection here), it
is not the same as a formal development, license, or other
agreement which specifically identifies the rights and
responsibilities of the parties, including such things as
intellectual property ownership and relevant revenue share. With
such an agreement in place it is unlikely that Oculus would have
been able to shop the Rift to potential investors without ZeniMax
involvement. This oversight arguably led to a huge and costly
litigation that has placed a potential dark cloud over the future
of the Oculus Rift. Upshot: if you or your company are working with
partners to develop new technologies, be certain to formalize your
understanding of the material terms, rights and expectations of all
parties involved at the outset.
This alert provides general coverage of its subject area. We
provide it with the understanding that Frankfurt Kurnit Klein &
Selz is not engaged herein in rendering legal advice, and shall not
be liable for any damages resulting from any error, inaccuracy, or
omission. Our attorneys practice law only in jurisdictions in which
they are properly authorized to do so. We do not seek to represent
clients in other jurisdictions.
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