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Facebook Loses $500 Million Oculus Headset Verdict

Feb. 1, 2017
The verdict is a rebuke of Facebook Chief Executive Officer Mark Zuckerberg, who isn’t a defendant but spent five hours in court testifying against ZeniMax Media's trade secrets claim.

The virtual reality headset maker that Facebook Inc. bought in 2014 for $2 billion used stolen technology, a jury said in awarding $500 million damages to ZeniMax Media Inc.

Jurors in Dallas federal court on Wednesday sided with ZeniMax in its trade-secrets case over the Oculus Rift, the device that has put the social media giant at the forefront of the virtual reality boom.

The verdict is a rebuke of Facebook Chief Executive Officer Mark Zuckerberg, who isn’t a defendant but who told jurors in his first-ever courtroom testimony that it was important for him to be there because the claims by ZeniMax Media Inc. were “false.”

ZeniMax claimed it was responsible for key breakthroughs in the development of software and hardware for the headset, only to be betrayed when one of its star employees joined with two other entrepreneurs and purloined ZeniMax’s intellectual property for their own startup, Oculus VR. The verdict was against Oculus, its two co-founders and an executive. An Oculus representative couldn’t immediately be reached for comment.

Facebook’s acquisition of Oculus gave it a head start against Microsoft Corp., Sony Corp., Alphabet Inc.’s Google and others competing for a piece of the virtual reality market that’s forecast to exceed $84 billion in sales in 2020. Facebook began shipping the ski-goggle-like Rift for $599 in March.

The case centered around the defection of video-game programmer John Carmack from ZeniMax, where he had designed blockbuster games Doom and Quake, to Oculus, where he was named chief technology officer in 2013. He acknowledged in testimony that he took with him e-mail records including computer code related to virtual reality.

Oculus ‘Heist’

ZeniMax’s lawyer, Tony Sammi, argued that Oculus committed a “heist,” covered it up by destroying evidence and made off with “a lot of money” when it was bought out by Facebook. He told the jury Oculus went from “zero to hero” using Carmack’s innovations at ZeniMax to improve on the crude prototype for the Rift designed by Oculus co-founder Palmer Luckey.

“If they could make it, why’d they take it?” Sammi asked the nine-member jury in his closing argument.

Zuckerberg testified for five hours during the three-week trial, denying ZeniMax’s allegations and saying it’s common for companies to “come out of the woodwork” and make such claims following an acquisition.

Facebook’s lawyer, Beth Wilkinson, underscored that point in her closing argument, saying ZeniMax ceased all work on virtual reality in early 2013 and didn’t accuse Oculus of wrongdoing until Facebook announced the take-over in March 2014.

Jealous, Angry

“They’re jealous. They’re angry,” Wilkinson told jurors. “They’re embarrassed because they had the opportunity to get in on this.”

Zuckerberg had a vision and followed through on it, she said. He “saw what these guys could do in the future and invested,” she said.

ZeniMax sought $2 billion in damages from Facebook and Oculus. It also asked for an award of $427 million from Oculus co-founder Brendan Iribe; $206 million from Luckey; and $101 million from Carmack -- equal to the amounts the three executives made personally from the sale to Facebook.

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