
Facebook Ordered to Pay $500M in Oculus Lawsuit - _pius
http://variety.com/2017/digital/news/facebook-oculus-zenimax-decision-1201975648/
======
aresant
If the original complaint is to be believed(1) - which Juror's found credible
-the course of events, tldr was something like this:

\- Zenimax bought ID software for >$100m(1) on June 24, 2009.

\- Carmack signed up with Zenimax for an earn-out / golden-handcuffs agreement
that ended in June of 2013.

\- Carmack was enthralled with VR.

\- Carmack found Palmer via an internet forum, reached out to get a rift to
try.

\- Carmack tinkered with the Rift, adding sensors, building calibration, etc.
while on the clock / using hardware from zenimax.

\- Carmack brought a prototype of the Rift working on Doom 3 to E3 with him
providing Oculus with their early press.

\- Zenimax realized the extent to which Carmack was enabling Oculus and worked
to negotiate equity with Brendan Iribe.

\- Oculus sent Zenimax a proposal to discuss a partnership Sept 21, 2012 but
never followed up / followed through.

\- Carmack quit Zenimax the day his contract was up in June 2013, joined
Oculus as CTO a few months later and took his 5 best guys with him.

\- FB bought Oculus March 2014, Zenmix got pissed and sued.

Clearly it's Carmack's genius that made this viable.

It's Carmack's video that lent credibility to the campaign.

And it's Carmack's original IP (Doom) that made the demos compelling.

It may be a weird system that Zenimax is entitled to $500m but since Carmack
was an employee, under contract with Zenimax - who had paid >$100m to buy him
/ his IP - it sounds like this was a fair verdict.

(1) [https://www.scribd.com/document/274211118/Judge-denies-
Faceb...](https://www.scribd.com/document/274211118/Judge-denies-Facebook-
motion)

(2) [http://www.gamespot.com/articles/zenimax-
raised-105-million-...](http://www.gamespot.com/articles/zenimax-
raised-105-million-to-buy-id/1100-6213068/)

~~~
daenz
What in the world was Carmack doing, working on another company's project,
using your current company's time and resources? Don't get me wrong, the guy
is a genius, and I love nearly everything he has a hand in, but you would
think that with his level of seniority, some alarm bells would have gone off
in his head.

~~~
JohnDotAwesome
There's a story in Masters of Doom where Carmack and Romero do just that. If I
recall correctly, they would take company (Softdisk I believe) computers at
night because they were more powerful than their home computers, and use them
to develop their own games. I think they even worked on their own games on
company time. I might be getting the details wrong on that one, but sounds
like Carmack dgaf (or just doesn't think about how these things could
potentially be wrong/misaligned).

~~~
cma
I believe they settled it by paying some royalties on Commander Keen.

A lot of times Carmack just wants to get shit done. At Oculus he has worked on
both the Minecraft code and the Netflix code both for VR clients, both (I
believe, I know for sure for Minecraft at least from some talks) with MS and
Netflix retaining full ownership of the code.

Maybe they have some "off the record" agreements to avoid anti-trust--
Minecraft still hasn't officially come to Vive.

~~~
Bamafan
They also made a number of "free" games that were published by SoftDisk. This
was all pre-modern software era though. If that happened today, it would end
up very similarly to how the Occulus case ended up.

------
Jerry2
This is a very interesting part: [0]

>The liability of Defendants was established by uncontradicted evidence
presented by ZeniMax, including (i) the breakthrough in VR technology occurred
in March 2012 at id Software through the research efforts of our former
employee John Carmack (work that ZeniMax owns) before we ever had contact with
the other defendants; (ii) we shared this VR technology with the defendants
under a non-disclosure agreement that expressly stated all the technology was
owned by ZeniMax; (iii) the four founders of Oculus had no expertise or even
backgrounds in VR—other than Palmer Luckey who could not code the software
that was the key to solving the issues of VR; (iv) there was a documented
stream of computer code and other technical assistance flowing from ZeniMax to
Oculus over the next 6 months; (v) Oculus in writing acknowledged getting
critical source code from ZeniMax; (vi) Carmack intentionally destroyed data
on his computer after he got notice of this litigation and right after he
researched on Google how to wipe a hard drive—and data on other Oculus
computers and USB storage devices were similarly deleted (as determined by a
court-appointed, independent expert in computer forensics); (vii) when he quit
id Software, Carmack admitted he secretly downloaded and stole over 10,000
documents from ZeniMax on a USB storage device, as well as the entire source
code to RAGE and the id tech® 5 engine —which Carmack uploaded to his Oculus
computer; (viii) Carmack filed an affidavit which the court's expert said was
false in denying the destruction of evidence; and (ix) Facebook's lawyers made
representations to the court about those same Oculus computers which the
court's expert said were inaccurate. Oculus’ response in this case that it
didn’t use any code or other assistance it received from ZeniMax was not
credible, and is contradicted by the testimony of Oculus programmers (who
admitted cutting and pasting ZeniMax code into the Oculus SDK), as well as by
expert testimony.

[0] [http://www.polygon.com/2017/2/1/14478258/zenimax-oculus-
inju...](http://www.polygon.com/2017/2/1/14478258/zenimax-oculus-injunction)

~~~
zaroth
Wow... Very damn compelling and puts the $500m in perspective.

I always wonder when they are able to show someone made a particular Google
search months after the fact, where are they pulling that data from? Surely
the browser history is long gone...

~~~
toomuchtodo
Google cloud data is not exempt from discovery.

------
doctorpangloss
Large fines like these, even if the facts are clear, do not support
competition and seem anti-consumer and anti-innovation. Either the fines
should be smaller or the laws changed to better balance what concretely
happened: a poaching of a key employee that led to the development of a big
product.

That being said, Facebook doesn't really seem to have its R&D figured out.
It's poisoned by bad leadership. Palmer Luckey managed to disgrace himself in
public opinion in a way that seems hostile to recruiting the kind of
progressive, free-thinking talent that makes up most R&D teams. John Carmack,
besides his political leanings, speaks derisively of "Hollywood people"
(Oculus users) and came out of this lawsuit looking like a real jerk chasing a
huge check at any cost. At the end of the day, he betrayed a video game
company.

Mark Zuckerberg has a lot of leadership faults disguised behind an amateurish
ownership structure that puts him outside of public accountability. Despite
its huge head start, Oculus is seriously threatened by HTC, Sony, Google and
Samsung. Paper and Facebook payments didn't really go anywhere. Though
Instagram and WhatsApp seem to be good acquisitions, even at their
extraordinary prices, a broken clock can still be right twice a day. And it
doesn't really take leadership to spend huge amounts of money on
acquisitions—that's the easy way out. Outside of Facebook, his New Jersey
schools efforts were not well regarded. Will his $3 billion commitment to a SF
Biohub be marred by similar issues? I'm just nervous is all.

I think market sentiment will catch up with this ruling. Eventually someone's
going to ask if he's the right guy to be in charge of Facebook. The public
investor may never actually have the power to do something about it.

~~~
devwastaken
Being hired to work on projects, using your companies time and money, and then
taking that project to another company yourself, is stealing. Stealing is very
anti-competative, and massively increases risk in investment. If anything,
this case shows that you can steal a companies resources to make your own
products, and if its a good idea then lawsuits are just a cost of doing
business.

~~~
TAForObvReasons
I don't know why you are being downvoted. When you are on company time or
working on company resources, your output generally belongs to the company
unless you have a special exemption. The cavalier attitude by many people in
SV towards IP is somewhat tragic

------
6stringmerc
Very interesting result and shows the value of contracts. A lot of times
people want to say, "Oh, that's just paperwork" and after years and years of
Alphabet Soup Regulatory Agencies hovering over my RFP and business proposal
work for clients, I have the utmost respect for signed documents and what they
are there to enforce.

This isn't just finger-pointing accusations any more, this is a multi-hundred-
million dollar verdict about a significant future market. Anybody who might
consider pulling a similar stunt - and didn't learn from the public shitshow
that was Cruise Automation's dirty laundry hung out in public - should be wise
to study this case.

Disruption is fine and dandy overall, it's just that the Ends will also be
measured by the Means in time.

------
gshulegaard
This whole situation leaves me with a bad taste in my mouth regarding Zenimax.

So their biggest claim, surrounding Oculus being built on trade secrets, is
found false but they get a half-billion dollar payout anyway?

Considering the purported fines could be traced back all the way to
practically the original Kickstarter...I wonder if Zenimax would have gotten
such a sum had Oculus not been bought by FB for $3B[1]...

...or am I misunderstanding something?

[1] [http://www.businessinsider.com/facebook-actually-
paid-3-bill...](http://www.businessinsider.com/facebook-actually-
paid-3-billion-for-oculus-vr-2017-1?r=UK&IR=T)

~~~
LandoCalrissian
It's the NDA that killed them.

~~~
gshulegaard
Yeah...but that breach was originally made during the original Kickstarter in
2012.

Aren't most statute of limitations for NDA breaches 3-4 years from original
breach?

But even if it's still within the statute of limitations I can't help but get
the feeling Zenimax is just trying to cash in on the unlikely success of
Oculus.

~~~
elastic_church
They sued in 2014 so the clock stops there.

~~~
cpncrunch
It looks like they sued in May 2014, and the acquisition closed in July 2014,
so it looks like facebook just didn't do adequate due diligence.

~~~
openmosix
Or entirely possible they knew about it, dismissed it as "frivolous case" or
factored it in the price paid.

~~~
cpncrunch
Well, clearly it wasn't frivolous, so if they did think that then it would be
evidence of them not doing proper due diligence.

I guess it's possible they just didn't care. What's another half billion
dollars to facebook?

~~~
CamperBob2
"It's a speeding ticket. Just pay it." \-- paraphrasing Zuckerberg's lawyer in
_The Social Network_

The interesting question is whether FB will indemnify Carmack. $150M is a hell
of a speeding ticket.

~~~
gcp
It's not clear whether Carmack was actually the one to get that fine, sounds
like it was Iribe.

------
kafkaesq
_Facebook 's Sheryl Sandberg told CNBC's Julia Boorstin that she was
"disappointed in certain elements of the decision." Sandberg added she was
"considering our options to appeal," and the verdict was "not material to our
financials."_

Sure, FB has a lot of money. But still -- $500M is "not material" to their
finances?

~~~
hkmurakami
Related: I believe you can take offset such a settlement from profits to
reduce taxes. Never really understood the rationale for this. Seems pretty
arbitrary and another example of how corporations are often favored over
humans.

~~~
advisedwang
Imagine if you earned $1000 from activity X, paying $200 tax on it. Later X is
found to be illegitimate and you have to pay $1000 damages and $500 punitive
damages. Except because of the tax you have net lost $700 rather than the $500
punitive damages.

Put in another term, it would be like paying tax on money you never had.

------
MitchellKnight
> However, the jury also found Wednesday that Oculus didn’t violate any trade
> secrets. Instead, it ruled that Luckey, who was working as a contractor for
> Zenimax before starting the Kickstarter for the Oculus Rift headset,
> violated his non-disclosure agreement, according to a Polygon report.

I don't understand how this works. Why does Facebook have to pay $500M over an
NDA violation between an individual and his previous company? It seems like
ZeniMax should only have a case against Palmer Luckey.

~~~
taneq
If Alice hires Bob, and Bob sells Alice's information to Charlie, and Charlie
makes $2bn out of it, then it seems fair to hold Charlie responsible as well.
Otherwise all you're doing is creating a market for sacrificial goats to take
the fall while the company making the money gets away clean.

~~~
donatj
If Charlie doesn't know Bob's information is tainted, all you're doing is
punishing the innocent for a crime they didn't commit.

~~~
gcp
It's called due diligence. The fact that Facebook didn't do it was a factor in
the trial.

------
tabeth
Facebook bought Oculus for $3B [1] 16% of the purchase price for infringing on
an NDA is pretty damaging.

I believe that'll be a good deterrent in the future.

[1] [http://uk.businessinsider.com/facebook-actually-
paid-3-billi...](http://uk.businessinsider.com/facebook-actually-
paid-3-billion-for-oculus-vr-2017-1) (thanks for the correction, Cozumuel)

~~~
modeless
A deterrent for what? What's the lesson here? If you're a student don't sign
an NDA on the off chance you'll later found a company and get acquired by
Facebook for $2B?

The real takeaway here is, if you have world-class tech guys working for you
then don't support them, just tie them up in contracts, and when they leave
and become successful you can sue them to get 25% of whatever they made, at
zero risk to you.

~~~
EugeneOZ
World-class tech guys should also respect contracts they sign. I respect his
works and achievements, but I think his actions in this case were unfair. I
only hope I don't know all details and my opinion is based on not all facts.
I'd like to know my opinion is wrong.

------
dvdcxn
>John Carmack, Oculus chief technology officer and founder of a company owned
by ZeniMax, improved on the device using his knowledge from his previous work
as a ZeniMax employee.

That's a scary precedent...

~~~
psyc
It's also an outrageous insinuation that John Carmack, the father of the FPS,
needed "knowledge gained from Zenimax" in order to make Oculus happen.

~~~
ojr
I think you are undervaluing the codebase, if he used a codebase that was
touched by 10 engineers with an average pay of 100k, the codebase cost 1
million to make in just one year, it would be hard for any engineer no matter
how good to match the man hours of 10 engineers, Zenimax owned that knowledge
and paid a high price for the value

~~~
psyc
Zenimax does not own anybody's knowledge. They own source code.

------
bbernard
For those interested, the official court document can be accessed here:
[https://www.scribd.com/document/274211118/Judge-denies-
Faceb...](https://www.scribd.com/document/274211118/Judge-denies-Facebook-
motion)

It describes in details what happened.

~~~
abandonliberty
It describes in detail the ZeniMax allegations.

> Though the Court uses definite language, the information is based on
> allegations only

I highly recommend it. It provides much more perspective and appears to be a
strong case. The decisions - both in their favor and against - appear
reasonable based on publicly available information.

------
bmm01
The TechCrunch article describes ZeniMax's allegations at more length:
[https://techcrunch.com/2017/02/01/jury-awards-
zenimax-500-mi...](https://techcrunch.com/2017/02/01/jury-awards-
zenimax-500-million-in-oculus-vr-lawsuit/)

------
cptskippy
The accusation that Palmer was incapable of creating the Rift without
Carmack's help and that he had a barely functional prototype, if true, is
pretty insulting to Carmack. Carmack is a smart guy and I every much doubt
he'd have joined on at CTO if the prototype was as awful as ZeniMax says it
was.

~~~
dkonofalski
I don't think it was the prototype itself that was barely functioning, it was
the software side that wasn't great. I remember when Palmer first showed off
the device, it seemed to track just fine. When they introduced actual content,
though, it became disorienting really quickly.

I backed them on Kickstarter so I got to see the DevKit1, DK2, and the CV1.
The difference between the early versions and the end versions really came
down to the software that handled the tracking. Compensating for movement lag
and predicting frames to ease the jerkiness are really what converted it from
a prototype to a viable commercial product.

That being said, it makes me laugh a little to see that Valve and the HTC Vive
managed to outpace Oculus. Oculus had so much momentum and marketing buzz and
they really dropped the ball on that one. Who knows how much of that was due
to the FB purchase, but it definitely is weird seeing them lose their huge
advantage.

~~~
pipio21
"That being said, it makes me laugh a little to see that Valve and the HTC
Vive managed to outpace Oculus."

It was the other way around. Valve had been working in VR for years before the
first oculus prototype. Oculus contacted Steam and copied the tech they had.
The Steam guys actually helped Luckey because it was the small guy doing the
open source thing.

They did not take into account the selloff to facebook of all this
information.

~~~
dkonofalski
I don't know how much stock I put into this. If you're going based off of what
Yates said in that Reddit interview, I'd take that with a grain of salt.
Palmer was working on a 3D head mounted display back in 2010/2011 and Valve
has only admitted to VR research since 2012/2013\. That's not to say that they
couldn't have worked on it before then, but Palmer wasn't involved at that
point. He also was only working on a 3D headset and wasn't initially planning
on a VR headset from what I understand.

On top of that, Oculus definitely had more marketing/media buzz so they were
ahead of Valve in the consumer mind. The end product might be closer to
Valve's than to his original prototype, but he definitely had a small head
start on them for the prototype and a huge head start from a marketing
perspective. Valve all but shattered that.

Here's Palmer's first announcement in like 2012:
[http://www.mtbs3d.com/phpBB/viewtopic.php?f=140&t=14777](http://www.mtbs3d.com/phpBB/viewtopic.php?f=140&t=14777)

------
soheil
> with Carmack having to pay another $150 million

His net worth seems to be only $40 million. What happens to him now?

~~~
Keyframe
Serve time at Zenimax. Or maybe it's not final decision.

------
foota
This wasn't something I knew, but it appears that Carmack used to indirectly
work for Zenimax, who became the parent company of id.

~~~
dkonofalski
It wasn't indirect, by any means. Carmack was working on a VR version of Doom
3 (the BFG Edition) while working at id/ZeniMax before he jumped ship to go
work at Facebook. There's still tons of remnant news stories about the Doom 3
BFG VR Edition that was supposed to launch with the CV1 Rift.

------
corysama
> A Dallas, Texas jury today awarded half a billion dollars to ZeniMax after
> finding that Oculus co-founder Palmer Luckey, and by extension Oculus,
> failed to comply with a non-disclosure agreement he signed.

> In awarding ZeniMax $500 million, the jury also said that Oculus did not
> misappropriate trade secrets as contended by ZeniMax.

> Of the $500 million, Oculus is paying out $200 million for breaking the NDA
> and $50 million for copyright infringement. Oculus and Luckey each have to
> pay $50 million for false designation. And Iribe has to pay $150 million for
> the same, final count.

[http://www.polygon.com/2017/2/1/14474198/oculus-lawsuit-
verd...](http://www.polygon.com/2017/2/1/14474198/oculus-lawsuit-verdict)

------
jayjay71
I wonder if this decision will be final, or if either party will appeal.
Facebook has stated they will appeal, but Zenimax has threatened an
injunction. While an injunction seems unlikely to achieve fruition, just the
chance that it might (which would completely halt VR for Facebook) seems
enough of a risk to just move on.

[http://uploadvr.com/verdict-zenimax-oculus/](http://uploadvr.com/verdict-
zenimax-oculus/)

Then again, what do I know about giant corporations suing each other. I've
always found it comical how much money Samsung and Apple spent suing each
other, but they seem to make money just fine.

------
modeless
Good to hear that the jury made the right decision on the ridiculous charges
against Carmack. Sad to hear that they think a bunch of litigious assholes
deserve $500 million for getting a signature on an NDA.

~~~
psyc
Zenimax, an investment vehicle for Providence Equity Partners, is literally
run by actual lawyers. In the early days of Oculus, Carmack tried to get them
interested in VR, and they wanted nothing to do with it. Now all of a sudden
Oculus is a result of _their_ tech.

They wouldn't even have the slimy case that they have, if not for the fact
that Carmack and others used to work there. People can debate the legal
technicalities all they want, but the plain, everyday explanation of what
happened is that some lawyers figured out how to retroactively create and
profit massively from a virtual non-compete that never existed.

~~~
manquer
Hmm.. they still paid 100m to get carmack's previous company partly for his
and others talent .. they had explicit NDA signed with oculus. carmack was
working on their resources and IP(doom) on company time. Carmack was critical
to success of occulus. The suit also predates Fb acquisition It is not their
problem that Fb didn't do due diligence.

------
antoniuschan99
So fb will pay 300 mil and luckey and crew 200 mil.

I think its good for fb and bad for the others.

If fb had to pay all then that would've been bad for them.

How many units is occulus selling now?

------
abandonliberty
Can anyone find a copy of the NDA that was violated?

~~~
rasz_pl
its under NDA

~~~
abandonliberty
I honestly don't know if you are joking. I would appreciate seeing a source
for that.

~~~
josephpmay
I think he probably meant that as a joke, and I would imagine that the
contents of the NDA were part of the trial's discovery, however most NDA's
I've been signing recently have included a clause that the NDA itself is
confidential.

------
timhj
300m + 150m + 150m (Payout structure stated in the article) = 600m, not $500m.

------
Kiro
> Luckey having to pay $150 million

What's the reasoning behind that?

------
Yuioup
John Carmack has to pay $150M. I know he's a very successful person but that
has to be a lot of money for him. Is facebook going to pay that cash?

------
akhilcacharya
So when's the movie coming out?

------
seesomesense
Good to see that unethical behaviour has costs.

------
rounce
> ZeniMax isn’t a household name with most consumers, but the company’s
> subsidiaries have produced video games like “Quake,” “Fallout,” and
> “Wolfenstein.

So read the complaint in full, and it's a fair bit different to how it's
reported in the OP. Article frames the situation in a pretty odd manner,
almost implying ZeniMax by association had a hand in those titles. Also
completely misses out the depth of prior association between Carmack and
ZeniMax.

