Mark Zuckerberg is probably rather out of sorts today.
Yesterday, a jury in Dallas, Texas found Oculus co-founder Palmer Luckey failed to comply with a non-disclosure agreement he had signed with ZeniMax, owner of video game developer id Software and an early virtual reality innovator. The consequence for Oculus, and by extension its owner Facebook? A penalty of $200 million for breaking the NDA and $50 million for copyright infringement. In addition, Oculus and Luckey each have to pay $50 million for false designation. Unfortunately for Luckey’s co-founder, he was also ordered to cough up: Brendan Iribe has to pay $150 million for false designation.
The trial had all the hallmarks of the usual corporate backstabbing: aspersions of incompetence corrected by poaching executives, accusations of being held to ransom and theft of trade secrets, and confirmation of code copied. ZeniMax sued Oculus back in May 2014, alleging that the then-independent VR startup misappropriated ZeniMax’s trade secrets in order to create the Oculus Rift headset. The lawsuit was preceded by a public accusation that id Software co-founder John Carmack provided ZeniMax’s technology to Oculus after the firm hired him. Zuckerberg himself was summoned to the stand and questioned about the rushed nature of his acquisition of Oculus.
Oculus has stated that it will appeal the ruling, but the damage is far-reaching. Facebook ended 2016 with a net profit of $3.6 billion, so if the ruling stands, nearly 10% of its profit will go toward paying Zenimax’s compensation. ZeniMax is already considering an injunction to temporarily halt the sales of Oculus headsets. Due to the copyright infringement, negotiations will likely occur to pay ZeniMax the appropriate royalties.
This leads into the longer-term consequences, which are uncertain. Facebook claims that VR is an important part of the company’s strategy, but for now, its contribution to the company’s bottom line has been miniscule, while the embarrassments and costs it has brought have been significant. If Oculus continues to be a burden to Facebook’s bottom line and a disruption to long-term profit, it could find itself in a fire sale. The impact to the nascent VR industry at such a high-profile ejection could prove severely crippling.
Once the ZeniMax lawsuit is fully resolved, there should be a clearer insight into VR’s future. It would not be surprising if Facebook and ZeniMax set the tone by copyright cross-licensing similar to that in the larger technology industry. For now, it’s a question of when Luckey’s head will roll. Facebook has been vague about his role in the company and Zuckerberg himself is likely reaching the end of his patience.