By Adam Roberts

On February 1, 2017, a jury in the Northern District of Texas found that Facebook’s recently acquired virtual reality (“VR”) technology, “Oculus Rift,” infringed on copyrighted source code owned by ZeniMax Media LLC. Resultantly, the jury awarded ZeniMax $500 million in damages. This case comes as a significant blow to Facebook’s recent venture into VR gaming.  And as “Oculus Rift” is being outpaced in sales numbers by Sony’s “PlayStation VR,” and HTC’s “HTC Vive,” it is unclear where the future of the device stands.

But first, how did “Oculus Rift” get to this point? A little history:

ZeniMax Media LLC is a renowned video game publisher, known for its Bethesda Software Division, which has developed well-known gaming titles such as The Elder Scrolls series, Fallout, DOOM, QUAKE, Wolfenstein, and RAGE. Since the 1990s, ZeniMax has conducted research into VR technology, specifically research to enable people to experience video games on a headset device.  Yet, a commercially viable device was still years away.

In April of 2012, ZeniMax contacted Palmer Luckey – the developer of a prototype VR headset called the “Rift.” The parties contracted a non-disclosure agreement that allowed ZeniMax to add significant technical modifications to the “Rift,” while Luckey agreed to keep proprietary information confidential. Together the parties created a modified VR prototype, “Oculus Rift,” that was presented at the 2012 Electronic Entertainment Expo (E3) to stirring success. As a consequence, Luckey founded Oculus, LLC.

By June of 2012, Luckey launched a Kickstarter fundraising campaign to help finance Oculus. Subsequently, ZeniMax made several requests for compensation from Luckey based on its role in the development of “Oculus Rift.” However, when no agreement was formed between the parties, ZeniMax forfeited its efforts to provide further information to assist with the project.

By 2014, Facebook entered the fray, acquiring Oculus for a whopping $2 billion. That same year, ZeniMax filed suit against both Luckey and Oculus alleging copyright infringement, trademark infringement, breach of contract, and violation of trade secrets among other claims.

Fast-forward to the verdict returned earlier this month.

The jury awarded ZeniMax the following damages. First, $50 million for copyright infringement. Specifically, the jury found that “Oculus Rift” contained ZeniMax’s copyright-protected computer code for its VR technology. Second, $200 million for breach of contract on the finding that Oculus had provided Facebook access to use proprietary information gained through ZeniMax in breach of the non-disclosure agreement. Third, $250,000 (split between Oculus, Luckey, and Brendan Iribe, co-founder of Oculus) for trademark infringement and false designation. Here, Oculus had prominently featured clips from the video game title DOOM 3 in its promotion of “Oculus Rift,” a registered trademark of ZeniMax. Because Facebook acquired Oculus, it bears the brunt of this loss.

This jury verdict may only be an initial stage in litigation still to come, and an appeal by Facebook may be imminent. In response to the verdict, Facebook publicly stated “[w]e’re obviously disappointed by a few other aspects of today’s verdict, but we are undeterred.  Oculus products are built with Oculus technology . . . .  We look forward to filing our appeal and eventually putting this litigation behind us.”  What’s more, ZeniMax has considered additional steps including, “seeking an injunction to restrain Oculus and Facebook from their ongoing use of computer code” in their VR products.  This injunction would likely prohibit Facebook from continuing to sell “Oculus Rift.”

Thus, the future of Facebook’s “Oculus Rift” device is uncertain. On February 8, 2017, Facebook closed nearly half of its “Oculus Rift” demonstrations in retail stores due to low interest. Yet, public feedback of demos for other VR devices such as PlayStation VR, Samsung Gear VR, and the HTC Vive have reportedly “all been positive.” Furthermore, Mark Zuckerberg has publicly stated that Facebook’s VR efforts simply “won’t be profitable for quite awhile.”  In fact, during Zuckerberg’s testimony in the ZeniMax trial, he revealed that Facebook planned to put another $3 billion into developing VR technology over the course of five to ten years.

What will be the impact of this potentially ongoing litigation on Facebook’s VR technology?  Will it require further financial investment into research and development before Facebook sees considerable profits?  Only time will tell.

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