How the $500M VR lawsuit might be a good thing for the technology

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A half a billion dollar payout in an argument over who invented the Oculus Rift virtual reality headset, might have a silver lining for the technology, an expert says.

The trial kicked off last month, pulling Oculus CTO and former id Software co-founder John Carmack as well as Facebook co-founder Mark Zuckerberg and Oculus co-founder Palmer Luckey into court. The half-month-long trial wrapped up in the final days of January with one side arguing that accusations of trademark and copyright theft over the code that runs the headset were simply the product of jealousy and sour grapes, and the other side calling the entire ordeal a heist.

ZeniMax, the company behind games like Doom and Dishonored, asked for $6 billion. But when the jury came back they found Oculus wasn’t guilty of stealing trade secrets, but was guilty of breaking a non-disclosure agreement and copyright infringement.

The entire case throws into doubt Oculus Rift’s origin story of a young brilliant inventor foregoing college to tinker his way into a fortune through VR invention.

“I am sure the industry as a whole will be OK in the long term.”

It also creates some potential waves for the owners of the Oculus Rift and the developers who make games for the technology. While the ruling handed out a mere half a billion dollars to ZeniMax (one Facebook exec refereed to the payout as a “nonmaterial”), it also opened the door for ZeniMax to ask the court to freeze the sale of the Oculus Rift VR headsets — something a spokesperson tells me they are considering.

Matt Mahon, vice president of engineering for Schell Games, called the possibility of an injunction a “big deal.”

“Anything that hinders that adoption rate is bad,” he said.

John Coleman, director of business development at Vertigo Games, said that its fairly easy to move games across the variety of VR headsets, meaning it won’t really change how the company develops games. But he still worries over the impact an injunction could have.

“It’s not good for the industry as it is time and energy not spent on selling more headsets or creating better experiences for consumers,” he said. “That said, I am sure the industry as a whole will be OK in the long term.”

Whatever happens, it seems clear that the case hasn’t really wrapped up. Facebook has already said it plans to file an appeal. If it loses then the Oculus Rift would be using some code that the company doesn’t have the rights to. Even if it wins ultimately, it could be a problem in the short term.

It might seem unusual that a company can be found not guilty of stealing a trade secret, but guilty of copyright and that that decision could scuttle a product already on the market.

“One common arrangement would be a licensing agreement between the parties.”

Joe Ahmad, a founding partner at Houston law firm Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C., said that’s because it’s much easier to prove the copyright infringement. And in this case, the thing copyrighted is some of the code used to run the Oculus Rift headset.

“I would think the injunction is potentially much more important than the damages award, especially to a company as large as Facebook,” Ahmad said. “What ZeniMax would have to show is that it will see imminent harm and an irreparable injury without the injunction, and harm for which there would be no adequate remedy by an award of monetary damages. With respect to the last factor, typically, the plaintiff would argue that it would be difficult if not impossible to measure the amount of monetary damages stemming from the harm, an injunction is necessary to prevent the harm.

“One typical injunction could be to prevent the sale of the offending product, the Rift, but there are other possibilities as well. The prospect of such an injunction often prompts settlement discussions. One common arrangement would be a licensing agreement between the parties.”

The thing that seems to worry most involved in virtual reality games is the impact this could have an a still relatively small industry.

According to estimates from SuperData Research, Oculus will sell less than a million of the headsets last year and this year combined. And the HTC Vive will sell an estimated 1.7 million. Factor in estimates for mobile VR sets and the number jumps another 18 million or so, but it’s still not the sort of ubiquity that companies like Facebook are aiming for. And that number marks the cap for the number of games that can be sold.

What’s interesting is that from SuperData Research’s perspective, the trial, the payout and the media coverage that surrounded both was great for the industry.

“This is a really important step toward VR legitimacy.”

“This is a really important step toward VR legitimacy: A legal case of this size substantiates the potential of VR technology,” said Stephanie Llamas, vice president of product research and strategy at SuperData. “The general public is seeing two pioneers in tech, Facebook and ZeniMax, fighting over this little company no one had heard of until 2015. In the end, while $500 million is not a small sum of money, this was a big win for Facebook given that they can continue their work with Oculus and do not need to bring ZeniMax in on future revenues. And since it was disclosed that Facebook paid closer to $3 billion for the company, it is clear they believe this investment will earn them several times that, making $500 million even less consequential.”

While Facebook isn’t talking details about its future plans in light of the recent ruling, a company spokesperson was willing to tell me one thing on the record.

“We’re going to keep shipping Rift and building the next generation of great VR hardware and software,” the spokesperson said. “Our commitment to developers is stronger than ever and we’re going to keep investing millions in content development to bring the very best of VR gaming and experiences to people everywhere.”

Brian Crecente

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