By: Steve Masur and Sarah Siegel
On February 1, 2017, a Texas jury found Facebook subsidiary Oculus VR, Inc. liable for $500 million in damages in its dispute with ZeniMax over Oculus Rift, a virtual reality technology acquired by Facebook in 2014. The jury found Oculus infringed upon ZeniMax’s copyrighted computer code and misrepresented the origin of its VR technology, and that its co-founder violated a non-disclosure agreement he had signed with ZeniMax. However, the jury found Oculus had not misappropriated ZeniMax’s trade secrets when creating Oculus Rift.
Many eyes were fixed on this case, especially from companies such as Google, Samsung, and Sony, which have all recently launched their own virtual reality headsets. With new emerging technology comes a legal landscape that is still developing and taking shape. This case, which dealt with the fundamentals of intellectual property law, provides an example of how copyright law is uniquely applied to virtual reality technology.
Like many start-up stories, this too starts in a 17-year-old’s parent’s garage with a video game enthusiast who wanted to improve and create a better technology experience. This particular 17-year-old was Palmer Luckey, and the technology in this story is the Oculus Rift virtual reality headset.
Oculus Rift was an idea that came from Luckey’s frustration with the existing virtual reality headsets on the market—the displays were poor quality, bulky, had a low field of view, and carried expensive price tags. He began working on his own design to improve upon these inadequacies, and created what would later be known as the Oculus Rift. In its early days, the Oculus Rift was created using duct tape, ski goggles, and wires. As Luckey made improvements and developments to the headset, he posted updates to a virtual reality online forum. John Carmack, a fellow VR enthusiast, kept up-to-date on Luckey’s forum posts and eventually requested a prototype from Luckey. At the time, Carmack worked at id Software, a software development company owned by ZeniMax, and was a notable video game developer for such series as Doom. At that time, ZeniMax had also been investing millions of dollars into researching and developing virtual reality technology. Luckey sent Carmack one of his two prototypes, and Carmack began making his own improvements, including writing code for the headset. With Luckey’s permission, Carmack demonstrated the Oculus Rift at a 2012 video game trade show by using the Oculus Rift headset with his new game, Doom 3. One year later, Carmack resigned from id Software for a new position as chief technology officer at Oculus Rift.
In March 2014, Facebook announced its acquisition of Oculus VR for $2 billion, and two months later, ZeniMax announced its intent to sue Oculus and Facebook over the Oculus Rift and its code.
Misappropriation of a Trade Secret
A trade secret is proprietary information that carries with it economic value solely by virtue of it not generally known or readily discernible by people who can benefit from it, and is the subject of reasonable efforts to maintain its secrecy. A misappropriation of a trade secret is the improper disclosure or acquisition of that secret.
In this lawsuit, ZeniMax argued that Carmack took company secrets with him when he left id Software for Oculus. Carmack never denied that he worked on the code for the Oculus Rift prior to his employment at Oculus, but he contended that this work was done in his free time, and not while he was on the clock at ZeniMax. ZeniMax, however, claimed that Carmack’s integral work and research for Oculus Rift was not done during his free time, but rather done during his employment at ZeniMax, using ZeniMax’s resources, computer, offices, and employees. The jury did not agree with ZeniMax and did not deem the work Carmack brought to Oculus as a misappropriation of a ZeniMax trade secret, meaning that ZeniMax trade secrets were not contributed to Oculus and its headset.
Copyright Infringement of Virtual Reality
Virtual reality source code is protected by copyright law, not patent law, as an original expression once fixed in a tangible medium, and therefore, any infringement on VR software is governed by the rules of copyright. Under copyright law, an affirmative defense to a claim of infringement is fair use, which allows parts of a copyrightable work to be used in a new work, so long as the new work is transformative, that the nature and objective of the underlying copyrighted work is different than the new work, the new work does not substantially and qualitatively use the original work, and that the intended market for the work is different than the old work.
In this case, Oculus’ fair use defense did not hold up because the jury found that the computer code Carmack took was “non-literally” copied when it was integrated in the Oculus technology, meaning that Carmack changed aspects of the code he developed at ZeniMax to create a different code and used that to create Oculus, which is a similar program with similar functions. Additionally, the market for the new code used in Oculus was the same as the code ZeniMax would use for its virtual reality headset which was in development. Ultimately, the jury found Oculus infringed upon ZeniMax’s copyright in its VR code.
The Implications for Virtual Reality
The gray area of this decision is how to apply and interpret it. How different must copyrighted computer code be in order not to constitute a copyright infringement of prior existing code? Since the code used in Oculus was different than ZeniMax’s code, but used for a similar product, does ZeniMax possess the copyright on all code for virtual reality headsets? Evidently, these are just two of many unanswered questions that have been left in this decision’s path, and which have ramifications on legal and business affairs decisions, including how to structure and present documents governing technology development relationships, and even outcomes of disputes.
After the case was decided, ZeniMax filed an injunction against Facebook to stop the sale of the Oculus Rift and its development kits. Facebook intends to appeal the court’s decision. The continuing shake-out of this case and its implications for virtual reality will be closely followed as it unfolds.
*We would like to thank our intern Sarah Siegel for her contribution to this article.