Facebook’s virtual reality foray challenged as ‘fanciful story’

Attendees wear Oculus Rift virtual reality at CES 2017. Photographer: Patrick T. Fallon/Bloomberg

Facebook Inc. bet early on virtual reality, buying Oculus VR 2 1/2 years ago to get its groundbreaking headset. Now it’s fighting claims that the Oculus Rift was built with stolen technology and promoted with a false origin story about a young entrepreneur tinkering in his parents’ garage.

What started as a falling out between tech geeks is now a messy $2 billion dispute that may drag Facebook co-founder Mark Zuckerberg onto the witness stand in a Dallas courtroom. The social media giant is accused of completing its acquisition of Oculus in 2014 with “full awareness” that the “holy grail” know-how behind one of Silicon Valley’s most promising consumer devices was misappropriated from another company.

ZeniMax Media Inc. is trying to show that it did the heavy lifting to develop the software and hardware for the virtual reality goggles, alleging a star employee recruited by Oculus purloined its intellectual property. Facebook and the Oculus executives named in the lawsuit deny wrongdoing and say it’s ZeniMax that’s spinning revisionist history.

If ZeniMax is successful at a trial set to begin Monday, it would rewrite the story of how Facebook emerged at the forefront of the virtual reality boom, with Microsoft Corp., Sony Corp., Alphabet Inc.’s Google and others all competing for a piece of a market that’s forecast to exceed $84 billion in sales in 2020.

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ZeniMax, a Rockville, Maryland-based maker of interactive software and games, traces the roots of the fight to 2012. That’s when John Carmack, one of its employees and the designer of blockbuster games such as Doom and Quake, began corresponding with Oculus founder Palmer Luckey.

‘Primitive’ VR

Then a college-age video game enthusiast living in Southern California, Luckey was working on a “primitive virtual reality headset” that he named the Rift. At the time, it was “a crude prototype that lacked a head mount, virtual-reality specific software, integrated motion sensors and other critical features and capabilities needed to create a viable product,” according to ZeniMax’s lawsuit.

ZeniMax contends Carmack was responsible for the breakthroughs that transformed the Rift into a “powerful immersive virtual reality experience.” But after Carmack and Luckey agreed to use the Rift to showcase a specially configured version of Doom 3 at a Los Angeles convention in 2012, relations between the startups quickly soured, according to ZeniMax.

Instead of discussing how Oculus would compensate ZeniMax, Luckey and Oculus’s then-Chief Executive Officer Brendan Iribe allegedly became “increasingly evasive and uncooperative.” Next, they hired Carmack, who is accused of copying thousands of documents from his computer at ZeniMax.

‘Fanciful Story’

To cover its tracks, Oculus “disseminated to the press the false and fanciful story that Luckey was the brilliant inventor of VR technology who had developed that technology in his parent’s garage,” according to a ZeniMax court filing. “In fact, that story was utterly and completely false.”

ZeniMax is seeking $2 billion in damages, which is about what Facebook paid to acquire Oculus in its bid to take virtual reality into the mainstream. Facebook began shipping the ski goggle-like Rift headset in March at a price of $599.

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“We’re going to call many live witnesses, Mr. Zuckerberg included,” ZeniMax lawyer Tony Sammi said in a Jan. 3 interview.

The defendants’ lead attorney, Beth Wilkinson, as well as Oculus and Facebook representatives, declined to comment ahead of the trial.

Facebook Defense

In its defense, Facebook argued in an August 2015 filing — before many of the documents in the case were filed under seal — that ZeniMax made no claim to own the technology and asserted no intellectual property rights until Facebook announced its intent to purchase Oculus in March 2014.

Carmack, who became chief technology officer of Oculus, said in a December court filing that his employment agreement at ZeniMax allowed him to be involved in Oculus because it wasn’t a gaming company in competition with ZeniMax. He said ZeniMax consented to him publicly disclosing his virtual reality research.

Carmack says he also offered to manufacture and sell a consumer headset similar to Luckey’s, but his idea fell flat with ZeniMax CEO Robert Altman, a former lawyer who had also been CEO of the adult entertainment website FriendFinder Networks Inc.

“Altman decided not to pursue the opportunity to make ZeniMax a player on the ground floor of the VR hardware revolution,” according to Carmack’s filing.

ZeniMax also declined to invest in Oculus in an early financing round and was unwilling to accept anything short of “a large non-dilutable stake” in Oculus in return for allowing Carmack’s participation as a technical adviser, according to Carmack’s filing. If ZeniMax had accepted either, “it would have reaped tens or even hundreds of millions of dollars in return on investment when Facebook purchased Oculus,” according to Carmack.
The trial is expected to last about three weeks.

The case is ZeniMax Media Inc. v. Oculus VR Inc., 3:14-cv-01849, U.S. District Court, Northern District of Texas (Dallas).