Analysis -Facebook’s virtual reality ambitions could be threatened by court order

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By Jan Wolfe

<span class="articleLocation”>Facebook Inc’s big ambitions in the
nascent virtual reality industry could be threatened by a court
order that would prevent it from using critical software code
another company claims to own, according to legal and industry
experts.

Last Thursday, video game publisher ZeniMax Media Inc asked
a Dallas federal judge to issue an order barring Facebook unit
Oculus from using or distributing the disputed code, part of the
software development kit that Oculus provides to outside
companies creating games for its Rift VR headset.

A decision is likely a few months away, but intellectual
property lawyers said ZeniMax has a decent chance of getting the
order, which would mean Facebook faces a tough choice between
paying a possibly hefty settlement or fighting on at risk of
jeopardizing its position in the sector.

For now, Facebook is fighting on. Oculus spokeswoman Tera
Randall said last Thursday the company would challenge a $500
million jury verdict on Feb. 1 against Oculus and its
co-founders Palmer Luckey and Brendan Iribe for infringing
ZeniMax’s copyrighted code and violating a non-disclosure
agreement.

Randall said Oculus would possibly file an appeal that would “allow us to put this litigation behind us.”

She did not respond to a request for comment for this
article.

An injunction would require Oculus, which Facebook acquired for $3 billion in 2014, to stop distributing the code to
developers or selling those games that use it.

Such a court order “would put a huge stumbling block in
front” of Oculus, said Stephanie Llamas, an analyst with gaming
market research firm SuperData. It would offer the company’s
rivals in the new market, which include HTC, Sony Corp
, Alphabet Inc and others an “important
opportunity for them to become first movers.”

Sales of the Rift itself would not be barred, but Llamas,
said a lack of available titles could hinder Facebook’s offering
relative to HTC’s Vive headset and Sony’s Playstation VR.

That market is relatively small at the moment – sales of VR
hardware and software totaled $2.7 billion in 2016 – and mainly
limited to gaming. But Facebook chief executive Mark Zuckerberg
has predicted the technology “will become a part of daily life
for billions of people,” revolutionizing social media,
entertainment and medicine.

SuperData says the VR market will be worth $37 billion by
2020. Likewise, investment firm Cantor Fitzgerald last year
issued a report predicting VR would account for 10 percent of
Facebook revenue in four years’ time.

ZeniMax’s lawsuit arose from 2012 correspondence between
Luckey and famed video game developer John Carmack, creator of
the Doom and Quake series and then a ZeniMax employee. Luckey
signed a non-disclosure agreement with ZeniMax covering his communications with Carmack.

Carmack joined Oculus in 2013 as chief technology officer.
ZeniMax sued in 2014, claiming Carmack’s work while its employee
was crucial to the Rift. At trial, Facebook said ZeniMax
concocted its claims because of “sour grapes” over missing the
VR trend.

Zuckerberg testified that “the idea that Oculus products are
based on someone else’s technology is just wrong.”

The jury decided Oculus had not stolen trade secrets but had
infringed ZeniMax’s intellectual property. It also said Oculus
breached the non-disclosure agreement.

IP lawyers said the judge would consider factors such as whether ZeniMax continues to be harmed and whether money is
sufficient compensation.

Edward Naughton, a Boston-based copyright lawyer with Brown
Rudnick, said ZeniMax has a strong argument because its
technology continues to be used without its permission and the
jury’s verdict does not compensate for that.

“I think they have a pretty good shot here,” Naughton said.

Mitchell Shelowitz, a copyright lawyer in New York, noted
that the non-disclosure agreement explicitly stated ZeniMax
would be entitled to an injunction in the event its terms were
violated.

Not all lawyers agree ZeniMax has the stronger position.
Chicago-based IP lawyer Joshua Rich said he thinks Facebook has
a good chance to repel the injunction by arguing that ZeniMax is
not being harmed by the sale of the Oculus products because it
is not direct competitor.

If Facebook can get past the injunction fight, the calculus
could change, said Naughton. Facebook may believe it has strong
arguments on appeal or, because it has so much cash on hand, it
may hope to wear ZeniMax down to the point where it settles on
favorable terms.

“Facebook has deep pockets,” said Naughton. “That allows
them to put their opponent into litigation fatigue.”



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