SERVING BUSINESS LAWYERS IN TEXAS Experts: ZeniMax Case Against Oculus Looks Strong By Jeff Bounds – (June 18, 2014) – Like any Indeed, the complaint rattles off a list that business involved in disputes over trade secrets, includes “copyrighted computer code,” the Richardson video game developer id Software specially designed sensors and other hardware, LLC and its Maryland-based parent, ZeniMax and programmed software for technical Media Inc., will face something of an uphill climb chores such as sensor and optical components in proving their case, legal experts say. calibration, latency reduction and chromatic aberration reduction. But based on a complaint that ZeniMax and id filed in This expert added: “The late May against California- complaint, from only one side based Oculus VR Inc. and its of the (matter), is a compelling founder, Palmer Luckey, it story.” appears the plaintiffs believe Darin Klemchuk, managing they have strong evidence on partner of Dallas’ Klemchuk their side and are ready to go Kubasta, echoed that to the mat, experts say. A user takes the Oculus Rift for a spin. Photo courtesy of wikipedia.org sentiment. In a highly detailed, 46-page “It’s one of the more thorough complaints I’ve complaint, ZeniMax laid out how it supposedly read,” he said. “Assuming the allegations in provided a range of technical trade secrets and the complaint are true, I think the potential for other know-how to Oculus in the latter’s building damages is pretty strong.” of a virtual reality gaming system – only to receive zero compensation for its efforts. Klemchuk believes the suit has the potential to impact Oculus’ transaction In addition, at least six employees of with Facebook. “That may be leverage the ZeniMax/id business have resigned to get a settlement done,” he said. to take jobs with Oculus, court records Like other experts, Klemchuk noted say. That group includes John Carmack, that Oculus hasn’t told its side of things who became Oculus’ chief technology yet. In a press statement, Oculus flatly officer after a 20-year run at id that denied any wrongdoing. included spearheading such major gaming titles as Quake and Doom. Darin Klemchuk “The lawsuit filed by ZeniMax has no merit whatsoever,” Oculus’ statement Oculus subsequently agreed earlier this says. “As we have previously said, ZeniMax year to sell itself to Facebook for about $2 billion, did not contribute to any Oculus technology. court records say. Oculus will defend these claims vigorously.” “In a lot of cases, it’s unclear in the complaint A Facebook spokeswoman declined comment. what the people who are suing are saying is a So did the legal team representing ZeniMax and trade secret,” said one legal expert who requested id, which is led by Haynes and Boone partner anonymity in exchange for frank comments. Phillip Philbin. > ZeniMax “provided a list of what they considered trade secrets.” © 2014 The Texas Lawbook 1 SERVING BUSINESS LAWYERS IN TEXAS Details, Details • The plaintiff is trying to secure publicity for its Oculus’ stance that ZeniMax and id provided claims, and/or; no contribution to Oculus’ technology system – • It’s trying to put pressure on the other side. called the Oculus Rift — is the polar opposite of “They’re sending a signal that we’ve got our what the plaintiffs are alleging. case put together already, so you need to come For instance, the complaint points to: to the table,” the expert said. • A YouTube video from the QuakeCon 2012 The flip side of that strategy is that the defendant show in which Luckey, while appearing on can bring out a different side of the story and a panel, praised Carmack (who was still say, “Look at how many things the plaintiffs employed at id at the time). “I can’t do software took out of context, and how many things they at all,” Luckey said, according to the video. didn’t tell you.” “So it’s really amazing to have so many people But, the legal expert noted, “I don’t know if that are interested in a hardware platform Oculus has something to say” on that front. because I can’t do that, at all, and it’s so exciting to see that people are into it.” For its part, Oculus will try to show that each alleged trade secret was not secret or proprietary • Also at that QuakeCon show, Oculus, “lacking to ZeniMax; was not disclosed to Oculus by sufficient virtual reality expertise, could not ZeniMax; or was independently developed by get the modified Rift to function properly Oculus personnel who had no access to ZeniMax’s without ZeniMax’s technical assistance.” disclosures. That’s according to Daniel E. The complaint shows a black-and-white Venglarik, a partner in the intellectual property photo of Carmack supposedly helping get the section of Munck Wilson Mandala in Dallas. “modified Rift to function for Luckey.” “In this case, Oculus • Also in 2012, Oculus, in a video for a may make much of that fundraising campaign on the crowdfunding fact that ZeniMax’s website Kickstarter, supposedly used several subsidiary, id Software, clips of a ZeniMax game, “Doom 3: BFG was known in the industry Edition.” Oculus did this after ZeniMax told primarily as a (personal Oculus not to, and in “blatant disregard of computer) game developer, ZeniMax’s rights,” the complaint alleges. not as a developer of gaming • After recruiting Carmack, Oculus consoles or equipment, representatives acknowledged at a September Daniel E. Venglarik and that Oculus was 2013 press conference Carmack’s “enormous working with that contribution” to the Rift while he was a subsidiary to make its virtual reality headset ZeniMax employee, the complaint says. work with the game(s) published by id The court filing quotes an unnamed Oculus Software,” Venglarik said in an email. representative as saying Carmack “was an “With such a sense of the relative roles of the integral part of the project early on.” players,” he added, “the jury could find it less Generally speaking, the anonymous legal expert credible that ZeniMax and not Oculus developed said, if a company provides lots of details in a the technical solutions which improved the trade secret complaint, it means one or possibly Oculus Rift virtual reality headset. Oculus will two things: also likely point to its other development > © 2014 The Texas Lawbook 2 SERVING BUSINESS LAWYERS IN TEXAS partners and to pre-existing (virtually reality) “There are almost always two or more ways to technology to contest the allegation that accomplish the same thing through source code, ZeniMax was the source of any solutions used.” so a claim for software theft is often a race,” he said. “The plaintiff is racing to the courthouse Is Contract Claim the Best Bet? and the defendant is racing to re-write the ZeniMax’s complaint alleges that the business (infringing) code.” provided its trade secrets to Oculus under a non-disclosure agreement that it entered into Damages: Eye on the $2B Prize with Luckey. Although ZeniMax is suing for ZeniMax is apparently looking to bracket the causes of action that include copyright valuation of Oculus through the $2 billion infringement, trademark infringement and valuation that Facebook gave it, on the one common law misappropriation of trade secrets, hand, and the $2.4 million-plus that Oculus at least one expert thinks that its breach of raised through a previous Kickstarter campaign, contract claim could prove to be its strongest. according to Venglarik. “If ZeniMax can show that Luckey violated However, Oculus does not yet have a product the terms of the non-disclosure agreement ready for market, but instead is currently only by disclosing confidential information, taking pre-orders, and only for a development then ZeniMax can recover damages and kit, he noted. attorneys’ fees,” says “Much work remains to bring the product to Adam Sanderson, a market, hurting any claim that ZeniMax should Dallas-based partner at be entitled to a major portion of the Facebook Reese Gordon Marketos. purchase valuation,” Venglarik said. “Under the circumstances, it is not especially clear Meanwhile, gamers are already debating the that ZeniMax could relative merits – especially in position tracking recover its attorneys fees – of the Oculus Rift versus Sony’s Project under its other claims. Morpheus for the PlayStation 4, he said. Adam Sanderson Establishing breach of a Just within the past week, Samsung announced non-disclosure agreement is often easier to do that selected developers are testing its virtual than proving copyright infringement or trade reality headset prototype. secret misappropriation.” “These factors suggest that the ranges of damages For instance, Sanderson, a former programmer, valuations by investment analysts are more likely notes that “it is highly likely that Oculus is busy to be in the tens of millions or even millions than re-writing the source code for the Rift. in the hundreds of millions,” Venglarik said. Please visit www.texaslawbook.net for more articles on business law in Texas. © 2014 The Texas Lawbook 3.