Oculus VR Sued Over Virtual-Reality Goggle Trade Secrets

(Bloomberg) -- Oculus VR Inc., the maker of virtual-reality goggles that Facebook Inc. is acquiring for $2 billion, was accused by ZeniMax Media Inc. of misappropriating intellectual property it claims is worth billions of dollars.

Oculus wrongfully took copyrighted computer code, trade secrets and technical know-how and exploited it, according to a complaint filed yesterday by ZeniMax, a video-game maker, in federal court in Dallas.

With the Oculus acquisition, Facebook is pushing into wearable hardware for the first time. The world’s largest social network is making a bet that virtual reality will be the next mainstream method of communication, after mobile phones. Facebook plans to help Oculus make its Rift virtual reality product mainstream, with capital to hire more engineers and build out a supply chain.

Oculus was founded by Palmer Luckey, an entrepreneur and self-described hardware geek, and has raised more than $91 million.

“The lawsuit filed by ZeniMax has no merit whatsoever,” Oculus said in an e-mailed statement. “As we have previously said, ZeniMax did not contribute to any Oculus technology. Oculus will defend these claims vigorously.”

‘Primitive’ Headset

ZeniMax traces the roots of the dispute back to 2012, when John Carmack, who was then one of its employees, began corresponding with Luckey. Luckey was working on a “primitive virtual reality headset” that he called the Rift, which ZeniMax claims to have transformed by adding physical hardware and specialized software, according to the complaint.

ZeniMax disclosed its proprietary improvements after entering into a confidentiality agreement with Luckey, and Carmack demonstrated the technology at the Electronic Entertainment Expo convention in Los Angeles in June 2012, according to the complaint. Days after the convention, Luckey formed Oculus, and the two companies discussed how it would compensate ZeniMax, until Oculus grew “evasive and uncooperative,” ZeniMax said.

Instead of working with ZeniMax, Oculus and Luckey recruited the company’s employees, including Carmack, to gain virtual reality know-how, according to the complaint. Oculus, based in Irvine, California, said in August that Carmack would be the company’s chief technology officer.

‘Enormous Value’

Facebook’s March announcement that it would acquire Oculus for $2 billion confirmed “the enormous value of the intellectual property that ZeniMax had created, and that the defendants had taken,” according to ZeniMax.

ZeniMax seeks unspecified damages based on claims including trade-secret misappropriation, copyright and trademark infringement, breach of contract and unfair competition, according to the complaint.

Oculus, run by Chief Executive Officer Brendan Iribe, has funding from a $75 million round led by Andreessen Horowitz in December and $2.5 million of preorders from a campaign on crowdfunding website Kickstarter in 2012. Bloomberg LP, the parent of Bloomberg News, is an investor in Andreessen Horowitz, a venture capital firm based in Menlo Park, California.

ZeniMax, based in Rockville, Maryland, was founded in 1999 by Robert A. Altman, a former lawyer. The company’s games, including “The Elder Scrolls,” are primarily played on interactive consoles like Microsoft’s Xbox 360 and on computers and wireless devices.

Providence Equity Partners led a $300 million investment in ZeniMax in 2007, followed by a $150 million round in 2010. Other investors include Leslie Moonves, producer Jerry Bruckheimer and Harry Sloan, the former chairman of Metro-Goldwyn-Mayer Inc.

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

(Corrects to remove inaccurate job history of Robert Altman in 12th paragraph of story originally published May 21, 2014.)

To contact the reporters on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net, Sarah Frier in San Francisco at sfrier1@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net, Jillian Ward at jward56@bloomberg.net.