ZeniMax sues Oculus VR for misappropriation of trade secrets

ZeniMax Media filed suit against Oculus VR today, accusing the virtual reality headset manufacturer and its founder, Palmer Luckey, of misappropriating trade secrets.  

The Oculus Rift is being constructed on trade secrets that Oculus VR's founder and half a dozen of ZeniMax's former employees now working at Oculus improperly possess, ZeniMax alleges. The company also argues that Oculus is wrongfully benefiting from years and millions of dollars worth of ZeniMax research and, rather than agree to a business arrangement in which ZeniMax would receive 2 percent equity stake in the company, Oculus began poaching its employees.

"The lawsuit filed by ZeniMax has no merit whatsoever," a representative from Oculus told Polygon today. "As we have previously said, ZeniMax did not contribute to any Oculus technology. Oculus will defend these claims vigorously."

According to a copy of the filing obtained by Polygon, which you can view below, ZeniMax claims that Oculus has "wrongfully taken ... ZeniMax['s] intellectual property and commercially exploited it for their own gain." ZeniMax includes copyrighted computer code, trade secrets, and "technical know-how" relating to VR technology as part of that intellectual property. The company field suit today, according to a press release, because "efforts by ZeniMax to resolve this matter amicably have been unsuccessful."

In the suit, ZeniMax officials say that the company has for many years invested "tens of millions of dollars" in research and development into, among other things, virtual reality and immersive technologies. Carmack, according to the suit, also conducted research to address technological issues associated with virtual reality.

In April 2012, according to the suit, Carmack befriended Palmer Luckey, then a college-aged video game enthusiast, who had created a "primitive virtual reality headset" that he called Rift. At the time, according to the suit, the device was a crude prototype that lacked a head mount, virtual reality software, integrated motion sensors and other "critical features." Carmack and other ZeniMax personnel added improvements to the device with new physical hardware components and special software. The headset was also modified to work with Doom 3: BFG Edition. Those efforts by ZeniMax employees, according to the suit, "represented an enormous technical advance in the development of virtual reality entertainment."

ZeniMax then showed off this new iteration of the headset to Luckey under a non-disclosure agreement.

The suit points out that the new tech was shown off at E3 in 2012 by ZeniMax employees who also arranged those demonstrations with industry and traditional media outlets. Based on this attention and the work of Carmack, according to the suit, the headset received a lot of acclaim and attention.

Following E3, Luckey formed his company and used ZeniMax's hardware and software tech to create software development kits for the rift, according to the suit. In the months following E3, Oculus and Luckey sought expertise and know-how from ZeniMax. "Without it, there would have not been a viable Rift product," the suit reads. During that time, ZeniMax alleges, Luckey asked ZeniMax to help promote and endorse the Oculus Rift headset, which was successfully funded through Kickstarter on Sept. 1, 2012.

On July 26, 2012, ZeniMax says Luckey asked again for assistance with its Kickstarter pitch video. "At about the same time," the suit says, Carmack advised Luckey that it was "very important that you NOT use anything that could be construed as ZeniMax property in the promotion of your product." In what ZeniMax describes as "a blatant disregard of ZeniMax's rights," Oculus VR's Kickstarter campaign used ZeniMax's intellectual property, Doom 3: BFG Edition, in its pitch video.

In July 2012, according to the filed complaint, Luckey asked ZeniMax to provide information about the hardware that the company says it helped select for the Oculus Rift. That information included directions on how to install custom firmware and a request to provide the "customized binary code" for tracking sensors that Carmack provided. ZeniMax gave these at Luckey's request, the complaint says.

Discussions about how Oculus would compensate ZeniMax for the work done through the company kicked off right after E3 and continued through the winter of 2012, according to the suit. As the company started hiring on new talent and seeking funding, Oculus became "increasingly evasive and uncooperative in discussions with ZeniMax regarding appropriate compensation for its technology and support." No resolution was ever reached.

ZeniMax also maintains that, in a series of correspondences in June and July 2012, Luckey ignored "ZeniMax's request for compensation for ZeniMax's VR Technology" and a proposed phone call that would "discuss how headset development should proceed moving forward."

According to the complaint, ZeniMax also believes that Oculus VR's software development kit for the Oculus VR is a result of ZemiMax's support. "ZeniMax designed the specifications and functionality embodied in the Rift SDK, and directed its development," it reads.

Also at issue is Carmack's employment agreement with ZeniMax. According to the lawsuit, Carmack agreed to disclose to ZeniMax inventions relating to the company's current or anticipated research and development created during his time of employment. Carmack also agreed that ZeniMax would be the "author and owner" of any copyrightable works prepared within the scope of his employment.

After Oculus VR's "refusal to enter into serious negotiation with ZeniMax," ZeniMax directed Carmack to stop providing "proprietary information or other technological assistance" to the company until an arrangement could be made. Rather than do so, ZeniMax argues, Oculus began recruiting ZeniMax employees like Carmack, who joined Oculus as its Chief Technology Officer last year. In February 2014, five more "senior employees" of ZeniMax resigned simultaneously and joined Oculus. ZeniMax alleges that those employees all had access to the kinds of confidential information and trade secrets that Oculus now, according to the complaint, improperly possesses.

The suit also traces through ZeniMax's history with virtual reality experimentation, which started, according to the filing, back in the 1990s. ZeniMax developed prototype software for its major video game franchises, including The Elder Scrolls, designed to optimize the game in a VR display device, according to the suit. And in 2011, ZeniMax even experimented with off-the-shelf headsets.

ZeniMax's complaint ends by alleging several counts of misconduct, including:

• Common law misappropriation of trade secrets, which encompasses both the use of those secrets and Oculus' hiring of ZeniMax employees
• Copyright infringement against all defendants, pertaining to Oculus VR's use of Doom 3: BFG Edition without permission
• Breach of contract against all defendants, encompassing Luckey's use and disclosure of proprietary information under a nondisclosure agreement (NDA)
• Unfair competition against Oculus, because Oculus VR breached the terms of the NDA, took ZeniMax's intellectually property and used it for its own gain without obtaining a license to use the technology or information, thereby depriving ZeniMax of the opportunity to realize gains from its technology
• Unjust enrichment against all defendants, who "refuse to compensate ZeniMax" for its contributions and also gained access to confidential information by hiring ZeniMax employees
• Trademark infringement, for Oculus VR's use of trademarked materials, including Doom, Rage and Skyrim
• False designation against all defendants, because Oculus VR's products are "likely" to imply the mistaken belief that they come from or are authorized by ZeniMax

"Intellectual property forms the foundation of our business," said Robert Altman, Chairman & CEO of ZeniMax. "We cannot ignore the unlawful exploitation of intellectual property that we develop and own, nor will we allow misappropriation and infringement to go unaddressed."

In early May, ZeniMax accused several people, including its former employee, id Software co-founder John Carmack, who joined Oculus VR as its Chief Technology Officer last year, of improperly providing "key technology" to Oculus VR. Oculus responded the following week, telling Polygon that the company was "disappointed but not surprised by Zenimax’s actions and we will prove that all of its claims are false."

"Oculus uses zero lines of code that I wrote while under contract to Zenimax," Carmack wrote on Twitter after ZeniMax's accusations became public.

ZeniMax Media and id Software v. Oculus VR and Palmer Luckey by Polygondotcom