The virtual reality headset maker that Facebook Inc. bought in 2014 for $2 billion used stolen computer code, a jury said in awarding $500 million to ZeniMax Media Inc. The case was over the Oculus Rift, the device that has put the social media giant at the forefront of the virtual reality boom.
The verdict in Dallas federal court is a rebuke to Facebook Chief Executive Officer Mark Zuckerberg, who isn’t a defendant but who told jurors in his first-ever courtroom testimony that it was important for him to
be there because the claims by
ZeniMax were “false.” An Oculus spokeswoman said the company
ZeniMax claimed it was responsible for key breakthroughs in the development of software and hardware for the headset, only to be betrayed when one of its star employees joined with two other entrepreneurs and purloined ZeniMax’s intellectual property for their own startup, Oculus VR.
Facebook’s acquisition of Oculus gave it a head start against Microsoft Corp., Sony Corp., Alphabet Inc.’s Google and others competing for a piece of the virtual reality market that’s forecast to exceed $84 billion in sales in 2020. Facebook began shipping the ski-goggle-like Rift for $599 in March.
The case centered around the defection of video-game programmer John Carmack from ZeniMax, where he had designed blockbuster games Doom and Quake, to Oculus, where he was named chief technology officer in 2013. He acknowledged in testimony that he took with him e-mail records including computer code related to virtual reality.
While the jury rejected trade-secret theft claims, it ordered Oculus to pay $200 million for violating a non-disclosure agreement, $50 million for copyright infringement and $50 million for improper use of ZeniMax’s trademarks. Jurors also hit Oculus’s co-founders, Brendan Iribe and Palmer Luckey, with $150 million and $50 million in damages, respectively, for the trademark misuse. The jury found that Carmack took property belonging to ZeniMax but didn’t order him to pay damages.
“The heart of this case was ab-
out whether Oculus stole ZeniMax’s trade secrets, and the jury found
decisively in our favor,” Oculus spokeswoman Tera Randall said in a statement. “We’re obviously disappointed by a few other aspects of today’s verdict, but we are undeterred. Oculus products are built with Oculus technology.”
ZeniMax said in a statement that while it regrets having to go to litigate to vindicate its rights, “it was necessary to take a stand against companies that engage in illegal activity in their desire to get control of new, valuable technology.”
ZeniMax’s lawyer, Tony Sammi, argued at trial that Oculus committed a “heist,” covered it up by destroying evidence and made off with “a lot of money” when it was bought out by Facebook. He told the jury Oculus went from “zero to hero” using Carmack’s innovations at ZeniMax to improve on the crude prototype for the Rift designed by Oculus co-founder Palmer Luckey.
“If they could make it, why’d they take it?” Sammi asked the nine-member jury in his closing argument. Zuckerberg testified for five hours during the three-week trial, denying ZeniMax’s allegations and saying it’s common for companies to “come out of the woodwork” and make such claims following an acquisition.
Facebook’s lawyer, Beth Wilkinson, underscored that point in her closing argument, saying ZeniMax ceased all work on virtual reality in early 2013 and didn’t accuse Oculus of wrongdoing until Facebook announced the takeover in March 2014.
“They’re jealous. They’re angry,” Wilkinson told jurors. “They’re embarrassed because they had the opportunity to get in on this.” Zuckerberg had a vision and followed through on it, she said. He “saw what these guys could do in the future and invested.” ZeniMax had sought $2 billion from Facebook and Oculus to compensate for losses and unspecified punitive damages.
Facebook sales top estimates on gains in mobile ad
Facebook Inc.’s fourth-quarter revenue climbed more than forecast, driven by advertisers’ continued push to reach consumers on mobile phones. The world’s largest social-media company said sales jumped 51 percent to $8.81 billion, topping the $8.51 billion average analyst projection. Monthly active users on its main social network increased 17 percent from a year earlier to 1.86 billion people, with 1.23 billion checking daily and 1.74 billion accessing it via their smartphones, Facebook said Wednesday in a statement.
Facebook has solidified its position as No. 2 in the market for mobile advertising, behind Alphabet Inc.’s Google. The Menlo Park, California-based company last year started selling more marketing spots and added e-commerce tools to Instagram, its photo-sharing app that now has more than 600 million users. Facebook also expanded video advertising, drawing ad dollars that might otherwise have gone to television commercials.
“Facebook and Google are the two foundational elements to all digital advertising,” said Brian Wieser, an analyst at Pivotal Research Group. “They’re just so big in terms of how much time people spend on the platform, and no advertisers’ goals need go unmet if they’re using Facebook.”
Mobile advertising made up about 84 percent of total ad revenue in the quarter, Facebook said. Profit excluding some items was $1.41 a share, compared to the $1.31 average analyst estimate, according to data gathered by Bloomberg. Facebook shares rose as much as 3.6 percent in extended trading, following the report. The stock closed at $133.23 in New York.
Facebook’s revenue gains had been expected to slow this year because the company has said it won’t keep increasing the percentage of ads shown in users’ News Feeds. That means it’s leaning on other growing areas, like Instagram, as well as new forms of advertising, such as ads in live video. Meanwhile, the company has said it plans to substantially increase its spending on new data centers and engineers.
“There’s effectively no change in the outlook,” Chief Financial Officer David Wehner said in an interview. “We continue to invest aggressively to grow out the business for the long term.”
Advertisers have expected better service from Facebook as the company becomes more mature. Late last year, Facebook had to correct the methodology for some of the metrics it was reporting to advertisers, which in many cases overstated user engagement. That shook confidence in the effectiveness of Facebook’s ads, though none of the revisions affected advertiser billing.
As Facebook’s influence grows, its users have also started to hold it more accountable for its role in society. Around the US presidential election last year, the company faced an uproar over the use of its social network to spread fake news.
Earlier in 2016, Facebook had to combat claims that it was biased against conservatives.