Judge Halves $500M Jury Verdict in Virtual-Reality Spat

DALLAS (CN) – A federal judge halved a $500 million jury verdict against Facebook-owned subsidiary Oculus VR on Wednesday, concluding there is no proof of actual damages for false designation of origin regarding its Rift virtual reality headset.

A Dallas federal jury awarded Rockville, Maryland-based software developer ZeniMax $500 million last year, concluding Oculus founder Palmer Luckey breached a nondisclosure agreement and that the company infringed on copyrights. ZeniMax sued in May 2013, two months after Oculus was purchased by Facebook for $2 billion. It claimed the defendants misappropriated trade secrets, that Lucky relied on the help of employees at ZeniMax’ subsidiary id Software during Rift’s development.

U.S. District Judge Ed Kinkeade in Dallas allowed the jury’s award of $200 million for breach of contract and $50 million for copyright infringement to stand, according to a three-page final judgment.

The trial featured Facebook CEO Mark Zuckerberg’s first-ever testimony in a courtroom. He testified Oculus’ purchase price was closer to $3 billion due to more payments to keep workers and that the owners valued the company at $4 billion.

Luckey endured harsh criticism during his testimony, hit with suggestions that he was just a hobbyist tinkering in his garage who lacked the know-how to develop Rift alone. He testified that when he demonstrated Rift to investors in 2014, he executed the plaintiff’s code through the headset but did not take the source code itself.

ZeniMax originally asked the jury for $4 billion in damages at trial. Three weeks after the jury verdict, it asked for a doubling of the $500 million awarded.

In wiping out the $250 million award for false designation of origin, Kinkeade concluded ZeniMax failed to prove a proximate cause of injury and the amount of damages suffered. He was not persuaded by plaintiff arguments that Oculus’ purchase price was legally sufficient proof of damages.

“Facebook did not purchase Oculus until 2014, almost two years after defendants used their promotional items containing plaintiffs’ marks without authorization,” the 15-page opinion states. “There is simply no evidence connecting the unauthorized use of plaintiffs’ mark(s) in the Kickstarter [crowd-funding] video and investor materials to the more than $2 billion paid by Facebook for Oculus. The court concludes the purchase price, or even a portion of it, is not proof plaintiffs suffered damages from defendants’ act of false designation.”

Kinkeade said even if there was evidence of actual damages, ZeniMax failed to establish proximate causation between the infringement and damages. He found no evidence indicating the false designation “caused Facebook to believe plaintiffs were somehow associated with the defendants and this led Facebook to purchase Oculus.”

In a separate order, Kinkeade rejected ZeniMax’s request for a permanent injunction banning Oculus from selling products subject to its breach of contract and copyright infringement claims. He concluded the jury’s verdict “actually supports” the argument that the breach has ended.

“The jury was specially asked to determine the monetary amount, if any, to fairly compensate plaintiffs for damages they might sustain in the future from Oculus’ breach,” the 15-page order states. “The jury answered $0, essentially finding that whatever damage or injury plaintiffs incurred from the breach was the result of the initial breach. This supports the court’s conclusion that plaintiffs failed to establish there is irreparable injury bring caused by a continuing or ongoing breach.”

Facebook vice president and deputy general counsel Paul Grewal said the company will appeal the remaining claims but that the ruling is a “positive step towards fair resolution” of the lawsuit.

“We’ve said from day one the ZeniMax case is deeply flawed, and today the court agreed,” he said in a statement. “Our commitment to Oculus is unwavering and we will continue to invest in building the future of VR.”

ZeniMax expressed disappointment that the $500 million was halved and said it is weighing its next steps.

“Based on strong a strong evidentiary record, the jury in this case found ZeniMax was seriously harmed by the defendants’ theft of ZeniMax’s breakthrough VR technology and its verdict reflects that harm,” the company said in a statement.

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