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Is Facebook / Oculus VR Deal in Jeopardy over Intellectual Property?

Recently, Facebook announced an agreement to purchase virtual reality (VR) startup Oculus VR for $2 billion. In less than two years, the Oculus VR headset had gone from founder Palmer Luckey’s prototype to Kickstarter darling to being purchased by Facebook. How does a company that’s less than two years old, with less than one hundred employees and no retail consumer product garner $2 billion from Facebook? Intellectual Property/Intangible Assets. Like many other tech companies, the majority of Oculus’s market value is dependent on their intellectual property vs. tangible assets.

Now the company’s intellectual property is under fire. ZeniMax, maker of video games, has sent two letters, one to Oculus and one to Facebook, claiming that former employee, John Carmack, improperly passed on intellectual property from ZeniMax to Oculus. Both Oculus and Mr. Carmack have denied the claim. In the letter, ZeniMax does not specify what intellectual property was taken but the technology is speculated to be software that Mr. Carmack developed for the Oculus headset.

Software, as an intellectual property, falls into copyright status as an original work in a tangible medium of expression. Further, many software developers have taken their code to patent protection, especially when it is directly applied to an apparatus. Earlier this year Oculus was issued a design patent on its VR headset, which includes material subject to copyright protection.

The developed software becomes a question of employer/employee ownership and the legal application of works made for hire. In works made for hire the employer, whom the work was made for, retains ownership of the works. The question becomes, did Mr. Carmack derive virtual reality intellectual property used to develop the software for Oculus while at ZeniMax? If the software development used was in the scope of Mr. Carmack’s duties at ZeniMax, then ZeniMax may have a claim to ownership.

The intellectual property dispute from ZeniMax certainly should get Facebook’s attention with the $2 billion deal not yet finalized. If ZeniMax moves towards litigation, Facebook will need to weigh the likelihood of them winning the case and the consequences if they do. If ZeniMax were able to claim ownership of part, or all, of Oculus’s software intellectual property, it would greatly reduce the value of Oculus.

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