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Did Facebook Buy Problems with Its Oculus Acquisition?

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Fresh lawsuit challenges Oculus VR technology

Facebook (FB), whose 1Q17 earnings report is expected on May 3, is being sued for alleged patent infringement, according to Reuters. TechnoView IP, a technology licensing firm based in Newport Beach, California, has taken Facebook and Oculus, its virtual reality (or VR) subsidiary, to court over alleged theft of VR technology.

In the lawsuit, TechnoView is acting on behalf of VR hardware maker ImmersiON-VRelia, which has offices in the US (SPY) and Spain. It claims that Oculus illegally used a 3D imaging technology owned by ImmersiON-VRelia in its Oculus Rift headset. Facebook acquired Oculus in 2014 for ~$3 billion.

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Taking the business beyond Internet advertising

Through products like Oculus Rift, Facebook (FB) hoped to diversify its revenue streams by growing its nonadvertising revenues. The company generates the bulk of its revenues from displaying ads on its flagship app and other online properties such as Instagram and Messenger. 

However, competition for Internet advertising budgets has intensified as the company faces tough competition from Alphabet’s (GOOGL) Google, Twitter (TWTR), and Snap (SNAP).

Facebook’s nonadvertising revenues in 2016 totaled just $0.75 billion, implying a decline from $0.85 billion in 2015, as illustrated in the chart above.

A $500 million fine

Facebook’s (FB) efforts to diversify its revenue streams and break its overreliance on Internet advertising budgets have run into challenges. Just a few months ago, the company was ordered to pay $500 million to ZeniMax Media after it lost a patent infringement case relating to technology in Oculus Rift hardware.

These cases could cause financial losses for Facebook. They could also shake investor confidence in its ability to grow its nonadvertising business. Increased nonadvertising business could avert a potential growth slowdown due to intense competition for advertising dollars.

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