Author Micah Fincher is an associate in the firm’s Intellectual Property (IP) section within the Business & Commercial Litigation Practice Group. He also writes for Trade Secret Insider, a legal blog committed to providing timely legal insights on trade secrets, non-competes, computer fraud, and data theft. This post was originally published on tradesecretinsider.com.
A couple weeks ago, a company sued a competitor for allegedly stealing its trade secrets and hiring a key former employee, who developed the trade secret technology. But this is no run-of-the-mill trade secrets case. It involves some of the most pioneering figures within the gaming industry.
ZeniMax Media, Inc., owner of id Software, LLC, publisher and maker of popular video games that included The Elder Scrolls series and DOOM, sued Palmer Luckey and a company he founded, Oculus VR, Inc. A maker of virtual reality headsets, Oculus made other news recently after being acquired—for $2 billion—by Facebook, Inc. Now ZeniMax wants its share of Oculus’s payday.
ZeniMax claims that Luckey’s earliest virtual reality prototype, the Rift, was not a “viable” consumer product. Though worn on a user’s head with a display covering both eyes, the Rift allegedly lacked the hardware sensors and advanced software to seamlessly track the users head and neck movements without producing a lagging, disorienting image. It wasn’t a “viable” product until Luckey sent the Rift to John Carmack, co-founder of id Software and then a ZeniMax employee. Carmack made numerous modifications and improvements—creating what ZeniMax calls its trade secrets and know-how. ZeniMax alleges that Luckey and Oculus then stole this trade secret information, used it without permission, and even lured Carmack to leave ZeniMax and join Oculus as its Chief Technology Officer. Then Facebook agreed to buy Oculus for $2 billion in cash and stocks.
Perhaps the most important evidence buttressing ZeniMax’s trade secret claims is a non-disclosure agreement. Luckey agreed not to use ZeniMax’s confidential information without its permission. This agreement allows ZeniMax not only to argue that it took reasonable measures for maintaining the confidentiality of its trade secrets, but also to bring a separate breach of contract claim. While Oculus itself apparently did not expressly agree to the non-disclosure agreement, Luckey, probably the principal beneficiary of Facebook’s buyout, may be personally liable if a jury finds he stole ZeniMax’s trade secrets or broke his promises under the agreement.
We’ll follow up with more when Luckey and Oculus file their answers. But the takeaway from ZeniMax’s complaint is that companies should require third parties to sign confidentiality agreements before sharing confidential and proprietary information. These agreements prohibit using the shared information without company permission—and allow for damages, or even injunctive relief, for contractual breaches. In the long run, this simple precaution can lead to big payoffs.