Focus on wearable tech

The enemy within Exploring the ongoing Oculus legal actions, Richard S Eisert, Marc J Rachman and Josh J Gordon explain that companies developing or acquiring new tech must take precautions to limit lawsuit perils

he ongoing, expanding litigation • An April suit by Carmack against his former The plaintiffs also asserted that: involving Zenimax Media and id employer Zenimax for withholding $22.5m • Facebook had tortiously interfered with the Software on the one hand, and on payment tied to the earlier acquisition of NDA and that Oculus and Facebook had Oculus VR, owned by Facebook, id Software by Zenimax. engaged in unfair competition with respect on the other hand, over technology to their contracts, trademarks, copyrights, Tcritical to the development of the Oculus The primary VR litigation and/or trade secrets. virtual reality (VR) headset, is a costly example As plaintiffs in the VR case, Zenimax and • Carmack had “converted” their property by of the numerous litigation risks faced by any id Software sued Oculus for approximately copying files to a USB storage device and development or production company in the $3bn in total. The plaintiffs also sued Oculus’ taking them with him. virtual reality or other emerging technology founder (Palmer Luckey), chief technology • Oculus, Luckey, and Iribe had infringed their space. officer (Carmack, who previously worked for trademarks, including the names of popular The seemingly endless saga now involves Zenimax), and former chief executive officer video games “DOOM” and “SKYRIM”. at least three separate actions: (Brendan Iribe) individually. • The recent appeal of a February decision by a The allegations included claims that The plaintiffs sought $2bn in damages, a federal jury in Dallas, Texas, to award $500m defendants had misappropriated VR-related royalty, and billions more in punitive damages. to the plaintiffs Zenimax and id Software trade secrets (including developments against Oculus and two of Oculus’ founders, central to the creation of a state-of-the-art The jury verdict Palmer Luckey and John Carmack in a case VR experience such as distortion correction After a three-week trial, the jury rejected a involving VR technology – despite the jury’s technology, chromatic aberration correction number of the plaintiffs’ claims, including their conclusion that the defendants had not method, gravity orientation and sensor drift claim for misappropriation of trade secrets – misappropriated any of the plaintiffs’ trade correction technology, and time warping which was the main emphasis of their case. secrets. methodology), had infringed the copyrights in Nevertheless, the jury decided that Oculus • A new filing by Zenimax seeking a permanent some key computer code, and that defendants (but not any of the other defendants) had injunction against Oculus to halt their sale (Luckey and Oculus) had violated a binding directly infringed the plaintiffs’ copyrights and or use of any product containing infringed non-disclosure agreement (NDA) they had that Oculus had breached the NDA. The jury materials. with the plaintiffs. awarded damages of $50m and $200m for

34 Intellectual Property Magazine June 2017 www.intellectualpropertymagazine.com

Focus on wearable tech

those respective claims. monetising their main product. to assess their risk profile. And the numerous The jury also agreed with the plaintiffs that In a situation such as this, where a number lawsuits filed even after the initial jury verdict Carmack converted their property, that Oculus of hardware manufacturers are all striving to should serve as a reminder that litigation has and Iribe infringed ZeniMax’s trademarks, and create similar technology at once and have a tendency to expand, not shrink, when the held Oculus, Luckey, and Iribe liable for “false employees that have moved between the stakes are at their highest. designation” of the origin of their trademarks. companies, there is increased risk that one Finally, this case illustrates the care that Although the jury did not award damages on party will, either accidentally or purposefully, must be taken when hiring a former employee the trademark infringement and conversion infringe on another’s intellectual property of a competitor who is bound by an NDA. claims, the jury found that Oculus should pay or other rights. Therefore, it is imperative The jury found Oculus must pay $200m for its $50m, Luckey should pay $50m, and Iribe that all companies do proper diligence on failure to comply with the NDA initially signed should pay $150m for false designation. the intellectual property that they want to between Zenimax and Luckey, the obligations Oculus, Iribe, Carmack and Luckey have create or acquire, and any related contractual of which Oculus took on, according to the jointly appealed the entire verdict.They claim restrictions, including NDAs and restrictive jury award, by manifesting its acceptance of that there was not sufficient evidence to covenants. the NDA when Luckey began working for prove the copyright infringement or false Oculus. When hiring from a competitor, be designation of origin claims, and that the wary of more than just intellectual property breach of contract claims related to the NDAs risks; your company may face exposure from were barred by the statute of limitations. related contractual rights and other potential “Preparing and wrongdoing. Perhaps paradoxically, the very The injunction and going to trial, the reason a former employee of a competitor Carmack’s suit is valuable – that is, his or her proprietary While each side continues to file motions amount of executive knowledge – is the same reason the legal risk related to the award of money damages, time involved in is elevated. Zenimax has simultaneously taken the perhaps more significant step of seeking an injunction a lawsuit and the The bottom line against Oculus. The company requests that Companies developing – or seeking to acquire Oculus be “permanently enjoined, on a accompanying – new technology must take every precaution worldwide basis, from using, marketing, publicity all to limit their risks before litigation is on the selling, distributing, modifying, servicing, horizon. The full extent and scope of those copying, or offering for sale or license any weigh heavily risks is often not clear without careful analysis. products, in whole or in part, that utilise on defendants.” The most critical step is ensuring that in any form or for any purpose any of the the company is not at risk of an injunction copyrighted materials, including but not prohibiting the sale of any product containing limited to (i) system software for Oculus PC…; vital intellectual property – and that is only (ii) system software for Oculus Mobile” and the first hurdle. Working with counsel every software required to integrate Oculus with As related to money damages, the $500m step of the way can help to uncover potential multiple graphical interfaces. If granted, this total jury award fell short of the billions of liabilities and limit exposure. injunction would likely prohibit Oculus from dollars the plaintiffs sought to recover but it is, selling its VR headset as currently created and of course, still a significant amount of damages Authors manufactured. for most defendants to have to pay. It is also And, seemingly in direct response to the important to keep in mind that a damages jury verdict against him, Carmack has filed suit award in these circumstances is only part of alleging that Zenimax owes him $22.5m in the cost of litigation. Preparing and going to unpaid income related to Zenimax’s previous trial, the amount of executive time involved acquisition of id Software. in a lawsuit of this nature (Facebook’s chief executive officer, Mark Zuckerberg, testified in Lessons person in court for several hours in the Oculus For companies newly involved in VR or in other case), and the accompanying publicity all Richard S Eisert emerging technologies, or seeking to expand weigh heavily on defendants. (top left) is co-chair their business in these areas, the Oculus Secondly, the risk of litigation in the VR of the advertising, actions have a number of important lessons. space is real. There is a great deal of money marketing & First, the most important point: an involved and entrepreneurs, inventors, and promotions practice injunction granted against a VR company (or business people will seek to protect their group and a partner any other company in emerging technologies) inventions and investments by going to court, in the IP practice group of Davis & prohibiting the use of infringing intellectual if they deem that necessary. In an emerging Gilbert. property that is central to a main product is market with a potentially significant first-mover an existential threat. It is critical that founders advantage, litigation is one tool for getting, Marc J Rachman (top right) is a partner in the litigation and IP practice groups of and executives are confident that the base and staying, out in front of the competition. Davis & Gilbert. of their critical technology is non-infringing, Thus, as developers and other businesses of Josh J Gordon (bottom left) is an associate since most companies in VR or other emerging all kinds seek to capitalise on the growing in the advertising, marketing & promotions technologies would not be able to recover VR market, they need to carefully analyse the and IP practice groups of Davis & Gilbert. from a court order that they must cease positions and motivations of their competitors

www.intellectualpropertymagazine.com June 2017 Intellectual Property Magazine 35