Oculus co-founder Palmer Luckey is currently being sued by Hawaii-based Total Recall Technologies for allegedly breaking a nondisclosure agreement and violating their intellectual property rights. Since the story broke there has been a lot of confusion and hearsay floating around about the case, but here are all of the relevant facts you’ll need to understand this ongoing bout of legal ju-jitsu.
A Basic Contract
According to court documents, Total Recall was formed in 2010 by Thomas Seidl and Ron Igra to create a VR headset. This headset would ideally have four qualities: immersive stereoscopic 3D rendering, an ultra wide field-of-view that kept users from seeing the edges of the screen, head tracking with low latency, and a price point that would be attractive to a consumer mass-market.
Read More: Amended Complaint By Totall Recall and Signed 2011 Agreement (PDF)
In December 2010 Seidl says he reached out to the then-unknown Palmer Luckey about contracting for their project. According to the court documents, Luckey allegedly expressed interest and the two began to work out the details. Before the first payment was sent, Seidl says he sent an email that would later become a crucial piece of evidence in this future case.
“Just so we are on the same page. With the initial payment to you I would like exclusive rights to your design unless we decide not to use it. I need to cover myself if we pay for development and then end up paying for a competitor,” Seidl wrote, according to the court document.
Luckey allegedly wrote back agreeing to this condition and an initial payment of $798 was sent via PayPal to Luckey to cover the expense of parts purchased for the prototype.
In 2011 Luckey is said to have officially signed a nondisclosure agreement with Total Recall. Most of this agreement is standard and boilerplate but one paragraph stands out as having particular importance for the charges being made against Luckey:
The Bad Blood Begins
In August of 2011 Luckey shipped his first prototype to Seidl who returned it with notes for improvement, according to the documents. Luckey is said to have never returned that prototype, however, and between April and June of 2012 he began the process of launching his own consumer HMD that we now know as the Oculus Rift. Luckey’s Oculus initially raised millions on Kickstarter before being purchased outright by Facebook for $2 billion in 2014. Total Recall was never able to launch its own product.
Total Recall filed suit in May of 2015, accusing Luckey of breach of contract, breach of an implied covenant of good faith, constructive fraud, common law unfair competition, and violation of the Unfair Competition Law.
The Battle Part 1: The Contract
Luckey and Oculus have not simply taken these charges on the chin. Their defense hinges on two things: the language of the NDA signed in 2011 and the California Uniform Trade Secrets Act.
Luckey’s team motioned that the suit be dismissed in September 2015 but United States District Judge William Aslup has ruled that only parts of the case will be thrown out.
Here is where each of the contract charges currently stands:
Company Standing (Ongoing): Oculus argues that Total Recall was never named as a party of potential benefit in the NDA and therefore the company has no right to litigate on its behalf. Total Recall conceded this fact, but believes they were an “undisclosed principal” of which Seidl was an acting agent. This would restore the company’s license to sue on Seidl’s behalf. The court believes that Total Recall could be considered this undisclosed principal, but Oculus is still arguing that the contract charges be dismissed under a separate California rule.
Breach of contract (Ongoing): In the above picture from the contract, there is a line detailing that the NDA will not be effective unless Luckey received $10,000 by July 1, 2012. Luckey claims that this never happened and thus his entire NDA should be rendered void along with all of TR’s contract complaints. TR argues that they did not pay Luckey because of his perceived breach of contract by beginning to publicize the Rift in April of the payment year.
Luckey’s team is arguing that this payment failure is “fatal” for TR’s entire case. However, the court has resolved the ambiguity in TR’s favor stating that, “…While it seems clear that zero payment was ever made, the idea that Luckey frustrated such payment and thus excused it is plausible (if barely so)…”
In a final plea for this issue, Luckey argued that the term “Head Mounted Display” in his contract only applied to the single prototype he was building for TR and not to all similar devices. Once again, however, the court sided with TR.
To be clear, these decisions are merely rejections to Luckey’s request for the case to be dismissed on these grounds.
Implied Covenant of Good Faith (Dismissed): TR’s complaint here is that Luckey broke the good faith by “falsely promising” to deliver on this prototype. Essentially they’re claiming he never intended to help TR build a headset at all.
Luckey has argued that such a claim can not be sufficiently proven by TR and this portion of the complaints against him has been officially DISMISSED by the court.
Constructive Fraud (Dismissed): This claim also doubles-down on the accusation that Luckey never intended to fulfill his contract and took the job just to further his own VR goals.
Once again, this claim held insufficient proof and has also been DISMISSED by the court.
Actual Fraud (Dismissed): After the above complaint was dismissed TR moved to amend their grievances to include a more robust fraud charge against Luckey. For proof, the company submitted a single conversation between Seidl and Luckey.
TR alleges that Luckey had already formed his plans to start a competing company, and had already begun discussions with John Carmack (more on him later) to achieve those goals. They claim that he coerced Seidl to give permission to open-source the prototype with the ulterior motive of advancing his own company.
Luckey’s actions here are protected under the California Uniform Trade Secrets Act (more on that later as well). This charge has been DISMISSED by the court.
Unfair Competition (Dismissed): The last two claims brought by TR fall into the category of unfair competition. Their first complaint of common law unfair competition would need proof that Luckey has passed off TR goods as his own. This charge has been DISMISSED by the court.
The final charge is that Luckey violated the Unfair Competition Law by claiming that the Rift began at Oculus and not at TR. This claim is superseded by CUTSA as well and has therefore been DISMISSED by the court.
The Battle Part 2: CUTSA and Carmack
The final two pieces of Luckey’s fight with TR center around CUTSA and game developer John Carmack. Let’s take care of the big one first.
CUTSA: The California Uniform Trade Secrets Act has granted Luckey certain protections in this case and forced TR to play things very strategically. The act essentially provides protection for the use of contractually obtained information that is not specifically designated a trade secret.
This act has nullified many of TR’s claims against Luckey and protects his usage of elements from the prototype he made for the company in his eventual Rift designs. In his ruling, William Aslup, took special care to express his dissatisfaction with this law but enforced it dutifully nonetheless.
John Carmack: Carmack has become a huge part of Oculus as a company and his relationship with Luckey began in the very early days of the Rift’s development. Carmack’s connection to the case is that his involvement with an early HMD prototype from Luckey is being used as proof to show that Luckey broke certain provisions of the 2011 NDA that stated he would not discuss his HMD prototypes with anyone.
Here is the part of the complaint that details the situation:
And here is the actual Tweet:
Conclusion: TL;DR
Essentially Palmer Luckey was hired – but never fully paid – by a company called Total Recall Technologies to build them a prototype VR headset. He signed an NDA in 2011, but then in 2012 stopped working for them and began launching Oculus.
Total Recall is suing Luckey and Oculus for breach of contract, fraud, and a few other complaints. Luckey’s team motioned that the case be thrown out, but that motion was only partially accepted by the judge. As of now Luckey still has to defend himself on the potential breach of contract, but all other complaints have been dismissed.
We will bring you further updates in this case as they develop.
