The Legal Reality of Non-Disclosure Agreements

Thursday, November 21st, 2019

By Mark Zietlow    

            I got a virtual reality headset for Christmas last year with a new Playstation.  It’s awesome.  I can understand why online gaming is huge. I didn’t realize, though, that virtual reality headsets have also been involved in a huge legal battle.

The pioneer in virtual reality is a 26 year old named Palmer Luckey.  He worked on virtual reality technology while employed by ZeniMax.  Mr. Luckey also signed a non-disclosure agreement.  He subsequently left ZeniMax to form another company called Oculus.

At Oculus, Mr. Luckey invented the Oculus Rift Virtual Reality headset.  The Oculus Rift was used to enhance many online games, such as Doom 3.  Because of the enormous Oculus Rift VR potential, Facebook acquired Oculus for $2 Billion.

ZeniMax sued Mr. Luckey and Oculus for violation of the non-disclosure agreement signed by Mr. Luckey while at ZeniMax.  A jury determined that the Oculus Rift VR headset was developed with technology and software owned by ZeniMax.  The jury found that Mr. Luckey violated the non-disclosure agreement and awarded ZeniMax $200 Million.

The non-disclosure agreement stated that ZeniMax’s confidential and proprietary information included “all information and know-how” that related to its “business, technical or financial affairs.”  All of this confidential and proprietary information was owned by ZeniMax, and could only be used for a proper purpose.  For example, it could not be used to compete with or obtain a competitive advantage over ZeniMax.

A non-disclosure agreement is vital for many businesses.  Even though they can be general in nature, like the ZeniMax agreement, non-disclosure agreements can help prevent leaks of confidential and proprietary information.  It may not be airtight, but very few former employees will spend thousands of dollars in attorneys’ fees to test it.

The legal reality was that a non-disclosure agreement pertaining to virtual reality was worth $200 Million, in the case of ZeniMax Media Inc. v. Oculus VR, Inc. (Civil Case No. 3:14-cv-01849-P (Kinkeade, J.).  If you would like to learn more about how non-disclosure agreements can help your business, please contact us.

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