Palmer Luckey, who ultimately developed the much-hyped Oculus Rift, entered into an agreement with a company called “Total Recall”. Although it was not crystal clear, the agreement was technically with Thomas Seidl, one of the partners of Total Recall. The agreement required Luckey to develop a prototype based on feedback from Seidl.
The parties corresponded via email, and Seidl asked for confirmation from Luckey regarding exclusivity:
[j]ust so we are on the same page. With the initial payment . . . I would like excusive 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.
Luckey responds affirmatively:
[y]es we are on the same page here . . . I am sure we can put together a contract of some sort to finalize it all.
Seidl transferred $798 via PayPal. [Ouch. That Seidl made less than a thousand dollar payment for what turned into a much bigger problem for Luckey is a bummer. Perhaps it will be a minor blip on his radar screen in light of Oculus’s success, but still.]
A few months later, the parties entered into a “Nondisclosure, exclusivity and payments agreement”. It was between Seidl and Luckey and aimed at protecting confidential information, which it broadly defined as “all information or material that has or could have commercial value or other utility in the business in which Disclosing Party is engaged.” It had the standard carveouts from the definition of confidential information. It also included a non-disclosure and exclusivity provision:
The Receiving party shall keep all details including drawings and part suppliers of the Head Mounted Display [a term not defined anywhere in the agreement] confidential and shall not aid any other person or entity in the design of a Head Mounted Display other than the disclosing party. Unless within a twelve month period from 1st july 2011 the receiving party has not received a minimum payment in royalties of 10,000 US dollars by the disclosing party. The exclusivity shall remain in place for a period of 10 years providing a minimum of 10,000 US dollars is paid from the disclosing party to the receiving party per annum.
Luckey developed a prototype and modified the prototype based on feedback from Seidl. Luckey never returned the modified prototype (Seidl does not allege asking for its return). Luckey went on to form Oculus, LLC, and develop Rift, which became a blockbuster on Kickstarter and was ultimately sold to Facebook for 8 figures.
Total Recall asserted a range of contract and tort claims. (The Total Recall partners appear to be involved in some internal dispute regarding their pursuit of this lawsuit, including separate litigation in Hawaii, but the court’s order did not focus on that.)
Case Citation: Total Recall Techs v. Palmer Luckey and Oculus, 2016 WL 199796 (N.D. Cal. Jan. 16, 2016)
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