Wednesday, 15 February 2017 18:02

Oculus Breach of NDA Results in $500m to ZeniMax

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Often clients and attorneys question the value of an extensive NDA, given that its enforceability may be questionable and its cost of enforcement high, as such a case often devolves down to a situation of "he said, she said". However when the stars and the facts align, a properly executed and well defined NDA may prove to be a valuable tool against unauthorized disclosures of confidential information. Case in point, earlier in the month, a jury awarded ZeniMax a $500 million award for copyright infringement, false designation, and breach of a non-disclosure agreement executed between ZeniMax and Oculus co-founder Palmer Luckey. This was less than the $4 billion award ZeniMax originally asked for, but is a substantial judgment against Oculus, especially given that $200 milliion of that award were for the NDA breach alone, where trade secret theft was not found. 

This lawsuit originated in 2014, when ZeniMax accused Oculus of trade secret misappropriation (coincidentally, the same year Facebook bought Oculus). ZeniMax had claimed that id Software co-founder John Carmack provided technology to Oculus before ever being employed by Oculus, while still working at ZeniMax, and even went to say that the Oculus Rift would never have been created without ZeniMax's assistance. Interestingly however, the jury did not find trade secret misappropriation in this case, but provided an award nonetheless on as combination of contractual breach (NDA), copyright infringement, and false designation (rooted in trademark law).

Part of this may be due to indisputable evidence of a contractual obligation between ZeniMax and Palmer Luckey. See NDA at https://archive.org/details/pdfy-CYfP6trvhgVHdd3R.

Part may be due to admission by John Carmack that he took thousands of documents and lines of code from ZeniMax before his departure. “I copied files that I shouldn’t have. I think stealing is an uncharitable way to look at it since I didn’t benefit and Zenimax didn’t lose, but I shouldn’t have done it, and I did,” Carmack said while being questioned by Zenimax’s lawyer. This point undoubtedly aided the finding in "non-literal" copyright infringement .

Regardless, the results of the case are inconsistent with neither side is completely happy, and Oculus / Facebook is poised for appeal, while ZeniMax is posturing for an injunction to halt sales of the Rift.

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Tony Guo

As a specialized technology counsel, Tony supports his clients in the high tech, creative, and online industries. His primary areas of practice include intellectual property protection, Internet law, and startups. Tony is a USPTO registered patent attorney, as well as a licensed lawyer in California and Florida. He comes from a background involving considerable hardware and software development experience, having worked in both development and IT roles in the tech and finance industries.