Virtual Reality, Facebook, and a Costly Non-Disclosure Agreement

In light of a number of recent court decisions in Australia and the United States, companies with computer-implemented inventions are looking at a broader range of options, in addition to the more usual patents and copyright protections, to maintain an advantage in commercialising their valuable technology in intensely competitive and rapidly moving fields. One such option is the rigorous use of non-disclosure agreements (NDA) or confidentiality agreements with potential collaborators and partners.


Often clients question the value of having an NDA in place; the enforceability of such agreements has been met with a certain degree of scepticism in recent years.

For technology company ZeniMax, an NDA has, however, proven to be very valuable indeed.  On  1 February 2017, a Texas Court found that Virtual Reality technology leaders Oculus had, by extension from actions of a company founder, breached an NDA with ZeniMax.  This resulted in an award of half a billion dollars in damages to ZeniMax.  A finding of the NDA being breach proved especially crucial in this instance, noting that claims of trade secret misappropriation were not upheld by the Court.

Virtual Reality technology is shaping up to be a significant game-changer in the coming years.  With that, it’s inevitable that there will be numerous intellectual property battles as the major players fight over the new and emerging consumer market.  This is likely just the tip of the iceberg in terms of the litigation to come.  The defendant in this case, Oculus, has been a frontrunner in the technology space, and the subject of a US$2 billion acquisition by Facebook in 2014.  A number of tech giants have been making grabs for talent, technology, and intellectual property across all aspects of the VR space, and further clashes are anticipated.

This case also provides some interesting insights into the operation of US copyright laws, which are becoming increasingly important in the software space following restrictions on software patent eligibility.  In overview, establishing breach of copyright in software code was based around an Abstraction-Filtration-Comparison Test (“AFC Test”), which is used to assess non-literal elements of a computer program, and determine similarity with copyright-protected computer programs. This involves an approach often considered controversial that makes use of considerable splitting of code into constituent parts for the purposes of assessment; Oculus argue the test was “invalid and unconstitutional” and it is expected that an appeal of the decision will follow.

Particularly in the software field – where development occurs quickly and potential collaborations can even more quickly turn into competitors – this recent case highlights the need for vigilance in: understanding well what your IP is; protecting that IP where possible through registrable rights; and making use of other legal instruments such as NDAs and other agreements to well define your ongoing relationships with reference to your IP.