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By Tony Dutra
Jan. 22 — Preemption by California's trade secret law has stopped all but a breach of contract charge made by Total Recall Technologies against Palmer Luckey and his now Facebook-owned company Oculus VR LLC, a federal court ruled on Jan. 16.
In this battle over a highly anticipated virtual reality headset called the Oculus Rift, Total Recall's potential payday may be limited unless it can include Oculus as a defendant.
Judge William Alsup of the U.S. District Court for the Northern District of California gave Total Recall the opportunity to submit a second, amended complaint no later than Jan. 30. But he hinted that might be difficult, saying, “By strategy, Total Recall has studiously avoided assertion of any trade secret claims.”
Stephen Chow of Burns & Levinson, Boston, noted to Bloomberg BNA that Total Recall has acknowledged its difficulty identifying Luckey's “misappropriation” of specific “trade secrets” that meet the definitions of those terms under the California Uniform Trade Secret Act.
Alsup, in fact, bemoaned that he had to rule by applying what Chow called “the broad precedential sweep of CUTSA preemption,” since it supersedes even claims—as in Total Recall's charges—related to non-trade secret information.
The dispute is reminiscent of the movie Social Network's recounting of the Winklevoss twins' case claiming Mark Zuckerberg stole their idea that ended up being Facebook.
However, this is not quite a case of life imitating art that imitated life. The twins' 2004 complaint included a claim of misappropriation of trade secrets, and it was filed in a state, Massachusetts, that doesn't have a UTSA implementation to consider, Chow noted.
Total Recall—a general partnership of Thomas Seidl and Ron Igra—contracted Luckey to prototype a virtual reality headset in 2010. Luckey ultimately founded Oculus VR to sell such a product, raised $100 million through Kickstarter and sold it to Facebook for $2 billion.
Igra and Total Recall sued Luckey and Oculus; Igra has a separate lawsuit against Seidl in their home state of Hawaii regarding Seidl's failure to give his consent to proceed against Luckey.
The Aug. 31 amended complaint asserted contract breach claims against Luckey alone. The remaining claims against both Luckey and Oculus are for conversion, constructive fraud and unfair competition.
Luckey and Oculus moved to dismiss.
Alsup first allowed Total Recall to proceed without Seidl. The agreement for a prototype was actually between Seidl and Luckey, but the court ruled that the agreement was intended to benefit Total Recall.
The court then held that Total Recall adequately pled Luckey's breach of the exclusivity and nondisclosure obligations listed in agreement, though ambiguous terms in those provisions may ultimately be interpreted, after discovery, in Luckey's favor.
Alsup further ruled that Total Recall's claims that included Oculus as a defendant were superseded by the CUTSA, or would be superseded if adequately pled.
For example, conversion of intangible confidential information would have been superseded by CUTSA, but Total Recall's conversion charge related to the prototype headset instead. Similarly, a properly pled constructive fraud charge would require reference to Luckey's disclosure of confidential information, and CUTSA would take over that charge as well. Total Recall's unfair competition claims echoed the fraud charge and added an alleged misappropriation of the headset design, “again, superseded by CUTSA,” Alsup said.
Alsup wasn't happy about the result, though.
California law on the issue is driven by Silvaco Data Sys. v. Intel Corp., 184 Cal. App. 4th 210, 2010 BL 97970 (2010), and its progeny, which state: “CUTSA provides the exclusive civil remedy for conduct falling within its terms, so as to supersede other civil remedies based upon misappropriation of a trade secret.” But it also supersedes “claims based on the same nucleus of facts as the misappropriation of trade secrets claim for relief,” and that applies even if the other claims involve non-trade secret information.
“Based on 25 years of practice in California and 16 years on the bench in California, the undersigned judge finds the preemptive sweep of Silvaco extraordinarily surprising as a development in California law,” Alsup said. “Nevertheless, it must be respected and applied.”
As for Total Recall's options for an amended complaint, Chow suggested that Total Recall has two potential fallback positions that weren't available in the Winklevoss case—an “unjust enrichment claim” in Luckey's use of a physical prototype, and U.S. Patent No. 9,007,430 and “another pending application based on the partners’ 2011 provisional patent application.” But, he said, Seidl's non-participation matters as to the patents, since he can independently grant a license to Oculus.
Robert W. Stone of Quinn Emanuel Urquhart and Sullivan, LLP, Redwood Shores, Calif., represents Total Recall. Mark F. Lambert of Cooley LLP, Palo Alto, Calif., represents Oculus.
To contact the reporter on this story: Tony Dutra in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Mike Wilczek in Washington at email@example.com
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