`
`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 1 of 38
`
`
`
`
`MAYER BROWN LLP
`Lauren R. Goldman (pro hac vice)
`Michael Rayfield (pro hac vice)
`1221 Avenue of the Americas
`New York, NY 10016
`Telephone: (212) 506-2500
`Facsimile: (212) 849-5589
`lrgoldman@mayerbrown.com
`mrayfield@mayerbrown.com
`
`COOLEY LLP
`Michael G. Rhodes (116127
`Kristine Forderer (278754)
`Mark F. Lambert (197410)
`3 Embarcadero Center, 20th Floor
`San Francisco, CA 94111-5800
`Telephone: (415) 693-2000
`Facsimile: (415) 693-2222
`rhodesmg@cooley.com
`kforderer@cooley.com
`mlambert@cooley.com
`
`Attorneys for Defendants PALMER LUCKEY
`and FACEBOOK TECHNOLOGIES, LLC
`
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN FRANCISCO DIVISION
`
`TOTAL RECALL TECHNOLOGIES,
`
`Plaintiff,
`
`vs.
`
`PALMER LUCKEY and FACEBOOK
`TECHNOLOGIES, LLC (F/K/A OCULUS
`VR, LLC.),
`
`
`
`Defendants.
`
`Case No. 15-cv-02281 (WHA)
`DEFENDANTS’ MOTION FOR
`JUDGMENT AS A MATTER OF LAW
`
`Judge: Hon. William Alsup
`Trial Date: October 4, 2021
`Complaint Filed: May 20, 2015
`
`
`
`
`
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 2 of 38
`
`
`
`
`
`
`
`NOTICE OF MOTION & MOTION
`TO ALL PARTIES AND THEIR COUNSEL OF RECORD:
`PLEASE TAKE NOTICE THAT, before the Honorable William H. Alsup, defendants Palmer
`Luckey and Facebook Technologies, LLC move for judgment as a matter of law on each of plaintiff’s
`claims under Federal Rule of Civil Procedure 50. Defendants request oral argument.
`STATEMENT OF RELIEF SOUGHT
`Defendants seek judgment as a matter of law on each of plaintiff’s claims.
`
`
`
`
`1
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 3 of 38
`
`
`
`
`
`INTRODUCTION
`Total Recall Technologies (“TRT”), a Hawaii partnership, brought this action shortly
`after Facebook purchased Oculus for more than $2 billion. Oculus, which is now part of
`Facebook Technologies LLC (“FBT”), had commercialized a virtual reality headset known as
`the “Rift.” One of TRT’s two partners, Ron Igra, wanted to “get rich” off the success of Oculus
`and the Rift. Igra’s plan was to claim that Palmer Luckey, who invented the Rift and co-founded
`Oculus as a teenager, breached a contract that Luckey had made with TRT’s other partner,
`Thomas Seidl. In return for $798 to purchase parts, Luckey agreed to build a prototype head
`mounted display for Seidl that could show footage captured by a 3D camera.
`The Court has held that there are two contracts at issue. First, in an email exchange in
`April 2011, the parties agreed that “Luckey would use the parts purchased with Seidl’s $798 to
`make a good faith effort to build prototypes suitable for Seidl’s stated purpose and that, as
`Luckey built each prototype, he would take such care as necessary to keep it eligible for an
`exclusive license.” Construction Order (Dkt. 427) at 10. Second, an August 2011
`“Nondisclosure, exclusivity and payments agreement” required Luckey to “keep all details
`including drawings and part suppliers of the Head Mounted Display confidential,” and to “not
`aid” any “person or entity” other than Seidl “in the design of a Head Mounted Display.” Ex.
`100. This Court has held that these duties are limited to prototypes that Luckey actually
`“delivered to Seidl” for “his consideration.” Construction Order at 9.
`Luckey honored his contractual obligations. He built and sent Seidl the two prototype
`HMDs that Seidl had asked for—a single-panel prototype known as the MK1, which Seidl
`rejected, and a multi-panel prototype known as the MK2, which Seidl accepted, kept, and
`described as “fierce.” It is undisputed that the Rift is different from both the MK1 and the MK2
`in both design and purpose. And TRT has never contended Luckey delivered the Rift to TRT.
`TRT, for its part, paid Luckey nothing for the prototypes he made for Seidl, it never launched a
`product, and it never even brought its video camera to market. TRT nevertheless filed this suit—
`seeking a massive portion of the money that Luckey and Oculus made from commercializing the
`Rift and later Oculus products—over Seidl’s objection that the lawsuit was meritless.
`2
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 4 of 38
`
`
`
`
`
`TRT brought three claims: (1) that Luckey breached the August 2011 Agreement; (2) that
`defendants committed constructive fraud by failing to disclose Luckey’s breach of paragraph 9
`of the August 2011 Agreement; and (3) that defendants violated the UCL by committing
`constructive fraud. But after six years of litigation, TRT is no longer attempting to prove any of
`those claims. It acknowledges that, based on the Court’s rulings, the August 2011 Agreement
`cannot support the causes of action alleged in the complaint.
`Instead, TRT now argues that, by failing to deliver the Rift, Luckey breached his duty
`under the April 2011 Agreement to deliver the MK1 and MK2 in good faith. And TRT argues
`that, by “cover[ing] up” Luckey’s breach of the April Agreement, the defendants are liable for
`constructive fraud and unfair competition. TRT’s position is that Luckey had a duty to send
`Seidl every HMD that he ever created—at least until Seidl decided, without any time limitation
`and without paying Luckey a cent, that he was satisfied with the product. TRT believes that
`Luckey signed away the rights to his life’s work in a two-sentence email and agreed to be TRT’s
`indentured servant for a period that is apparently indefinite. Yet TRT contends that Seidl was
`“vulnerable” to Luckey—an element of its constructive fraud claim—because Luckey had more
`experience with HMDs, despite Seidl’s extensively detailed view that he was an innovator in the
`field.
`
`Based on the evidence at trial, no reasonable jury could conclude that TRT has
`established any of its claims. And it certainly has not established a claim against FBT. The only
`purported basis for liability against FBT is that its former CEO, non-party Brendan Iribe, either
`“conspired” to or “aided and abetted” Luckey’s alleged constructive fraud. There is not a shred
`of evidence to support this theory. Iribe knew nothing about the MK1 or the MK2, and he knew
`nothing about the Rift until after the end of any contractual exclusivity period. There is no
`evidence that Iribe formed a common scheme with Luckey and materially assisted any tort. The
`Court should grant defendants’ motion for judgment as a matter of law.
`
`3
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 5 of 38
`
`
`
`
`
`BACKGROUND1
`
`A.
`
`Total Recall Technologies
`
`In spring 2010, Seidl and Igra formed TRT for the purpose of bringing a 3D video
`camera to market. T. 236. Seidl, then 38 years old (T. 233), was a seasoned entrepreneur and
`experienced optical engineer. Seidl had been programming computers since he was just ten or
`eleven. T. 233-34. He began his career as a programmer at a software company where he
`specialized in optics production. T. 234. In the 1990s, he founded Devitek, an optical
`engineering lab. T. 257. Later, he founded Econokey, a company focused on developing
`software that processed ultra-wide images. T. 235. Seidl spent the next decade of his career as
`a director at Pano Pro, a company with nearly $1 million in annual sales that produced ultra-wide
`lenses for use in virtual 3D real estate tours. T. 235-36. During his time at Pano Pro (T. 235),
`Seidl invented a camera designed to capture 3D footage (T. 237-38). He demonstrated several
`versions of the camera for Igra (T. 536), who agreed to provide capital for the development of a
`product based on that camera (T. 550).
`To bring a product to market, TRT needed to develop the camera technology and
`accompanying software, and bundle them together with an HMD that could display footage from
`the camera. T. 239, 244. Seidl testified that he had his extensive background with HMDs, the
`technical merits of various features, and how they can be optimized. See, e.g., T. 239-241, 254-
`55. He set out to construct his own HMD after conducting extensive market research. T. 244-47.
`There were several HMDs available for commercial purchase. T. 238-39. And Seidl knew that
`all HMDs seek to optimize five features: light weight, low cost, low latency, 3D, and a wide
`field of view. T. 436-37. But Seidl was not aware of any existing commercial HMD that he
`believed optimized these features sufficiently. T. 238-39.
`In late 2010, Seidl began searching for someone to help him build an HMD that would
`optimize the five features better than any existing commercial HMD and otherwise suit the
`
`
`1
`“T. __” refers to the trial transcript. “Ex. __” refers to the trial exhibits.
`4
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 6 of 38
`
`
`
`
`purposes of his camera product. But because Seidl was unwilling to pay anyone an hourly wage,
`Seidl sought a designer who would do the work for the cost of parts. T. 501.
`
`B.
`
`Thomas Seidl’s Initial Communications With Palmer Luckey
`
`At the time TRT was formed, Palmer Luckey was an 18-year-old video-game and
`virtual-reality enthusiast who had designed and built a number of prototype HMDs in his
`parents’ garage. T. 679, 953. Shortly after TRT was formed, Seidl reached out to Luckey on an
`online forum known as “Meant To Be Seen,” where Luckey had posted about his experience
`with HMDs. T. 249, 394, 448-49. Seidl told Luckey that he wanted him to build a prototype
`HMD that could be used with a 3D camera. Seidl specifically told Luckey early in their
`relationship that the camera would “NOT” be used for gaming, and he never amended or
`retreated from that statement. T. 452.
`Seidl was deceptive about the relationship from the outset. In their initial exchange,
`Luckey inquired about Seidl’s professional background and expressly asked whether Seidl
`worked at a startup. T. 406. To make himself sound more credible, Seidl assured Luckey that he
`was a director at a large company (Pano Pro) that had been selling media products for over
`decade. T. 405-08, 418. In fact, Seidl had resigned from Pano Pro months earlier and had
`formed TRT—a partnership with no revenue, employees, office space, licenses, or bank
`account—with Igra. T. 405, 411-13. Seidl admitted at trial that, contrary to what he told
`Luckey, TRT was a startup. T. 407. But Seidl never told Luckey that TRT even existed (T.
`457), because he “wanted [Luckey] to believe that [Seidl] worked at a large company.” T. 483-
`84. Seidl also told Luckey that the HMD would be used for watching nature films—even though
`he and Igra actually planned to use it for pornography. T. 415-17, 431-33.
`
`C.
`
`The Contracts
`
`Over the next several months, Seidl and Luckey communicated over email and Skype to
`hammer out a deal for Luckey to build a prototype HMD for Seidl. In December 2010, Seidl
`proposed the following arrangement: “We would have [an] option to license the product off you
`on an exclusive rights basis, provided we met some sales targets.” T. 457-58. Luckey replied:
`
`5
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 7 of 38
`
`
`
`
`“Licensing all sounds good.” Id.
`In March 2011, Luckey emailed that he would build two prototypes for Seidl, one with a
`single panel and one with multiple panels. T. 403-04, 460-61. Luckey explained that because
`his means were limited, he would need TRT to supply the parts. T. 404, 453, 708. Luckey
`offered “to negotiate with [parts suppliers] on your behalf.” Ex. 108 at 6. But Seidl declined and
`asked Luckey to provide a list of the parts that he would need; Seidl would “pass it onto” his
`“directors.” Id. Luckey provided an estimate for the parts that added up to $798. Ex. 108 at
`108.0002.
`On April 8, 2011, Seidl emailed Luckey to confirm their arrangement: “Just so we are on
`the same page. With the initial payment [for parts] to you I would like exclusive rights to your
`design unless we decide not to use it.” T. 269, 560. Luckey responded: “Yes, we are on the
`same page here. . . . I am sure we can put together a contract of some sort to finalize it all.” On
`April 11, Igra sent $798 to Luckey’s mother’s PayPal account so that Luckey could purchase
`parts. T. 267, 404. Defendants will refer to this exchange, and the associated emails leading up
`to it, as the “April Agreement.”
`On August 1, 2011, Seidl and Luckey executed a written “Nondisclosure, exclusivity and
`payments agreement,” which we will call the “August Agreement.” T. 278. Seidl drafted this
`Agreement based on a form non-disclosure agreement that he found in the Internet, and made
`certain additions. T. 460. The August Agreement contains the following relevant provisions:
`First, a preamble explains the subject matter of the Agreement:
`(the
`This nondisclosure,
`exclusivity
`and payments
`agreement
`“Agreement”) is entered into by and between Thomas Seidl . . . and
`Palmer Luckey . . . for the purpose of preventing the unauthorized
`disclosure of Confidential Information as defined below. The parties
`agree to enter into a confidential relationship with respect to the disclosure
`of certain propriety and confidential
`information
`(“Confidential
`Information”).
`August Agreement (Ex. 100), Preamble.
`Paragraph 1 defines the term “Confidential Information,” as used in the Preamble:2
`
`2
`Throughout the August Agreement, Seidl is referred to as the “Disclosing Party,” and
`Luckey is referred to as the “Receiving Party.” See August Agreement, Preamble.
`6
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 8 of 38
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`For purposes of this Agreement, “Confidential information” shall include
`all information or material that has or could have commercial value or
`other utility in the business in which [Seidl] is engaged. If Confidential
`Information is in written form, [Seidl] shall label or stamp the materials
`with the word “Confidential” or some similar warning. If Confidential
`Information is transmitted orally, [Seidl] shall promptly provide a writing
`indicating
`that such oral communication constituted Confidential
`Information.
`
`Id. ¶ 1.
`Paragraph 2 sets forth “Exclusions from Confidential Information”:
`[Luckey’s] obligations under this Agreement do not extend to information
`that is: (a) publicly known at the time of disclosure or subsequently
`becomes publicly known through no fault of [Luckey]; (b) discovered or
`created by [Luckey] before disclosure by [Seidl]; (c) learned by [Luckey]
`through
`legitimate means other
`than
`from
`[Seidl] or
`[Seidl’s]
`representatives; or (d) [ ] disclosed by [Luckey] with [Seidl’s] prior
`written approval.
`
`Id. ¶ 2.
`Paragraph 5 disavows the creation of any “Relationships” beyond what Seidl and Luckey
`had expressly agreed to:
`Relationships. Nothing contained in this Agreement shall be deemed to
`constitute either party a partner, joint venturer or employee of the other
`party for any purpose.
`
`Id. ¶ 5.
`Paragraph 9 is the “Exclusivity” provision that forms the heart of TRT’s complaint:
`Exclusivity. [Luckey] shall keep all details including drawings and part
`suppliers of the Head Mounted Display confidential and shall not aid any
`other person or entity in the design of a Head Mounted Display other than
`[Seidl]. Unless within a twelve month period from 1st july 2011 [Luckey]
`has not received a minimum payment in royalties of 10,000 US dollars by
`[Seidl]. The exclusivity shall remain in place for a period of 10 years
`providing a minimum of 10,000 US dollars is paid from [Seidl] to
`[Luckey] per annum.
`Id. ¶ 9. Defendants will refer to the first clause of the exclusivity provision—“[Luckey] shall
`keep all details including drawings and part suppliers of the Head Mounted Display
`confidential”—as the “details” clause. Defendants will refer to the second clause—“[Luckey]
`shall not aid any other person or entity in the design of a Head Mounted Display other than
`[Seidl]”—as the “no-aid” clause.
`
`7
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 9 of 38
`
`
`
`
`Paragraph 10 clarifies the method of calculating the minimum royalty payments
`
`described in Paragraph 9:
`Payments. A royalty of 2.5% shall be paid of the net profit made by
`[Seidl] from sales of the head mounted display to [Luckey].
`
`Id. ¶ 10.
`Finally, the August Agreement contains a standard integration clause:
`Integration. This Agreement expresses the complete understanding of the
`parties with respect to the subject matter and supersedes all prior
`proposals, agreements,
`representations and understandings.
` This
`Agreement may not be amended except in a writing signed by both
`parties.
`
`Id. ¶ 7.
`
`D.
`
`Luckey’s Delivery Of Two Prototype HMDs to Seidl
`
`On August 23, 2011, Luckey shipped Seidl a prototype HMD with a single display panel
`and two lenses per eye, which the parties referred to as “Mark 1” or the “MK1.” T. 565. Seidl
`acknowledged receipt of the MK1 by email on September 27, 2011. T. 289. He encouraged
`Luckey to disclose the design to Luckey’s coworker who was working on a “project . . . very
`similar to [Seidl’s]”: “Tell him about your HMD obviously,” Seidl wrote. Ex. 14 at 14.0001.
`Four days later, on October 1, Seidl emailed Luckey that the MK1 was “very
`impressive,” remarking that Luckey had managed to make it “half the weight” of a prominent
`commercial HMD called the “Headplay,” which Seidl believed “showed promise” in part
`because it was “quite light.” T. 246, 289. But he had concerns about other aspects of the MK1,
`including its field of view, so he asked Luckey to begin working on a prototype with two display
`panels: “I think we really need to switch to 2 displays at this stage.” T. 493. Luckey tried to
`persuade Seidl to stick with a single-panel design, explaining that he could improve it with some
`further tinkering. T. 294. Luckey told Seidl that with the other single-panel devices he had built,
`he had found a way to increase the field of view to 90 or 100 degrees. T. 492. Seidl disagreed,
`telling Luckey that “it” did not “stand[] a chance to work.” T.493. As Seidl clarified at trial, “it”
`referred to a “single-panel display approach.” T.493. Luckey acquiesced to Seidl’s request that
`he give up on a single-panel design:
`
`8
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 10 of 38
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`Two displays it is! I was hoping that one display would be enough, but it does
`sound like two of them might be the only option. Will start on that right
`away. . . . The single panel solution seems ill-suited to your application but it is
`still something I want to play around with on my own time. Too bad that we
`cannot go single panel but hey, that is what testing is for! Now we know.
`Ex. 127 at 127.0001 (emphases added). Seidl returned the MK1 to Luckey. T. 298.
`Luckey and Seidl continued to correspond over the next several months. T. 299.
`Between October 2011 and January 2012, Luckey repeatedly alluded to other HMDs he was
`working on; Seidl neither objected to these efforts nor suggested that TRT had any rights to those
`designs. See, e.g., T. 492, 495-96, 503.
`On February 7, 2012, Luckey told Seidl that he had increased the field of view of the
`MK1 to 110 degrees, and that he was also in the process of building a multi-panel device with a
`field of view of 270 degrees. T. 306-07. Luckey asked Seidl which device he would prefer.
`T. 306. Seidl responded that he wanted a “two-panel version.” T. 307. Seidl explained:
`
`Seidl:
`
`The single panel HMD is no use to me.
`
`Luckey:
`
`I know that now.
`
`Seidl:
`
`Luckey:
`
`Let’s get the panel out of it, as it can’t be any use to you. The fov
`[field of view] was so bad.
`
`Heh, like I said, I fixed that. All the way up to 110 degrees now.
`But okay, I can get the panel out.
`
`Seidl:
`
`If we are both going to be multimillionaires I need to raise another
`$20k in 6 weeks time, that’s on top of the $20k I already got in
`this. Will need a dual panel HMD to do that.
`Ex. 17 at TX-0017.0035 (emphases added). After that exchange, Seidl never mentioned a single-
`panel design to Luckey again. T.506. The parties referred to the multi-panel design Luckey was
`developing as the “MK2.” T. 294, 315. Luckey built the MK2 using parts from the MK1, other
`parts purchased with the money Igra had supplied, and additional parts that Luckey had obtained
`on his own. T. 317, 423-35. The MK2 featured four display panels (two on the front and two
`smaller ones on the side) and six lenses. T. 319-20.
`On May 30, 2012, Seidl emailed Luckey confirming his receipt and acceptance of the
`MK2: “Wow just got the HMD from you looks pretty fierce. Nice one.” T. 507. After hearing
`9
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 11 of 38
`
`
`
`
`nothing further from Seidl about the MK2, Luckey reached out twice over the next two months.
`T. 507-08. On July 27, 2012, Seidl old Luckey that he had not even gotten around to testing the
`new HMD and therefore had “nothing” further “to say on the MK2.” T. 508. Seidl never told
`Luckey he did not like the MK2, he never returned it to Luckey for improvements, and he never
`asked Luckey to work on a new prototype. T. 507-08. Seidl has the MK2 to this day. T. 495.
`TRT never launched any product using a design provided by Luckey. T. 467. And TRT
`never paid Luckey anything for his work. T. 473, 476.
`
`E.
`
`The Rift
`
`By early 2012, Luckey had designed his own head-mounted display, the Rift. Ex. 175.
`Because Seidl consistently emphasized that neither the MK1 nor the MK2 would “be used for
`gaming” (T. 415-17, 451-52, 954, 960-61, 1120), Luckey optimized the prototypes for viewing
`video filmed by a camera in the physical world; the purpose of the Rift, by contrast, was to make
`computer-generated gaming content more realistic and interactive. T. 955-56, 958-61.
`Each prototype therefore had distinct design specifications that were driven by its
`purpose: The MK2 had four panels; the Rift had one. T. 423-24, 962, 979. The MK1 had four
`lenses, and the MK2 had six, whereas the Rift had only two. T. 396, 976. The MK1 had a 70- to
`90-degree field of view, the MK2 had a 270-degree field, and the Rift had a 90-degree field. T.
`306, 793-94. The MK1 had glass lenses; the Rift’s lenses were acrylic. T. 396, 795. The MK1
`and MK2 were optimized “for viewing very, very high resolution” prerecorded video content. T.
`955-56. The Rift, by contrast, “was much better suited for gaming than almost anything else
`because of the extremely low spatial resolution that it had.” T. 999. It was therefore poorly
`suited for watching videos: John Carmack testified that for that purpose, the Rift would be
`“worse than the worst television you have ever watched a movie on.” Id.
`From April to June 2012, Luckey promoted the Rift publicly. In April 2012, he launched
`a website with a high-level description of the product. T. 511, 877. In May 2012, Luckey sent a
`prototype of the Rift to Carmack. T. 858. Carmack demonstrated the Rift prototype at the
`Electronic Entertainment Expo in Los Angeles, using it to showcase ZeniMax’s videogame
`
`10
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 12 of 38
`
`
`
`
`“Doom 3.” T. 514, 943, 971, 988. In June 2012, Luckey announced (but did not pursue) a
`Kickstarter campaign to promote the Rift name, and he formed Oculus. T. 511, 881, 891, 961.
`Oculus designed a different commercial product called the Rift Developer Kit 1 (“DK-1”), which
`it promoted in a Kickstarter campaign in August 2012. T. 907.
`In March 2014, Facebook announced that it would acquire Oculus for over $2 billion. T.
`644. Oculus was ultimately purchased by Facebook and then renamed FBT.
`
`F.
`
`TRT’s Lawsuit
`
`In May 2015, TRT sued Luckey and Oculus, claiming an ownership interest in the Rift.
`Compl. (Dkt. 1) ¶ 1. FBT was ultimately substituted as a defendant in place of Oculus. Dkt.
`276. TRT’s operative complaint, filed in March 2016, asserts three causes of action that are still
`at issue: (1) that Luckey breached a contract with TRT by developing the Rift for his own benefit
`(SAC (Dkt. 118) ¶¶ 37-38);3 (2) that both Luckey and Oculus committed constructive fraud by
`failing to disclose Luckey’s work on the Rift and Oculus; (id. ¶ 44); and (3) that both defendants
`violated California’s UCL by committing constructive fraud (id. ¶¶ 52-54).
`
`G.
`
`Relevant Pretrial History And Rulings
`
`The parties’ submissions and representations over six years of litigation, as well as the
`Court’s ultimate rulings, have narrowed the bases on which TRT can establish its claims at trial.
`
`1.
`
`Breach Of Contract
`
`The operative complaint alleges that Luckey breached his obligations under the “details”
`and “no-aid” clauses in Paragraph 9 of the August 2011 Agreement. See SAC ¶¶ 36-41. TRT
`has never sought leave to amend its complaint to allege a breach of any other contractual
`provision. And TRT repeatedly disavowed any intent to assert claims based on an alleged breach
`of any prior agreement. See, e.g., 5/17/2021 Hr’g Tr. at 48, 51 (Dkt. 398).
`On June 24, 2021, the Court issued its Construction Order. It found that “there were two
`agreements in play”: (1) an “April 8 email exchange (and the emails leading up to it)”; and
`
`
`TRT does not have a contract claim against FBT. See id.; Pretrial Hr’g Tr. at 118.
`3
`11
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 13 of 38
`
`
`
`
`(2) “the written agreement dated August 1.” Construction Order at 6. The Court analyzed the
`April Agreement primarily to shed light on the August Agreement. The Court held that the
`email exchanges through April 8 “formed a contract as follows: Seidl would supply $798 so
`Luckey could buy parts[;] Luckey would use those parts to build and to deliver two prototypes to
`Seidl, one with a single panel and one with two panels[;] Seidl would have an option to acquire
`an exclusive license to one or the other of Luckey’s designs, as represented by the
`prototypes[; and t]his option would lapse as to a design if Seidl decided not to use it.” Id. at 6-7.
`The Court further explained that “[t]he parties expected that Luckey would use the parts
`purchased with Seidl’s $798 to make a good faith effort to build prototypes suitable for Seidl’s
`stated purpose and that, as Luckey built each prototype, he would take such care as necessary to
`keep it eligible for an exclusive license.” Id. at 10. But the Court made clear that “[t]he event
`. . . that identified a particular design being offered for option was its delivery to Seidl.” Id.
`“Until delivery, . . . Luckey remained free to revise his works in progress and Seidl had no option
`rights on the various unfinished iterations left on the cutting-room floor.” Id.
`
`The Court interpreted the relevant terms in the August Agreement as follows:
`
` The term “a Head Mounted Display” refers to “the prototype designs delivered to
`Seidl and under his consideration.” Id. at 9. Luckey had no “affirmative duty to
`disclose and to offer any” designs to Seidl other than the “two prototypes” he agreed
`to build him. Id. at 15. Therefore, only a design actually “delivered to Seidl for
`evaluation” could qualify as “a Head Mounted Display.” Id. at 11. A design
`delivered to Seidl would remain “a Head Mounted Display” “until Seidl had decided
`not to use it (or had led Luckey to reasonably believe that he had so decided).” Id.
`
` The term “the Head Mounted Display” refers to “the final design selected by Seidl for
`production and marketing” from among those delivered to him. Id. In other words,
`“[if] and when Seidl selected ‘a Head Mounted Display’ as the final design, it would
`become ‘the Head Mounted Display.’” Id. at 9.4
` The “minimum” payments of $10,000 required to keep Luckey’s exclusivity duty in
`place had to “come from royalties from sales”—specifically, “2.5% of net profits
`from sales of ‘the head mounted display.’” Id. at 12 (emphases in original).
`
`
`4
`The Court’s draft charge to the jury changes this definition to “the final design, if any,
`selected by Seidl for production and marketing with the camera.” Dkt. 515 at 10.
`12
`DEF. MOTION FOR JUDGMENT AS A MATTER OF LAW; CASE NO. 15-CV-02281 (WHA)
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`

`

`Case 3:15-cv-02281-WHA Document 518 Filed 10/08/21 Page 14 of 38
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
` The minimum $10,000 royalty payment “was a condition precedent to any continuing
`exclusivity obligation by Luckey after June 30, 2012”; if “$10,000 in royalties were
`not paid by June 30, 2012, exclusivity would then evaporate.” Id. at 12.
`In sum, the Court held that (1) Luckey had no obligations, under either agreement, as to
`any prototype design that he did not deliver to Seidl; (2) Luckey’s obligations as to any design he
`did deliver to Seidl would lapse if Seidl rejected that design or led Luckey to reasonably believe
`he had rejected it; and (3) Luckey’s obligations would lapse altogether on July 1, 2012 unless he
`had received at least $10,000 in royalty payments from sales of a design he delivered to Seidl.
`At the final pretrial conference, the Court confirmed these rulings, rejecting TRT’s
`attempt to take “liberties” with the Court’s construction of the April 2011 Agreement. 9/29/2021
`Hr’g Tr. at 38. Notably, the Court disagreed with TRT that Luckey’s duty to make a good-faith
`effort to deliver a suitable, single-panel design vested Luckey with an ongoing obligation to
`deliver single-panel designs until one was deemed suitable. Id. at 37-40; see id. at 39 (“That’s
`ridiculous.”). If “Luckey in good faith provided the MK1 to Seidl as his . . . attempt to build a
`prototype suitable for Seidl’s stated purpose, . . . that would be enough to satisfy his obligation.
`And you couldn’t argue . . . he owed us a duty to . . . go back and do another one that would be
`the Rift.” Id. at 47; see also Draft Jury Charge (Dkt. 515-1) ¶ 49 (“You have heard about the
`Rift and its predecess