By Jenna Greene, From The Litigation Daily

The Oculus Rift, I am told by a reliable authority (my 16-year-old son), is awesome.

The virtual reality headset is poised to transform the $90 billion video gaming industry and—at least according to this week’s Time Magazine cover story—the world.

But like most lucrative inventions, it’s also the subject of a fierce intellectual property dispute.

On one side is Facebook Inc., which bought Oculus VR for $2 billion last year. Facebook CEO Mark Zuckerberg said at the time that the “technology opens up the possibility of completely new kinds of experiences.”

On the other is plaintiff ZeniMax Media Inc., a Rockville, Maryland-based video game maker that worked with Oculus founder Palmer Luckey, a college-age video game enthusiast who came up with the Rift prototype.

The case is fascinating for the window it provides on the development of virtual reality technology. It also shows how free-wheeling companies can leave themselves vulnerable with sloppy nondisclosure agreements.

On Monday, lawyers from Skadden, Arps, Slate, Meagher & Flom and Haynes and Boone kept ZeniMax’s case against Facebook alive. In a key ruling, Chief U.S. District Judge Jorge Solis of the Northern District of Texas refused to dismiss the suit alleging trade secret theft, copyright infringement, unfair competition and unjust enrichment.

Solis had harsh words for Facebook, which is represented by Cooley. When the social media giant bought Oculus, it “knew, or had reason to know, that Oculus’ representation—that it had titled, owned or was authorized to use the intellectual property necessary to carry on its business—was false,” he wrote.

ZeniMax, represented by Skadden partners Kurt Hemr and P. Anthony Sammi, wants compensation for the “enormous value of the intellectual property that ZeniMax had created, and that the defendants had taken.”

Virtual reality has been called the Holy Grail in video gaming. The potential is obvious—you’re immersed in a game, not clicking a mouse or typing on a keyboard—but actually making it work is another matter.

As the complaint put it, “There are complex technical difficulties associated with rendering an imaginary world in a convincing and naturalistic way without optical distortion, while simultaneously coordinating a user’s movements with the view presented on-screen without introducing a disorienting delay between the user’s action and the corresponding change in display,” wrote Haynes and Boone partner Phillip Philbin for ZeniMax.

In other words, so it doesn’t make you want to throw up.

A senior ZeniMax video game developer, John Carmack, heard about the Rift in its early stages and contacted inventor Luckey, who gave him a prototype.

At that time, the Rift “lacked a head mount, virtual reality-specific software, integrated motion sensors and other critical features and capabilities needed to create a viable product,” according to the complaint. But Carmack and other ZeniMax employees “literally transformed the Rift by adding physical hardware components and developing specialized software for its operation.”

The Rift debuted at the Electronic Entertainment Expo to great acclaim, and Luckey promptly formed Oculus to commercialize it.

According to the complaint, that’s when the trouble started. “Defendants became increasingly evasive and uncooperative in discussions with ZeniMax regarding appropriate compensation for its technology and support. No resolution of that issue was reached, and indeed Oculus never provided ZeniMax with any compensation whatsoever.” Not only that, Oculus poached Carmack and five other senior ZeniMax employees.

Oculus founder Luckey did sign a nondisclosure agreement with ZeniMax, but according to the defendants, it wasn’t much of an agreement. That’s where one lesson lies for other companies and their lawyers.

“The document that plaintiffs claim is an enforceable [nondisclosure agreement] is not,” wrote Linda Stahl of Carter Scholer Arnett Hamada & Mockler for Facebook, Oculus and Luckey. (The defendants later substituted Cooley partners Heidi Keefe, Mark Weinstein, Michael Rhodes and Stephen Smith and lawyers from Lynn Tillotson Pinker & Cox as counsel.)

Stahl continued, “ZeniMax and Luckey left undefined the most material term in it—the ‘proper purpose’ for which Luckey could use any confidential information disclosed to him by ZeniMax.”

The agreement itself “states that ZeniMax and Luckey will later agree in writing to define this material ‘Proper Purpose’ term. They never did. … As a result, the [nondisclosure agreement] is nothing more than an unenforceable agreement to agree.”

It sounds compelling, but Solis didn’t let the defendants off the hook, at least not yet. At this stage in the litigation, all that the plaintiffs are required to do is “plead sufficient factual matter to state a plausible claim for relief,” wrote the judge, who was appointed to the bench in 1991 by President George H.W. Bush.

Still, he sounded sympathetic to ZeniMax, noting that according to the complaint, Luckey agreed not to disclose ZeniMax’s information without prior approval—and then he did.

“In due time, plaintiffs will have to confront the enforceability, or lack thereof, of the [the nondisclosure agreement],” he wrote. “But that time is not now.”

And in an ominous sign for Facebook, he threw the plaintiffs another bone. A big one.

ZeniMax asserted that Facebook “has been unjustly enriched by receiving the benefits of plaintiffs’ research, technical guidance, and other valuable support, without compensating plaintiffs for the benefits received,” Solis wrote. “The court agrees with plaintiffs … and to the extent that plaintiffs fail to recover on their trade secrets claim, plaintiffs can alternatively seek damages under a theory of unjust enrichment.”

In other words, Facebook might want to think about settling.

IMAGE: Rommel Canlas/iStock

For more on this story go to: http://www.litigationdaily.com/id=1202734521485/A-Real-Fight-Over-Virtual-Reality-?back=law&kw=A%20Real%20Fight%20Over%20Virtual%20Reality&cn=20150813&pt=Newswire&src=EMC-Email&et=editorial&bu=Law.com&slreturn=20150713101816