22nd Jan 2016

NDA comes back to bite virtual reality developer

Over in the US the founder of Oculus VR Inc (a developer of a virtual reality headset now owned by Facebook) is facing a claim by his former employer that he breached a confidentiality agreement signed with them. Protecting ideas, particularly where those ideas don’t attract the protection of intellectual property rights can be difficult and this case shows that you need to be aware of what you are signing as well as the relevant law.

While some ideas can be protected by applying for a patent, and the expression of an idea is protected by copyright, ideas and information generally do not attract intellectual property (IP) rights. This is where the law around confidential information and the use of Non-Disclosure Agreements (NDAs) comes in.

The law around breach of confidence guards against the taking of unfair advantage where that information is confidential and is disclosed in circumstances that show a duty of confidence. This can often lead to uncertainty of whether information is confidential or whether information was passed over in confidence, which results in many businesses putting NDAs in place to clarify what is to be considered confidential and formally set out each party’s duties around that information.

The protection given by the duty of confidence, or an NDA would allow a party to recover damages and in some cases obtain an injunction. These damages have to be shown to be directly connected to the breach so it is sometimes difficult to show the damage done following a breach. Where an NDA is in place the rights of a wronged party might be more clearly set out and where confidentiality provisions are connected to a wider commercial arrangement the breach of confidentiality may have traction as a breach of the wider contract. When looking at damages for breach of confidence the UK courts have taken a fairly restricted approach, considering, for example, the price at which a party might have sold the information to the other prior to the breach. A formal NDA can provide greater contractual protection though a wronged party would still have to show their loss.

While the law of confidence, particularly when backed up with an effective NDA give protection against the disclosure of ideas/information not covered by IP rights, that protection can be limited in that a) a remedy obtained from the courts would be after the fact (in the absence of an application for an injunction) and b) it may not fully compensate the wronged party. With these limitations why bother with NDAs at all?

While the law of confidentiality offers protection, having an NDA in place should clearly show what information and ideas being exchanged between parties are confidential, that it has been provided on a confidential basis, that information is only to be used for the purpose that it was disclosed for and what will happen to the information once the reason for the disclosure passes. An NDA therefore give more certainty that relying on law around confidentiality and gives parties an opportunity to clearly set out the grounds on which they are exchanging ideas or information.

While IP rights protect certain ideas and information, confidentiality can be used to protect things that are not covered by these rules. Having an NDA gives greater certainty and protection to information assets where, if care is not taken, there would be no protection at all.

Facebook’s 2014 $2billion acquisition of Oculus VR make for a potentially lucrative claim if the information is found to be at the heart of Oculus’s products. Whether information obtained while working for their former employer, and whether this information was covered by an NDA or general duty of confidence will determine how the case progresses.

The lesson from this case is that companies do take action when NDAs are potentially breached, and if your business is based on ideas that may have been developed outside you need to be aware of what you have signed up to in the past!

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