Reality Barks, But Fails to Bite

Two recent lawsuits against AR/VR developers fall short

In two separate judicial decisions issued within the past month, plaintiffs suing AR/VR developers failed to get the relief they were looking for. While every case rises and falls based on its own facts, these examples are instructive of the type of litigation that AR/VR companies are actively facing right now, and for which others in the industry should be prepared.

Premier Rides, Inc. v . Mark Stepanian 

In this case, the federal district court in Maryland refused to enjoin an AR/VR developer from leaving his former employer–an amusement park rides company–to work for the Canadian company DreamCraft Attractions Ltd. Premier Rides, the plaintiff and former employer, is primary in the business of designing and manufacturing highly-themed roller coasters, although it also sells flying theaters and motionbase attractions. Premier Rides incorporates virtual reality into some of its themed rides, and has installed virtual-reality headsets into rides, but it does not design or manufacture virtual-reality headsets.

DreamCraft, on the other hand, is a virtual reality and augmented reality service provider. Its focus is to design and build virtual-reality headsets that can be incorporated into amusement attractions–including, as the evidence showed, a few rides manufactured by Premier.

The defendant, Mark Stepanian, is a 27-year-old structural engineer who had worked for Premier since 2012, most recently in the roller coaster division. He left Premier in May 2017, and in June hired on with DreamCraft as its Director of Technical Services. Stepanian’s job at DreamCraft includes technical sales support related to adding virtual reality to attractions. Premier filed suit, arguing this job violated the restrictions of Stepanian’s noncompete agreement, which restricts Stepanian from working “in a capacity the same as or similar to the capacity he served” at Premier Rides “with any kind of business or enterprise that competes directly or indirectly” with Premier Rides’ business.

Premier sought a TRO and preliminary injunction against Stepanian to prevent him from working at DreamCraft. The court, however, rejected this request on multiple grounds. First, the agreement itself was overly restrictive, because it is designed to prevent competition rather than protect goodwill. Second, noting that Stepanian worked for Premier Rides as a project engineer and not in a sales capacity, the court suggested it was unlikely that his move would injure Premier’s goodwill. “Competition is not the evil to be avoided here,” it said, “but rather the improper taking of Premier Rides’ goodwill and confidential information”–and it found “no evidence” at all that this had happened here. “No contracts have been lost, and the lawsuit is based on unsupported suspicions that there is a threat to Premier Rides’ goodwill.”

Third, the court was not convinced that the work Stepanian is doing for DreamCraft is in competition with Premier Rides. While the court accepted that Premier Rides does incorporate certain virtual reality elements into its rides, it does not manufacture nor design virtual reality headsets, which is the work that Stepanian is currently engaged in. (It did leave open the possibility, however, that certain project management and design work Stepanian did in China for DreamCraft might be considered in competition to Premier Rides.) For all these reasons, the court denied the injunction. The case remains open, although cases like this often settle after the plaintiff suffers such a resounding defeat.

What can AR/VR companies and developers take away from this decision? First and foremost, get good legal advice on the front end. Courts prefer not to prevent employees from finding gainful employment, if they can help it (and California courts are virtually prohibited from doing so). Employers should tailor non-competition and non-solicitation agreements to protect what’s really important, and not be so broad as to be rejected out of hand. As this court said, the employer’s legitimate concern is protecting its confidential information and customer relationships–not in preventing competition. They should also anticipate the ways that new technology will supplant or compete with their business, and address these threats in their documents.  For defendants, this case shows that it helps to emphasize the difference between what the companies do. Although there appeared to be significant overlap in Premier’s and DreamCraft’s client base, the Court found it significant that one company builds rides, while the other makes VR headsets.

CyWee Group, Ltd. v. HTC Corporation

This is just the latest in a growing line of patent infringement lawsuits against companies that have succeeded in marketing AR/VR devices. HTC, of course, is a market leader in high-end VR equipment, including room tracking and motion sensors–as well as a line of mobile phones, which are the devices at issue here.

CyWee owns two patents protecting its technology that detects, measures, and calculates the movements and rotations of machines: United States Patent Nos. 8,441,438 and  8,552,978. These patents disclose devices and methods for tracking the motion of a device in 3D space and compensating for accumulated errors.  In other words, the protected inventions “teach how to determine a device’s current orientation based on motion data detected by its motion sensors.” Specifically, CyWee protected its “sensor fusion technology,” which “incorporate[s] the data from multiple sensors and compensate[s] for [any] errors.” The ‘438 Patent “discloses an enhanced sensor fusion technology and application for calculating orientation . . . by using measurements from both a 3-axis accelerometer and a 3-axis gyroscope.”  The ‘978 Patent protects a similar sensor fusion technology but uses a third sensor — a magnetometer — in addition to an accelerometer and a gyroscope. As the court recognized, this sensor fusion technology is useful for games that incorporate the motion of the device into play, augmented reality applications, and virtual reality applications.

The complaint alleges both direct and indirect infringement of the patents. HTC moved to dismiss the latter claim, which is based on the theory that HTC’s devices enable users to infringe CyWee’s patented methods. To succeed on this claim, CyWee must prove that HTC intentionally encouraged its users to perform the infringing acts. HTC does not dispute tat it knew about the patents, but denies that it encouraged infringement.

The court granted HTC’s motion to dismiss this claim, because CyWee failed to provide any specific explanation of how HTC supposedly induced infringement. To sustain its claim, the court explained, CyWee must show HTC “touted the benefits of the accused products in ways that track the asserted patents” or taught “how to use the accused products to infringe the patents-in-suit,” rather than “simply describing how the accused products work.” CyWee has another chance, however, to amend its complaint and try again–which it did on March 9, 2018.

What can AR/VR companies and developers take away from this decision? We don’t yet know what really happened here; the case is in its very early stages, with only allegations–not adjudicated facts–at issue so far. But it’s still a potent reminder to developers that there are a lot of patents–and litigious patent owners–out there. For years now, the mobile phone industry has been wracked by patent infringement lawsuits, with every player in the industry seemingly suing every other player. This lawsuit–which happens to involve mobile phones–is a reminder that this trend will continue as mobile devices incorporate more AR/VR features.

So, do your diligence up front. It’s worthwhile to invest in a freedom-to-operate search before investing your capital in a new product. And if there is risk of inducing your customers to infringe a patented method, the arguments in this case are a great reminder to consider carefully your marketing claims and product instructions. Sometimes, less is more.

The attorneys of WNJ’s Emerging Media & Technologies Group are ready to help guide you through the legal minefields that await creators and innovators. Contact co-chair Brian D. Wassom to arrange a free consultation.