Facebook's FB entry into the virtual reality business through its ambitious project Oculus VR is reportedly facing legal obstacles. According to reports, a Hawaii company — Total Recall Technologies — has accused Facebook of misappropriating confidential information and proprietary technology related to the virtual reality system.
In the U.S. District Court in Northern California, Total Recall Technologies filed a lawsuit stating that in 2011, it hired Oculus founder Palmer Luckey to build a prototype for a head-mounted display. Mr. Luckey started a campaign to raise funds so he could make personal profit from the technology he had reportedly passed over the Total Recall. Later, FB acquired Oculus.
Total Recall hired Oculus founder, Palmer Luckey, in 2011 to build a prototype for a head-mounted display. In a lawsuit filed with the U.S. District Court in Northern California, the company stated that following the acquisition of Oculus by Facebook in Jul 2014, Luckey misused the information.
The complainant also specified that it paid Luckey an undisclosed price for developing the prototype and in return, secured exclusive rights to the design. However, breaching contract rules, he launched a Kickstarter campaign in 2012 to promote his head-mounted display — Oculus Rift — and created his company.
Currently, Total Recall is seeking compensation for the breach of contract, though the amount has not been specified. However, it remains unclear whether the lawsuit would affect Facebook, the current owner of Oculus, or only Luckey. The court’s decision is still pending.
Facebook is expected to ship Oculus Rift in first-quarter 2016, with pre-orders later this year. We expect high demand for the VR devices when the device is launched. Facebook’s much-hyped prospective entry into the Virtual Technology product market should boost sales, despite steep pricing, in our view. If Oculus’ technology succeeds in gaining popularity, we believe Facebook will dominate the virtual reality market over the long term.
This is the second legal dispute faced by Oculus Rift, which competes with similar VR technology introduced by Google GOOG, Apple AAPL and Sony Corp. SNE. In 2014, videogame maker — ZeniMax Media Inc. — sued Luckey, Oculus and Facebook, claiming that it developed the intellectual property that powers the Oculus Rift headset. That lawsuit is also awaiting court’s decision.
Facebook currently has a Zacks Rank #3 (Hold).
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