Learn the Lessons of Voorhees v. Tolia
Often, disputes between cutting-edge technology companies raise very common legal issues and are resolved by well-established law. After WNJ's Emerging Media & Technologies team broke exciting new legal ground for the augmented reality industry in last year's Candy Lab v. Milwaukee decision, a recent decision by the federal court in New Jersey reminds us that many AR-related lawsuits will end up looking very much like business cases always have.
The New Jersey court's January 30, 2018 opinion in Voorhees v. Tolia tells a sordid, but far too common, tale of cash-strapped entrepreneurs on whose goals and relationships quickly begin to diverge after money gets involved. When reading the opinion, it's important to remember that it only tells one side of the story--from the perspective of the plaintiff, Lynn Voorhees. That's because, when evaluating a defendant's motion to dismiss, the court may grant the motion and dismiss the case only if the plaintiff's claims fail as a matter of law even when taken at face value. Because the court granted defendant Tolia's motion, the case did not proceed far enough for the court to decide the extent to which each side was telling the truth.
Before the parties met each other in October 2013, Voorhees and her company, Pear Enterprises Inc., had begun to make headway applying augmented reality in one of its most socially beneficial use cases: education. After joining forces, the opinion recites that Voorhees and Tolia got involved with another partner, Newman. The three of them would soon form a new AR education company called Virtuality. The parties have very different takes on what happened from there. But what seems clear is that Voorhees ultimately relinquished her shares in Virtuality, and each of the partners would go on to form their own startups related to AR in education.
In this lawsuit, Voorhees claims she was coerced into giving up her shares. The court had little difficulty dismissing these claims, though, because she voluntarily signed a contract that not only waived her right to file such a lawsuit, but also required any dispute to be settled by arbitration instead of litigation. For both reasons, the lawsuit had to be dismissed.
Voorhees is hardly the first litigant to try arguing her way around contractual limitations; it's been happening as long as there have been contracts. As it turns out, though, even AR technology can't change the plain meaning of contractual language.
There are two key takeaways here for other emerging technology startups. First, realize that you are a business like any other; you'll need the same corporate agreements, partnership agreements, non-disclosure agreements, tax advice, intellectual property protections, and other legal services that every other successful business receives.
Second, you must invest in these protections at the beginning. Too many startups make the grave mistake of focusing on the cool new product first, trusting that each other will stay on the same page and putting off key legal expenses until after the business is successful. By that point, however, the lure of success and investment will likely already be pulling the co-founders in different directions. With no pre-existing, binding agreements between them, the likely result is an implosion of the type described in the Voorhees opinion.
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