## Facts

- Magic Leap, Inc. developed augmented-reality hardware and software and employed Chi Xu.
- During his employment, Xu signed a confidentiality agreement broadly defining “confidential information” and restricting use or disclosure during and after employment.
- Xu left Magic Leap in 2016 and later founded Hangzhou Tairuo Technology Co., Ltd., doing business as Nreal, which developed an AR headset.
- Magic Leap alleged Xu and Nreal used Magic Leap’s confidential information and that Xu breached the confidentiality agreement.
- The complaint largely relied on broad categories from the agreement and alleged that similarity and rapid development of Nreal’s product implied misuse, without identifying specific confidential information or concrete acts of misappropriation.

## Issues

1. Whether the confidentiality agreement, as invoked, operated as an unlawful restraint of trade under California Business & Professions Code § 16600 by effectively functioning as an overbroad noncompete.
2. Whether Magic Leap stated a plausible breach-of-contract claim by sufficiently identifying the confidential information at issue and alleging how defendants used or disclosed it.

## Decision

- The court granted defendants’ Rule 12(b)(6) motion and dismissed the complaint with leave to amend.
- The court held that the breach-of-contract allegations were insufficiently specific because Magic Leap did not identify the confidential information allegedly misused or explain how it was used.
- The court indicated that enforcing the agreement based on vague categories and inference from competition risked conflicting with California’s policy against restraints of trade, absent allegations focused on identifiable confidential subject matter.
- The court allowed Magic Leap an opportunity to amend to plead more definite confidential information and a clearer link between that information and defendants’ conduct.

## Legal Principles

- To plead breach of contract, a plaintiff must plausibly allege the contract, its own performance, breach, and resulting damages.
- When a breach theory depends on misuse of confidential information, allegations must identify the specific confidential information with enough detail to provide fair notice and support plausibility; broad categorical labels are generally insufficient.
- Under Twombly/Iqbal pleading standards, similarity of products and suspicious timing, without allegations tying identifiable confidential information to concrete misuse, is speculative and does not state a plausible claim.
- California Business & Professions Code § 16600 reflects a strong policy favoring employee mobility; confidentiality agreements may protect actual trade secrets or defined confidential information but may not be enforced as de facto noncompetes that bar lawful competition or use of general skill and knowledge.

## Conclusion

The court dismissed Magic Leap’s claims at the pleading stage because the complaint did not identify specific confidential information or explain how it was misused, and it warned that enforcing a broadly framed confidentiality agreement without definite confidential subject matter could improperly restrain post-employment competition under California law.


Magic Leap, Inc. v. Xu, 2020 U.S. Dist. LEXIS 106093 (N.D. Cal. 2020)