The Personal Feud Behind the Digital Domain VFX Legal Battle

Larry Busacca/WireImage
Silicon Valley inventor Steve Perlman.

New details about the dispute between two Silicon Valley figures help illuminate how this legal conflict over the use of a vaunted VFX technology threatens to delay multiple Hollywood blockbusters.

The fight first broke into the open at the 2014 Sci Tech Academy Awards. Digital Domain 3.0 employee Greg LaSalle and three others had just accepted a technical achievement award for their use of MOVA, a prized facial-motion-capture technology. Absent from the stage that night was Steve Perlman, a Silicon Valley inventor who owned the patents to the MOVA tech and had once employed LaSalle. In a letter to the Sci Tech judges obtained by The Hollywood Reporter, Perlman let loose with a torrent of fury directed mostly at LaSalle, calling him "no more than a trainee" and slammed the awards committee for excluding him.

A legal storm soon followed, one that has engulfed both sides for the last two years. As THR reported recently, Digital Domain's use of MOVA was frozen after a judge issued a preliminary injunction in June targeting Virtual Global Holdings, a British Virgin Islands based firm that owns MOVA and licenses it to DD3. As part of the injunction, Hollywood studios that use the highly sought-after VFX tech are prohibited from doing so — at least for now.

It got uglier last week when attorneys for Rearden LLC., the Silicon Valley firm fighting VGH in court, filed a new motion alleging that since 2013 DD3 had "orchestrated a plan to gain benefit from the MOVA assets, but avoid any liability for their theft and use." Meantime, this battle — which has sprawled out to include several Chinese firms, dozens of lawyers, the FBI and major Hollywood studios — remains, at its core, a dispute between two former friends over some hotly contested intellectual property. In a 1999 interview with Wired magazine, Perlman summarized how he dealt with IP issues in his own corporate dealings. "What I did," he said, "was fashion an agreement based on intellectual-property laws in other parts of the world, where basically they take the approach of, 'If you use it, you can have it. If you don't, you lose it.'" Seventeen years later, Perlman now finds himself trying to defend what he sees as his own intellectual property — and fighting in court his former friend and employee.

Steve Perlman was a clever kid. As a boy, his parents enrolled him in the prestigious Talcott Mountain Science Center near his home in Connecticut where he began to learn about technology. He built a home computer while still in high school, then left for Columbia where he hacked into the university's computer system. Soon enough he had moved to Silicon Valley where he began drumming up ideas for Apple's advanced R&D group. He contributed to the creation of the media player QuickTime. In 1995 he started the pioneering interactive television firm WebTV Networks, which Microsoft purchased a year and a half later for $503 million. An online gaming spinoff called OnLive soon followed. In a 1999 profile, Wired described Perlman as a "Silicon Valley savant – the brilliant, mercurial programmer/hacker who does things his own way, the whimsical, unyielding pain in the ass who is always lurching toward his next breakthrough." One person watching his upward trajectory closely was his old mentor, the headmaster of the Talcott school, Don LaSalle, who had a son named Greg. Perlman had "what we call perseverance and stick-to-it-ness in gifted children," LaSalle told Wired, "He has always been passionate with a capital P."

By 1999, Perlman had formed Rearden LLC, a Bay Area tech incubator. Greg LaSalle showed up looking for work one day that year and Perlman hired him. LaSalle had a music degree and had recently gotten married. He and his wife had moved to the Bay Area and rented an apartment on Treasure Island. Perlman offered to help by co-signing a $250,000 loan, which LaSalle used to purchase a home in San Mateo, closer to his new job. It was a heady time. Perlman had a portfolio of inventions and a Rolodex to seemingly limitless amounts of financing. By all accounts, LaSalle was eager to get to work. "He figured, 'I'm going to make this incubator where a bunch of us generate ideas,'" LaSalle told THR in a recent interview. "He had money, so let's just figure out which thing we want to follow, what's the most interesting problem to solve." They had brainstorming sessions once a week. One of the many ideas that took off was a facial-motion-capture technology that had multiple potential uses: in gaming, security and entertainment. "In this incubator were these motion-capture systems," LaSalle says. "So I taught myself how to use them."

The two also had a personal relationship. LaSalle told THR that Perlman was "a friend of mine who had a lot of money" and who "just wanted to keep inventing things." But in a recent deposition, LaSalle went further, saying he and Perlman had been close family friends. LaSalle told the court that Perlman hosted his 50th birthday party. "We took vacations together, and our families were intertwined," he told the court. LaSalle claims they traveled to Hawaii, Florida, Lake Tahoe and Connecticut together, and that Perlman often picked up the expenses. LaSalle testified that Perlman gave him an individualized alarm code for his LakeTahoe house, which he used frequently. When Perlman's basement flooded, LaSalle says he helped him clean it up. He happily worked the unpredictable hours he says Perlman demanded. "Perlman and I were good friends and often did things for each other as friends without expectation of receiving anything in return."

But signs of trouble soon began to appear. Perlman declined to be interviewed for this article, but his relationship with LaSalle — and its eventual deterioration — is well documented in court records. Perlman has alleged that LaSalle's wife disliked the weather on Treasure Island, which led to troubles in the couple's marriage. "LaSalle's wife left him," Perlman's counter suit states. It goes on to allege that LaSalle "refused" to pay back the balance of the house loan, which left Perlman feeling "betrayed" and bitterly resolved to "never again help LaSalle financially with anything of significant monetary value."

It got worse from there. Perlman asserts that LaSalle was soon behaving erratically and unpredictably at work. It cites an incident at a 2006 Siggraph CG conference at which LaSalle "stormed off" when Perlman demanded that a support structure LaSalle had constructed for the MOVA tech, which debuted at the conference, be torn down and reassembled. Perlman says LaSalle threatened to resign but soon apologized, telling Perlman he was "like his family." Perlman told LaSalle his behavior was unacceptable. "This was one of a series of encounters between LaSalle and Perlman where LaSalle would threaten bad behavior or acts, and then apologize and retract his threats," the lawsuit states.

Wanting more independence, LaSalle and another colleague, Ken Pearce, decided to branch out on their own. And this is where Perlman and LaSalle's stories begin to diverge. In 2012, Perlman transferred the MOVA tech assets into a second Rearden company called OnLive Inc. which went under a few years later. LaSalle returned to work at Rearden, but the MOVA tech was transferred to a third, non-Rearden company: OL2. Shortly after this, Perlman alleges that LaSalle and Pearce, in breach of their still-current contracts with Rearden and "unbeknownst" to him, secretly negotiated the sale and transfer of the MOVA tech from OL2 to a fourth entity — Digital Domain 3.0, the Hollywood FX company now based in Playa Vista.

LaSalle and Pearce had signed extensive contracts regarding the handling of sensitive intellectual property while employed by Rearden. But Perlman alleges that LaSalle was double-dealing — telling him one thing, and the executives at Digital Domain quite another. "At the same time that LaSalle was assuring Perlman he would never 'purposely jeopardize' their friendship or family relationship, LaSalle was texting with DD3's CEO, Ed Ulbrich, negotiating the sale of the MOVA Assets to the exclusion of Rearden LLC," the lawsuit states. In an email, LaSalle pleaded with Perlman: "You are my friend, my 'family' and you mean a great deal to me. I would never do anything to purposefully jeopardize that." But all of this amounted to a "lie" on LaSalle's part, Perlman's lawsuit claims, a "tantrum" of the sort Perlman says he witnessed at the 2006 Siggraph conference. "Only after the February 11, 2013 transfer of MOVA Assets … did LaSalle tell Perlman that LaSalle intended to … keep the MOVA Assets for his own benefit."

LaSalle and Pearce offer a starkly different scenario. They claim that Perlman was uninterested in the MOVA tech — and had been for years. They say he gifted the tech to them and encouraged them to develop it on their own, without his interference. In a sworn statement to the court, Ken Pearce referenced emails from the fall of 2012 in which Perlman had said the MOVA technology was "worthless" and that the financial outlook was "less than break-even." In one email, Perlman wrote that the MOVA system was "old and unusable without Greg and Ken, and then the industry is moving to head rigs, which MOVA doesn't have." Pearce referenced another email in which Perlman allegedly recommended that the MOVA assets and business be "given" to him and LaSalle. According to another court record, Perlman told OL2's CEO that he "did not want it, nobody would pay for it and that [OL2] should just give [the MOVA assets] to [LaSalle and his business partner Ken Pearce.]" Not only did Perlman give his assent, according to court documents, he kept himself out of the deal and even introduced LaSalle to an attorney to help seal the deal with OL2. During the negotiations, Perlman stated in writing to the lawyer representing LaSalle that "this transaction is between [LaSalle] and OL2, and I [Perlman] am not a party involved. I'm just offering suggestions and information to the extent it is helpful."

LaSalle then told the court that in January 2013, he attended an NFL playoff game party at Perlman's Palo Alto home. LaSalle testified that Perlman told the dozen or so people who were there that "he had arranged for the MOVA Assets to be transferred to me so that I could start a new business, that I deserved this opportunity, and that he hoped someday I would receive an Academy Award through my work on MOVA. I was honored but a bit embarrassed, and said it was he who should receive an Academy Award at some point."

But as the winter dragged on, the two sides grew increasingly wary and distrustful of each other. Part of it was that LaSalle was becoming convinced that Perlman had "changed his mind" and wanted the MOVA assets for himself. LaSalle was "very upset, and wanted time to think through whether he should let Perlman bully him." Pearce wrote. Perlman responded, saying LaSalle was having a "midlife crisis" and "digging his heels in." LaSalle in his testimony says Perlman did in fact change his mind, and acted petulantly when LaSalle said he wanted the MOVA assets for himself. LaSalle called his father to complain. Perlman "had been like a child on a school playground with a rubber ball," he told the court, "which is at first of no interest, but then attractive when others want to play with it." In February 2013, LaSalle formed another company, MO2, and acquired the MOVA assets from OL2. Since OL2 wasn't a Rearden company, there wasn't much Perlman could do to stop him. LaSalle and Pearce forged ahead. "We started running with it," LaSalle tells THR, "We pulled out of the inventing side of the incubator and started MOVA as a separate company, and just moved down that road."

Still unsure about the future, LaSalle and Pearce stored the MOVA hardware in a garage. Two months later, in May of 2013, LaSalle sold the MOVA tech. He had hammered out a deal with Digital Domain 3.0, but at the last minute, Digital Domain Holdings Limited, a Chinese firm that was part of the conglomerate of holding companies that actually owned Digital Domain 3.0, abruptly stepped in. "Before concluding a formal agreement, I was told that the parent company of Digital Domain (Digital Domain Holdings Limited) had decided that it wanted MOVA Assets to be owned by another affiliate company, Shenzhenshi Haitiecheng Science and Technology Co., Ltd. ("SHST")," LaSalle told the court. He signed the deal on May 8, 2013, received $25,000 for the sale, along with an assurance from SHST that it would indemnify him against any future legal action. SHST then licensed MOVA to Digital Domain, which hired LaSalle and Pearce to "use those assets and to re-establish a business around them."

LaSalle went to work at Digital Domain that month. It wouldn't be long before Perlman would respond. And soon enough, the FBI was sniffing around.

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