Xu left Magic Leap in 2016 to form his own company, the Beijing-based Hangzhous Tairuo Technology Co., also known as Nreal. Magic Leap says that during his 13-month period of employment, Xu "neglected his work duties" to both work on the launch of Nreal and acquire proprietary information. While Magic Leap has spent seven years and $2 billion designing its own MR headset, Nreal purported to develop its Nreal Light device in under two years. Xu has been handed a lawsuit accusing him of breach of contract, fraud and unfair competition.

The case is the latest in a line of American corporations accusing Chinese companies of intellectual property theft, which has done nothing to improve escalating trade tensions between the two nations. However, Magic Leap and Nreal aren't the only players in the mixed reality field. Facebook, Microsoft and Alphabet are all working on their own products, but it's not yet clear whether mixed reality will gain any traction in the consumer market.