November 18, 2019 at 5:00 am ET
How does a company end up having to pay $740 million for a product that was never delivered? In an unprecedented verdict out of a 2018 Bexar County lawsuit, that is exactly what legal experts are still trying to figure out more than a year later. The judgment was one of the largest issued in a U.S. court last year and one of the largest in the history of the state of Texas and remains on appeal.
As I’ve previously written, intellectual property policies and the court decisions they are built on can present very real impacts to consumers and innovation.
Over the past year, several facts have come to light following the massive award that raise questions about whether or not a trade secret needs to be an actual “secret,” and who needs to be concerned being left with the bill for the Texas-style supercharged jury award.
Don’t get me wrong, some intellectual property violations should rightfully fetch a figure like this, and perhaps more, but a closer examination of the facts suggest an alarming reality.
After a six week trial last October, a Texas jury awarded Amrock (previously known as “Title Source”), a title insurance, settlement services, and valuations provider, to pay nearly three-quarters of a billion dollars for intellectual property theft to HouseCanary, a startup technology company, for actual and punitive damages as well as legal fees. Amrock hired HouseCanary to develop an innovative, new automated valuation model mobile application to be used by staff in the field on-site.
But there is one massive elephant in the room: there was no theft of intellectual property, no unauthorized use of proprietary data and no trade secrets stolen.
How can we be so sure? The answer is simple: HouseCanary had no proprietary information – nothing of value in regard to the revolutionary improvement to real estate valuation it was hired to produce.
Several HouseCanary whistleblowers even testified that the company did not develop any technology for Amrock as it was contractually obligated to. Whistleblowers also reported that CEO Jeremy Sicklick conspired with the Amrock executive in charge of the initial negotiations between the two companies to willfully misrepresent the capabilities of HouseCanary’s abilities.
After failing to produce an AVM mobile application and breaching their $5 million contract with Amrock, HouseCanary accused the company of misappropriating their alleged trade secrets when they went ahead and developed an AVM of their own.
But some brief background of AVMs is required to fully understand how fundamentally flawed HouseCanary’s argument really is. AVMs, such as Realtor.com and Zillow, use mathematical modeling combined with databases of existing properties and transactions to calculate real estate values. AVMs are developed a methodical fashion – they are formulaic, and inherently going to be similar.
In what the jury seemed to view as a “win for the little guy,” they issued an unconstitutional verdict – an excessive and unreasonable punishment of $706 million in damages despite the contract’s disproportionate $5 million value. The jury’s verdict to award HouseCanary more than $700 million was based on highly speculative back-of-the-napkin math and unsupported testimony from HouseCanary’s damages expert. The expert valued HouseCanary’s AVM at $11 per use, despite the fact that HouseCanary had agreed to license it to Amrock at a vastly lower price and had made no other sales of this technology, let alone at the excessive $11 price. Months later, the company would begin offering its AVM for sale at just $1 per use.
Furthermore, in a February 2015 email in reference to another AVM service that charged $11 per use, Amrock employees noted “It would obviously be cost prohibitive to use this service for each of the hundreds of thousands of leads bankers work. It would be extremely valuable to have an accurate in-house AVM that we can run without a per transaction cost.” Hence why they hired HouseCanary to develop their own AVM platform via mobile application.
As this bizarre series of events continue unfold – now with the Texas 4th Court of Appeals – we are back to the fundamental question: How does a company end up having to pay $740 million for a product that was never delivered?
Andrew Langer is president of the Institute for Liberty and teaches on public policy at the College of William & Mary.
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