Texas Court's Reversal Offers Encouraging Precedent for Future Trade Secret Litigation

Amrock Appellate Court corrects potentially dangerous Jury Verdict after damning facts emerge

By Timothy Lee

In March 2018, a San Antonio jury unjustifiably awarded HouseCanary, a Silicon Valley start-up specializing in home valuation technologies, a preposterous $706 million against Amrock, a title insurance and property valuation provider formerly known as Title Source, for alleged proprietary misappropriation. The total award grew to over $740 million after the court stacked on interest and attorney’s fees.

Fortunately, the Texas 4th Court of Appeals recently reversed and remanded the trial court’s finding

That initial verdict triggered nationwide backlash due to the lack of evidence pointing to the claimed proprietary misappropriation, as well as the massive award juxtaposed against a mere $5 million contract dispute.

The appellate court cited HouseCanary’s willful and repeated misrepresentation of the facts surrounding Amrock’s purported acquisition of the proprietary trade secrets and breaches of duty, alongside other critical procedural errors, which likely corrupted the jury’s finding in the 2018 trial.  The rejection of HouseCanary’s central arguments, especially the court’s finding that there is “no evidence that [Title Source] actually acquired the trade secrets through those breaches,” represents a critical step towards preventing the establishment of anti-innovation legal precedents.

Accordingly, the appellate court ordered a retrial. 

The United States boasts the world’s strongest intellectual property (IP) protections, which our Founding Fathers deemed so central to a just free market system that they enshrined them into Article I of the U.S. Constitution.  Those protections provide fundamental incubators of innovation and development, which make America the standard-bearer for competition on the global stage.  In this instance, however, HouseCanary attempted to exploit IP protections for financial gain.  Our judicial system cannot tolerate predatory litigation in which frivolous litigants leverage the rules to ensnare other businesses in costly court battles, seeking to drive defendants to settlement or even achieve “jackpot jury” verdicts derived from meritless claims. 

That unfortunate reality explains the nationwide importance of Title Source v. HouseCanary, an otherwise obscure contract dispute in a San Antonio court.  The $740 million verdict, if sustained, would’ve extended its influence far beyond this single case.

Among other alarming aspects, the amount awarded equates to over five times the total capital that HouseCanary has raised since its launch.  That figure bears no relation to any market-driven valuation of its technologies, since HouseCanary had few other significant sales. Additionally, the product HouseCanary promised to build for Amrock would have been hardly revolutionary, even if they had fulfilled commitment to deliver it.

Many real estate companies such as Zillow and Realtor.com offer automated home valuation programs like the one HouseCanary was contracted to produce, for free or at very low cost.  The prevalence of those platforms and similarities among them make it difficult to pinpoint what IP infringement HouseCanary can rightfully claim, which provided a crucial point in the appellate court’s decision to reverse and order a new trial. 

As referenced above, damning facts that emerged after the jury’s verdict render it even more unjustifiable.  Namely, several former HouseCanary executive whistleblowers testified mere days after the verdict that the company never in fact developed a working version of the technology it promised to deliver.  According to their statements, HouseCanary leaders dangled lucrative job offers and consulting opportunities to Amrock executives in exchange for misrepresenting the viability of the product and technologies at issue.  Those revelations cast doubt on whether Amrock could have misappropriated trade secrets in the first instance, because, as one whistleblower put it, there was simply not “any IP to steal.” 

Fortunately, the whistleblower testimony has been entered into court record for use in future proceedings. 

Even putting aside Amrock’s alleged misconduct, the $740 million award amount represents an egregious injustice.  The U.S. Supreme Court has consistently stood against “jackpot justice” awards untethered to a rational valuation, which deems a violation of the Due Process Clause of the 14th Amendment to the U.S. Constitution.  In this instance, the initial trial court’s award far exceeded the awards overturned by the U.S. Supreme Court in those precedential decisions. 

Now that the appellate court has found such significant errors as to require a new trial, it’s difficult to imagine that a jury would award any damages to HouseCanary, let alone the outrageous amount initially ordered. 

Regardless of the ultimate outcome, the appellate court’s Title Source v. HouseCanary reversal offers an encouraging potential for precedent within future trade secret litigation.

The lower court mustn’t make the same mistake twice.  The nation will continue to watch.

Timothy H. Lee is Senior Vice President of Legal & Public Affairs at the Center for Individual Freedom.
 
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