HouseCanary case reveals broader problems with intellectual property policies

One of the largest verdicts ever in a dispute over trade secrets came last year when a Texas jury awarded $706 million to HouseCanary, a housing data analytics startup that alleged that its intellectual property had been stolen by a rival. The case is on appeal after new revelations seem to have exposed an elaborate effort on the part of HouseCanary to distort facts and mislead jurors. Though final ruling is still uncertain, the case speaks volumes about the dysfunctional state of intellectual property disputes in the United States.

HouseCanary accused Amrock (then known as “Title Source”), a company specializing in housing data valuation, of misappropriating HouseCanary’s trade secrets after the two companies entered into an agreement for use of HouseCanary’s Automated Valuation Model (AVM), which it claimed offered a revolutionary improvement to real estate valuation.

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HouseCanary’s case was tenuous at best: AVMs, such as the ones found at Realtor.com and Zillow, are widely used in the real estate industry to estimate property values, and there is little to distinguish one from another. HouseCanary failed to show any sales or revenue data to support its claim that its products — which were so deficient that Amrock had previously complained that they were “completely unusable” — were worth hundreds of millions of dollars. In fact, HouseCanary had agreed to give Amrock access to its purported trade secrets for only $5 million per year.

The fact that HouseCanary was apparently able to use emotional appeals and half-truths to persuade the jury to take its side underscores the weak standards used to adjudicate disputes over intellectual property rights, especially in the nebulous area of trade secrets.

Soon after the trial ended, several former HouseCanary “whistleblowers” admitted under oath that HouseCanary’s legal arguments had been built on deception, lies, and collusion with a former Amrock employee who allegedly helped conceal the reality that HouseCanary lacked any propriety technology and hadn’t even developed a functioning AVM. These revelations triggered an appeal which is still ongoing.

Whatever the final outcome, the prospect of enormous jury verdicts for expansive trade secrets claims is sure to spur more filings across the country. The HouseCanary case illustrates how unclear intellectual property rules threaten innovation and economic growth by exposing innovators to unnecessary legal jeopardy.

Increasingly, patent abuse is emerging as a potent threat to American companies, both large and small. The growth in “patent trolls,” who aggressively pursue entities who might have infringed on their patent, imposes a high cost on consumers — to the tune of nearly $1,000 per household — by discouraging investment in new technology.

Those making weak claims of patent violations and patent trolls have benefitted greatly from “court shopping” for friendly forums. The payoff of filing a patent suit in the right court with the right judge can be enormous for companies looking to sue. The U.S. District Court for the Eastern District of Texas, for example, has a record of favoring plaintiffs in intellectual property cases; no wonder nearly half of all patent cases in the U.S. are filed there. Companies like Apple are even abandoning stores in the district to avoid frivolous litigation — a sign of the economic harms that exorbitant verdicts can have on the local community.

The influence of jury emotions in deciding patent cases, coupled with vague statutes that invite broad interpretation, result in the majority of district courts’ rulings being overturned, at least in part, by appellate courts.

When courts get it wrong more than half the time, something needs to change.

Excessive intellectual property litigation saps resources from entrepreneurs and decreases investment in research and development. At the end of the day, consumers miss out on valuable innovations.

Liam Sigaud works on economic policy and research for the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org.