Negotiations between the White House and Congress regarding additional financial relief and stimulus finally reached a breakthrough over the weekend. But while the $900 billion deal will deliver relief to small-businesses and unemployed Americans and bolster vaccine distribution, it appears that negotiators failed to include liability reforms and legal protections from the many lawsuits that will likely be borne out of the ongoing COVID-19 pandemic.
In order to foster a swift economic recovery, there must be an established legal standard and a collaborative environment that allows business and innovation to flourish. New legislation would likely be a key component of establishing COVID-19 liability reform and what that legal standard should be. Otherwise, we could see an onslaught of opportunists filing dubious coronavirus-related claims for years to come.
But this isn’t the first-time schemers would swoop in to leverage laws that lag behind the current condition. The rapid growth of the tech sector has led to an increased reliance on intellectual property protections in recent years. While these laws are necessary and obviously well intended, wily business agents and legal strategists have shown how they can be misused for financial gain, presenting a threat to American tech innovation and business collaboration.
Much like liability and tort law, once large settlements draw the eye of trial lawyers, the filing of similar cases spreads like wildfire and sells like hotcakes to companies willing to take a Hail Mary’s chance on being awarded a huge settlement. This was seen in the area of patent litigation in the late 90s and early 2000s, and now, instead of plaintiff lawyers and patent trolls on the hunt for a big payoff, trial lawyers and start-ups that can’t make it on their own through developing useful innovations are now blowing the hunting horn in trade secret cases.
If this potential trend is not curbed, companies face exposure to new risks through engagement with external enterprises, including start-ups and program developers. This risk, in essence, could discourage the honest and free-market collaborations that reward consumers with innovative products. This is the last thing America needs as so many businesses fight to survive the week, and the fortunate ones plan for a recovery.
Here in Texas, the Title Source v. HouseCanary case is an unfortunate poignant example of the risks that trade secret litigation brings – and how such cases can create a dangerous legal precedent that negatively impacts both the business community and consumers.
To keep up with an evolving digital environment, Title Source, a title insurance company now known as Amrock, contracted developer HouseCanary in early 2015 to build a mobile appraiser application that Amrock’s property appraisers could use in the field. HouseCanary promised a “revolutionary app” that would drastically improve the real estate valuation process.
Despite this promise, HouseCanary failed to produce a functioning application but convinced Amrock to enter into an amended agreement in late 2015 that bundled the appraiser app with other products, such as an automated valuation model (AVM), for an annual fee of $5.0 million. When HouseCanary showed no real progress in providing the promised products, Amrock filed an ordinary, run of the mill, breach-of-contract lawsuit in April 2016.
Predictably, this breach-of-contract suit triggered a countersuit from HouseCanary alleging that Amrock had misappropriated its proprietary information to develop its own AVM application. Despite undisputed evidence – including testimony from HouseCanary’s own expert witnesses indicating HouseCanary’s product did not include HouseCanary’s source code or data, nor did the company ever provide its so-called trade secrets to Amrock – a Bexar County jury in March 2018 awarded HouseCanary a whopping $706 million, the largest verdict of the year in what Amrock attorneys have argued to be a complete travesty of justice.
Alarmed by the unprecedented award, several HouseCanary whistleblowers came forward in the days following, testifying that HouseCanary provided “wire frames and apps that didn’t function,” that the company had lied to Amrock “repeatedly” regarding their capabilities, and that “HouseCanary never had any proprietary anything.…”
Thankfully, on June 3, 2020, the Texas Fourth Court of Appeals tossed out the massive award on grounds that the original jury was asked to consider invalid legal theories, among a series of other potential legal flaws. The court remanded the trial court’s verdict and ordered a new trial be held.
Without a doubt, the case spotlighted how claims of trade secret theft may stick with a deciding jury when they are given incorrect legal standards by which to judge these cases. It also explains why some companies looking to make a quick buck might be tempted to take advantage of such an enticing opportunity that would go a long way to shoring up an ailing bottom line.
After all, how is it that a court awarded $706 million to a company based on a mere $5 million annual contract? The award outpaced even the most aggressive of valuations of HouseCanary – who had raised little more than $60 million in venture funding in the aggregate at the time of the jury award and even significantly greater than the sum of all seven rounds of HouseCanary’s funding to date.
As the case continues, it is important that the trial court carefully consider the facts and apply the rule of law. A fresh and thorough examination of the merits and facts of this case can help set the record straight, which will ultimately aid in solidifying appropriate standards for trade secret liability and remedies in future disputes.
Emotional appeals in the courtroom should not prevail over the law. In the case of COVID-related litigation, statutes must be established to ensure this is doesn’t happen. But in regard to trade secrets, the courts can send a strong message with the Title Source v. HouseCanary case that facts and law won’t be overlooked. This message is fundamental to ensuring prospective new business collaborations and innovations can continue to benefit the broader economy and its prospects for growth in Texas and beyond.
Charles B. "Chuck" Meyer, Registered. Patent Attorney, is a SE Texas tech lawyer with over 30 years' experience in intellectual property, privacy law and the protection of trade secrets.