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Information in this commentary has been updated since it was originally published.

In March 2018, Amrock Inc., a provider of title insurance, property valuations, and settlement services, completed a seven-week jury trial, in Bexar County Texas, confident of victory. It thought the basic facts were simple. In 2015, Amrock, then known as Title Source, agreed to pay $5 million a year for three years to a small technology company, HouseCanary Inc., to license HouseCanary’s automatic real-estate valuation software and technology.

During trial, Amrock argued that HouseCanary never delivered a working valuation app. Amrock sued HouseCanary for failure to deliver what it promised. However, the jury issued a $706 million award against Amrock, including almost $470 million in “punitive” damages. This award eventually ballooned to $740 million after a judge upheld the award and ordered Amrock to pay an additional $29 million in prejudgment interest and $4.5 million in attorneys’ fees. Subsequently, HouseCanary has also filed a federal lawsuit against Quicken Loans and two other companies, all of which are in the same family of companies as Amrock.

To Amrock and business liability insurers, that sounds like “Texas Lotto.”

HouseCanary has a very different perspective. It entered a contract with an established company that promised that if HouseCanary would disclose its valuation technology, it would not use that information to make its own product. At trial, HouseCanary alleged that Amrock did exactly that.

Of course, HouseCanary does not believe just making up for a small company’s contract losses is enough in this situation.

Thus, to HouseCanary, the $706 million judgment on a $5 million contract sounds like, “Just Rewards.”

In reality, both perspectives play out every year as small innovators and large companies that can bring new products to a wide market navigate the tricky world of trade secret disclosure and use.  When these relationships disintegrate, it is the job of judges and juries to decide whose narrative prevails.

A Bexar County jury’s $706 million verdict in Texas last year came down squarely on the side of the start-up, HouseCanary Inc. and against the industry incumbent, Amrock Inc.

Post-trial allegations of fraud and collusion committed by HouseCanary may change that result. But the core message to large companies acquiring technology remains the same: Dealing with small technology creators is dangerous and may be enormously expensive. The message to business-liability insurers is similar: Raise your insurance premiums to account for a new level of trade secret liability.

The jury’s job is to decide who is right and who is wrong — who is telling the truth and who is lying. They usually do a pretty good job.

In this case though, the jury’s damage award seems out of touch with reality.  Both parties agreed in 2015 to a three year, $5 million a year technology license. But HouseCanary’s experts valued its trade secrets at more than $200 million and their lost profits at $64 million. The jury accepted those estimates at face value. And then, to make their point, the jury tacked on another $400 million in punitive damages, “as a penalty or by way of punishment,” for Amrock’s actions.

Damages so out of touch with commercial reality are surely a testimonial HouseCanary’s fiery trial rhetoric. But HouseCanary’s own contractual valuation of their technology ($5 million for three years) ought to put some kind of fence around how much experts and a jury may value the same technology. Any other result threatens the underpinnings of a healthy technology industry.

A vibrant hi-tech economy depends on both agile, creative small business and large companies with the muscle, resources and marketing to bring new and innovative technologies to a broad, worldwide market. Creators need to know that they are protected from theft of their secrets. Large technology companies need to know they can try to acquire new technology without being bankrupted. Business liability insurers need to know they can issue policies without having to pay out-of-control jury verdicts. Balancing these interests is the role of trade-secret law and the courts.

While HouseCanary can rightly celebrate its victory, other small technology companies should not be so pleased. The natural reaction to this verdict by large, risk-averse companies will be to curtail technology acquisition and to bring development in-house. The natural reaction by small companies and plaintiff’s counsel is to build business models around lawsuits, not innovation.

Of course, the HouseCanary verdict is on appeal. Sometimes a jury just “runs-away” with a verdict. The job of the courts is to prevent excessive damage verdicts based on passion or ill-will. The Texas appellate courts cannot change the perspective of litigants – defendants will continue to complain about “Texas Lotto” and plaintiffs will keep demanding their “just rewards.” But the Court must take a long and hard look at the damages assessed in this case and render a just verdict that balances the damages in this case against reality.

This is a commentary submitted and published with the author’s permission. If you wish to submit a commentary to Texas Scorecard, please submit your article to [email protected].

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