Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].
In a December 2019 Federalist Society teleforum and subsequent analysis, I discussed one of the biggest trade secrets cases and largest punitive damages awards in American history. The case, Title Source v. HouseCanary, centers on Silicon Valley-based HouseCanary’s claim that its so-called trade secrets were misappropriated by Amrock (formerly "Title Source"). The purported trade secrets involve automated valuation models (AVMs), computer models – typically employing artificial intelligence – used by lenders and others to estimate property values.
I have been following the case closely given my experience at an AI startup in a previous life. There I built AVMs very similar to those created by HouseCanary, and I am skeptical that any of the relevant HouseCanary technology qualifies as a trade secret. Nonetheless, more than two years ago, a Texas jury disagreed and awarded HouseCanary $700 million-plus in compensatory and punitive damages based on trade secret and parallel fraud claims.
That award has now been overturned. On June 3, Texas's Fourth Court of Appeals reversed the trial court’s judgment and ordered a new trial on the trade secret and fraud claims.
The appeals court homed in on the trial jury being given a key, erroneous instruction for determining whether there was misappropriation of trade secrets and found that it likely compromised their 2018 finding. Specifically, the Fourth Court's opinion stated that the jury "charge included multiple liability theories, several of which are not supported by legally sufficient evidence," and concluded that the jury was likely "significantly influenced" by this error.
This error may help explain how the jury could have reached its conclusion, despite HouseCanary offering little or no evidence that Amrock had any reason to steal HouseCanary's technology (as I explain here), and could have awarded a shocking $700 million-plus judgment that bears no relationship to the economic realities of the AVM market and HouseCanary's limited success in it.
The appeals court's decision is good news not just for Amrock, but also for those concerned that HouseCanary's win at trial could encourage the abuse of trade secrets litigation at a time when American businesses are facing unprecedented challenges. The number of state and federal trade secret misappropriation lawsuits already jumped about 30% between 2016 and 2019 with an increase in huge jury awards and settlements. The jaw-dropping size of the judgment against Amrock and the publicity surrounding it was expected to spur this trend.
