On June 3, 2020, the Fourth Court of Appeals of Texas overturned a jury verdict awarding HouseCanary, Inc. (“HouseCanary”) $740 million in damages for trade secret theft and fraud against Title Source, Inc., now known as Amrock.
Amrock and HouseCanary are competitors in the real estate sector. Amrock provides title insurance, property valuations, and settlement services in real estate transactions. HouseCanary is a real estate analytics company that developed software to determine property values. HouseCanary agreed to provide this software to Amrock, and, according to HouseCanary, Amrock reversed engineered it. After the relationship between the two broke down, Amrock sued HouseCanary for breach of contract and fraud, and HouseCanary counterclaimed for breach of contract, fraud, misappropriation of trade secrets, among other claims. The jury found for HouseCanary, awarding it compensatory and punitive damages as well as attorney’s fees.
In June 2020, a Texas appellate court reversed the jury’s verdict and remanded the case for a new trial on HouseCanary’s misappropriation of trade secret and fraud claims. The appellate court found an error in the trade secret definition in the jury instructions. The trial court had instructed the jury that “improper means” of the trade secret should include bribery and espionage, along with “theft, … misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret …” But HouseCanary conceded at the appellate oral argument that no evidence showed that Amrock acquired its trade secrets by either bribery or espionage. The appellate court elaborated when the jury instruction mixes valid and invalid theories, a new trial is required because the appellate court cannot determine whether the jury’s verdict is based on an invalid theory (or a valid one). Here, the appellate court (and more importantly the appellant) had no way of determining if the jury based its verdict on an invalid theory of espionage or bribery or a valid one (such as breach of a duty to maintain secrecy). As this type of error – limiting argument available to the appellant – is presumed harmful, the case was remanded for a new trial. Practitioners should be careful to make sure that the instructions submitted to the jury conform to the evidence submitted for their consideration.
This case has two other interesting issues worth continuing to watch. The first is whether the trial exhibits should be kept sealed. Apparently, HouseCanary had not properly protected its trade secret information during trial. After the trial was over, HouseCanary moved to seal the information, and the trial court granted that request. But the appellate court overturned that order, holding HouseCanary failed to follow Texas Rule of Civil Procedure 76a, which outlines the rules a party must follow to compel a court to seal a document. While this issue seems to be still working its way through the Texas appellate system, it still highlights the importance of being aware of and following a court’s sealing procedure prior to any disclosure of trade material in open court.
The second issue is the relevance and validity of a whistleblower’s testimony. At a post-trial hearing in 2018, several ex-employees of HouseCanary came forward to offer sworn testimony that HouseCanary never had the information it pledged to deliver, and therefore, no intellectual property existed to be stolen. Additionally, they testified that HouseCanary employees and an executive at Amrock colluded to, among other things, get HouseCanary a win in the trade secrets trial. Amrock argued that the court should consider this testimony and grant a new trial. This appellate decision did not address this whistleblower testimony, and it remains to be seen how it will affect the case going forward.