Right Under Their Noses: Trade Secrets Lawsuit

Right Under Their Noses: Trade Secrets Lawsuit

Picture this if you dare: Client uses your proprietary technology. Client likes your technology very much and not only doesn’t want to pay for it any longer but also wants to profit from it. Client’s subsidiary doesn’t have the chops to create its own related technology, so it uses reverse engineering to replicate yours. Client intends to sell its resulting “knock-off” to affiliates and third-party customers. This is the “nightmare” scenario for one company, which is now suing its former client for allegedly stealing trade secrets.

Patently-O and Housingwire, among others, have reported on the recent filing in federal court of the “blockbuster” lawsuit Collateral Analytics v Nationstar Mortgage.

Per Housingwire, “Collateral Analytics is a developer and provider of automated valuation models and other property valuation tools.” The lawsuit states that since 2013, defendant Nationstar, and its subsidiary, Xome, have been Collateral Analytics customers, relying heavily on the company’s proprietary software and services.

After Nationstar grew tired of paying for the technology but could neither do without it nor find a comparable alternative, it allegedly stole Collateral Analytics’ “technology, confidential information, and trade secrets” and passed them on to Quantarium, a real estate analytics company that Nationstar’s subsidiary, Xome, acquired in 2015.

Of note in Housingwire’s report is that Collateral Analytics defines trade secrets as “its models, processes, algorithms, workflow, negative knowledge, and data selection to be trade secrets.” 

To protect their trade secrets and the competitive advantage Collateral Analytics believes this knowledge affords them, it has potential customers sign a non-disclosure agreement and later licensing agreements. These licensing agreements, according to the lawsuit, “limit both the use and permissible disclosure of Collateral Analytics’ confidential information.” It’s these agreements that Nationstar and Xome have allegedly violated.

As alluded to in the introduction, Nationstar and Xome’s theft have created the “worst nightmare” for Collateral Analytics. Per the lawsuit and Housingwire:

“Collateral Analytics is now faced with its worst nightmare: Quantarium created products using information it stole from Collateral Analytics not only to steal two of Collateral Analytics’ major clients, but also to compete directly with Collateral Analytics in the marketplace.” (Emphasis is from the actual lawsuit.)

The plaintiff hopes its lawsuit will end this practice and the “ongoing theft of intellectual property” as well as help it gain any lost profits as a result of the defendants’ activities.

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