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Killing The Canary

Summary

HouseCanary has a great property-pricer app.

A Quicken Loans sibling cozied up to HC, plotting to steal it.

HC got sued--and a Texas jury awarded it $706 million.

KILLING THE CANARY

Lies, Theft and Betrayal

By Dennis Kneale

Capitalism is great, yet business can be brutal, duplicitous and filled with betrayal—and I’m talking about how business treats a partner.

HouseCanary is one such partner, an innovative startup in AI software for divining trends in home prices at the block-by-block level. Earlier this year, it won a stunning $706 million jury verdict in Texas district court for the suffering it endured at the hands of its tormentors at Title Source, one of the largest real-estate appraisal firms in the U.S.

Almost as surprising: this verdict entirely is justified.

HouseCanary was founded in 2013 by Chris Stroud and Jeremy Sicklick, who raised millions of dollars from such investors as Eric Schmidt, ex-chairman of Google, former Secretary of Commerce Penny Pritzker and Nigel Morris, founder of Capital One. In late 2013, Title Source approached HouseCanary, keen on its breakthrough analytics for real estate valuation.

Title Source, the appraisal arm of Quicken Loans (both are owned by real estate billionaire Dan Gilbert), presented itself as the dream client. It promised to pay millions of dollars in annual revenue to HouseCanary and distribute HouseCanary’s app to ten thousand appraisers nationwide. HouseCanary would reap the data they created and use the inputs to make the new app ever smarter.

Central to the contract they signed, Title Source promised never to plug HouseCanary’s prized, proprietary housing data into its own database, and, repeatedly, it assured the new partner that Title Source wouldn’t use the secrets for its own analytics.

Days after signing a contract laying out those restrictions, Title Source started violating most every one of them. Title Source executives, under the guise of taking HouseCanary under wing, conspired from the start to steal its technology and reverse-engineer it to develop rival tools of their own. They lied about it repeatedly—to HouseCanary, in depositions taken under oath and even on the witness stand at trial.

Evidence revealed in the trial showed that this caper was premeditated. Even before signing the contract with HouseCanary, a Title Source techie, Bryan Wang, told his CIO in an email that the real aim was to “build our own products… Let’s think big and wide on how to maximize the value of the HouseCanary data to our business.”

They began siphoning off millions of data points and 150,000 proprietary real estate files, plugging the data horde into a new database to reverse-engineer the HouseCanary code. A Title Source staffer said the project should be called “Birdcage,” they were capturing so much data. A data analyst said in one email: “Wow, this is indeed helpful! I am surprised that HouseCanary is willing to share this information.”

Title Source execs, meanwhile, spent two years stringing along the trusting startup without ever paying it a dime. They made HouseCanary jump through hoops, demanding more features in an app they had no plans to distribute and pressuring it to serve up more data. They negotiated three versions of the contract, reducing revenue from $10 million a year to $5 million and pressing to cut it to less than $1 million a year.

Near the end of the scheme, Title Source tried to slip in new terms to make permissible, retroactively, the prohibited conduct it had been engaging in for months (copying, sharing, reverse engineering) and let Title Source use HouseCanary data to make its own tools, something it already had done.

Then Title Source, flush with HouseCanary data, set out to bail on their contract and abandon the startup, taking steps to kill this canary before it could sing. In a bold stroke of “gaslighting,” Title Source acted as if it were the victim in this abusive relationship. It rushed to file a lawsuit against HouseCanary in state district court in San Antonio, alleging the new app was unworkable. Never mind that test users had raved about it. “Damn. This is seriously cool,” as an email from a Title Source operations director had put it two months earlier.

Title Source filed the lawsuit on April 12, 2016. Two days later, it served notice to the HouseCanary CEO, timing it for maximum damage—by handing court papers to him as he was stepping offstage after giving a speech to potential customers and investors at a trade show. Imagine the embarrassment: You’ve been served!

Five days after that, Title Source sent an email to HouseCanary terminating the contract. Then it sent subpoenas to HouseCanary investors and prospective investors, in a transparent attempt to spook them and cut off the flow of new capital to the startup.

The lawsuit was a feint, a preemptive cover for the abuses Title Source had been committing for months. Happily, it led to the great twist in this twisted tale. In the fact-finding phase, HouseCanary uncovered evidence of Title Source’s chicanery and duplicity and the truly grand scale of its theft of IP.

At trial, HouseCanary lawyers showed Title Source had developed versions of six pieces of HouseCanary’s system, including the new appraiser app for estimating a property’s value (AVM for Automated Valuation Model); a “data dictionary” of sources that took a team of experts at House Canary two years to refine; and a “similarity score.”

Confronted with this, Title Source people lied again and again. At least eight insiders, under oath, lied or made statements that were false, inaccurate or misleading, often intentionally so. Nobody ever gets charged with perjury in these scraps. “Everybody gets away with it,” says one observer in this case.

CIO Jeff Hu insisted repeatedly that Title Source had no AVM, and three other managers, under oath, also denied it. Four Title Source people said the company hadn’t developed its own similarity score. Yet HouseCanary discovered, serendipitously, an internal PowerPoint presentation made months earlier at a conference for Quicken Loans, in which one slide proclaimed: “Title Source Automated Valuation Model.”

That presentation was made by Claude Wang, a data modeler. At trial, under oath and on the witness stand, he repeated the claim that Title Source had no similarity score—only to have HouseCanary lawyers reveal, before the jury, video of Wang himself making the presentation at the conference and proudly citing Title Source’s new “similarity score.” His explanation to the disbelieving jury: “That’s what I said, but that’s not accurate.” Oh, what a tangled web we weave…

In this deceit-filled saga, Title Source sets a new high for chutzpah. Even after it filed the lawsuit against HouseCanary, Title Source continued downloadingHouseCanary’s secret data for a full month. And, smack dab in the middle of the trial, Title Source changed its name. For 20 years it was a real estate appraisal firm, and now it calls itself Amrock, a “real estate data analytics services company,” adding that phrase to its trademark filings.

The “analytics,” no doubt, are powered by the technology that the former Title Source stole from the startup it was pretending to help. Man, that is cold. -v-