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Amrock's US$706m lawsuit loss draws out surprise whistle blowers

New York

ONE of the biggest trade secrets cases in US history took a bizarre turn, with the company that lost a US$706 million jury verdict saying it uncovered "bombshell" evidence of fraud thanks to whistle blowers who used to work for the winning side.

Amrock Inc, an affiliate of mortgage-lending firm Quicken Loans Inc, in March lost a trial in Texas against the data-analytics firm HouseCanary Inc, which Amrock sued in 2016. At the centre of the suit is a botched licencing deal for Amrock to get cutting-edge home-appraisal software from HouseCanary, whose backers include former Alphabet Inc chairman Eric Schmidt's family office.

While Amrock claimed HouseCanary's products were "completely unusable", the jury saw it differently. The panel found Amrock copied HouseCanary's trade secrets and then backed out of their agreement early while still owing US$5 million to the San Francisco-based company. Amrock was shocked by the jury award, which was enhanced by "exemplary" and punitive damages.

Amrock, which calls itself the biggest independent title-insurance and valuation firm in the US, said in a court filing on Friday that a pair of former HouseCanary employees were also shocked by the verdict, and came forward with first-hand accounts that Amrock's allegations were spot on.

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The whistle blowers have signed sworn declarations saying HouseCanary's technology at the relevant time wasn't proprietary, that their products weren't ready for market and that Amrock, formerly known as Title Source, was intentionally misled. Much of the technology was actually licensed by a third party and simply overlaid by a HouseCanary interface, they said.

HouseCanary "never had any proprietary anything" and it was "all a lie", one of the whistle blowers said, according to the filing. The names of both whistle blowers and some of their allegations of have been redacted from the court filing to protect them from retaliation, Amrock says.

"This is the rarest of circumstances," Amrock's attorney, Randy Mastro of Gibson, Dunn & Crutcher LLP, said in a phone call. "But after a shocking jury verdict, these former HouseCanary employees have felt compelled as a matter of conscience to come forward and tell the truth."

Ricardo Cedillo, HouseCanary's attorney in San Antonio, balked at Amrock's decision to redact the names of the whistle blowers. He said the jury had already rejected all the same claims made by the former employees anyway, based on extensive evidence presented at trial, including Amrock's internal communications praising HouseCanary's work.

"If they have that witness, bring him. Let me cross-examine him. Let me see who it is. A disgruntled employee?" Mr Cedillo said in a phone call. "It stinks."

The first whistle blower to come forward used an alias e-mail account to contact Amrock chief executive officer Jeff Eisenshtadt on March 15, the same day as the jury verdict, saying the size of the award had moved him to speak out.

"I wrote the e-mail to Mr Eisenshtadt because I had serious concerns about the integrity of the jury verdict rendered in the case," the whistle blower said in his sworn filing. "I had not come forward during these proceedings because I was afraid to speak up against my former employer."

That triggered an investigation at Amrock that led to another former HouseCanary employee agreeing to go on the record, according to the filing. That employee backed the claims about the company's technology and called HouseCanary a "house of cards".

As word of Amrock's investigation spread, representatives of HouseCanary offered the former employee a consulting job for US$250 an hour "with no specifically-defined scope of work, nor any minimum or maximum number of hours per month", according to the filing.

"After considering the offer, I concluded that the offer was actually an attempt to get me 'under contract' to HouseCanary and to prevent me from speaking to anyone," the second whistle blower said. BLOOMEBRG

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