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The Catastrophic Risk Of Stealing Trade Secrets: A Risk For Boards And The C-Suite

A jury recently ordered Amrock, Inc., a large U.S. title insurance and valuation firm affiliated with Quicken Loans, to pay $706 million to a housing data analytics firm from whom it allegedly stole trade secrets.

Amrock had contracted with HouseCanary to create software for appraisal and valuation services. Under the contract, Amrock would pay HouseCanary five million dollars per year.

However, in 2016, Amrock served HouseCanary with a fraud suit at a trade show to get out of the contract. Amrock alleged the software created by HouseCanary was "completely unusable" and was not what was expected under the contract.

However, the jury rejected Amrock's allegations that the software was "unusable" and instead found that Amrock intended to steal HouseCanary's proprietary data and technology to create competing software. According to HouseCanary, Amrock tried to steal its "highly valuable proprietary software, algorithms, models, data, reports, forms, data sources, know how, techniques, and methods" under "the guise of [a] licensing and business partnership."

The jury found Amrock violated a strict non-disclosure agreement and the 2015 master licensing agreement between the two organizations. The jury awarded $706 million in damages to HouseCanary. "Quicken Loans affiliate's lawsuit backfires as Texas jury awards $706 million verdict" www.dallasnews.com (Mar. 19, 2017).


Commentary

In this case, Amrock had to pay much more than the five million per year stipulated in the contract that it tried to break.

Lawsuits concerning theft of trade secrets often involve large awards for damages, as in this case, because an organization that loses its trade secrets loses its competitive edge. Executives and boards that do not protect trade secrets run a risk of devaluation and that, in turn, can lead to shareholder litigation.

Stealing trade secrets also creates risk. Damages for stealing trade secrets is what the company whose secrets were stolen would have made in profit, plus punitive damages. For many companies, that could mean millions, even billions, of dollars in damages. When organizations engage in this kind of behavior, shareholders suffer as stock prices drop, and will sue.

Organizations must honor the terms of all non-disclosure agreements and contracts made with third parties. Be especially concerned if a newly-hired employee presents information that could be the subject of a non-disclosure agreement. It is important for employers to take all reasonable measures to avoid stealing proprietary information from other organizations in order to prevent a lawsuit. 

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