In a blockbuster lawsuit filed earlier this week in federal court, Collateral Analytics claims that Nationstar Mortgage stole the company’s proprietary property valuation technology, had a subsidiary replicate it, and is now trying to push Collateral Analytics aside to sell “knock-offs” of the company’s software to other market participants.
Collateral Analytics is a developer and provider of automated valuation models and other property valuation tools. According to the lawsuit, Nationstar, and its subsidiary, Xome, have been Collateral Analytics customers since 2013, using the Collateral Analytics’ software and services as an “essential component” of the companies’ business.
But the lawsuit claims that Nationstar and Xome “apparently didn’t like” paying Collateral Analytics for its services, but couldn’t afford to stop using the services.
“Because there are no other products on the market with comparable accuracy, coverage, and functionality, (Nationstar and Xome) were unwilling to switch suppliers,” the lawsuit states. “And, because it literally takes decades of research and refinement (not to mention many millions of dollars) to make a product with the accuracy, coverage, and functionality that Collateral Analytics displays, Defendants were unable to develop their own.”
So, the lawsuit claims that Nationstar took matters into its own hands and stole Collateral Analytics trade secrets.
The lawsuit claims that Nationstar stole Collateral Analytics’ “technology, confidential information, and trade secrets” and gave them to Quantarium, a company acquired by Xome in 2015 and a named defendant in the lawsuit.
The lawsuit claims that Nationstar and Xome directed engineers at Quantarium, a real estate analytics company, to copy Collateral Analytics’ products.
According to the lawsuit, Nationstar and Xome have since used those “knock-offs” to replace the services provided by Collateral Analytics, and now plan to offer those “knock-off” products to separate third-party customers, passing the products off as their own.
The lawsuit lays out the nature and details of the alleged theft, although the copy HousingWire reviewed is heavily redacted.
In the lawsuit, Collateral Analytics stated that it views its models, processes, algorithms, workflow, negative knowledge, and data selection to be trade secrets.
The company claims that its trade secrets provide a competitive advantage and if those trade secrets were exposed to competitors, it would be damaging to the company’s business.
The lawsuit states that CA takes “extensive measures” to protect those trade secrets, including requiring all potential customers to enter into a non-disclosure agreement before the company is even allowed to see CA’s products.
Once a contract is signed, CA enters into written licensing agreements with its customers, which limit both the use and permissible disclosure of Collateral Analytics’ confidential information, the lawsuit states.
According to the lawsuit, both Nationstar and Xome signed agreements with “broad confidentiality definitions and tight restrictions on what could be done with Collateral Analytics’ confidential information.” But the lawsuit claims that the companies violated those agreements.
“While Collateral Analytics was working to delight its customer, Nationstar and Xome were secretly plotting to use what they learned from Collateral Analytics to copy Collateral Analytics’ industry-leading tools—all while deceiving Collateral Analytics both about that copying and the fact that they intended to replace Collateral Analytics with the copied products,” the lawsuit states.
To achieve that end, the lawsuit states that Nationstar and Xome purchased Quantarium. The lawsuit claims that Quantarium was primarily a developer of title management software at the time and had neither the expertise nor manpower necessary to develop AVM models.
But the lawsuit claims that Nationstar and Xome continually provided confidential information to Quantarium to enable the company to develop competing property valuation tools, which it now plans to sell to third parties.
“In fact, Quantarium—no longer satisfied with selling its knock-offs to its affiliates—recently announced that it will start licensing its knock-off iBPO product to third-party customers (other than Nationstar and Xome),” the lawsuit states.
That development is a “nightmare” scenario for CA, the lawsuit claims.
“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,” the lawsuit states (emphasis included from lawsuit text).
“Collateral Analytics relied on Nationstar and Xome’s repeated assurances that Quantarium was incapable of and would not be used to replace Collateral Analytics, on the express promises and contractual commitments in the parties’ agreements, and on a belief that a large, publicly traded company like Nationstar would have some respect for the law,” the lawsuit continues (emphasis again included directly from lawsuit).
“In sum, Defendants repeatedly breached multiple contracts with Collateral Analytics, misappropriated Collateral Analytics’ confidential information—including but not limited to its trade secrets—circumvented the technological controls on Collateral Analytics’ software platforms, and committed numerous other bad acts,” the lawsuit continues.
“Collateral Analytics brings this Complaint to put a stop to this practice, to shut down the ongoing theft of its intellectual property, and to recover the money it has lost as a result of the Defendants’ activities,” the lawsuit concludes.
When contacted by HousingWire, both companies said that they are not commenting on the ongoing litigation.