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Judge enters $500M judgment in real estate data dispute

Scott Lauck//January 6, 2020

Judge enters $500M judgment in real estate data dispute

Scott Lauck//January 6, 2020

A federal judge in Kansas City entered a $500 million judgment against a bankrupt real estate data company, putting the finishing touches on a world-spanning, copyright-infringement suit.

In 2016, CoStar Group, the country’s largest provider of commercial real estate information services, alleged that a rival company, Blue Springs-based Xceligent Inc., had engaged in “mass-copying CoStar’s information and photographs market-by-market.”

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CoStar maintains a subscription database of commercial real estate information containing millions of copyrighted photographs of properties. The company alleged that Xceligent employees and agents copied the images and reposted them, often at a lower resolution and with CoStar’s watermark cropped out. The suit also alleged Xceligent made unauthorized use of property values that were estimated using proprietary CoStar tools, which are available only through the subscription database.

CoStar alleged that Xceligent used anonymizing programs to mask its computers and servers, and that it employed companies in the Philippines and India to gather the data in defiance of CoStar’s country-blocking software.

“Although Xceligent, part of a multi-billion-dollar-conglomerate, has more than enough resources to compete fairly, Xceligent’s business model is based on theft from CoStar,” the complaint alleged.

Xceligent denied the claims and filed a counterclaim that alleged CoStar had engaged in anticompetitive behavior. Among the allegations were that CoStar appropriated data and images uploaded by brokers and imposed terms and conditions that discouraged those brokers from working with Xceligent.

“CoStar seeks to entrench further its monopoly position, in order to continue charging supra-competitive prices, all at the expense of brokers and other industry professionals and, ultimately, the public,” the counterclaim said.

Xceligent was founded in 2000 to organize commercial real estate listings in the Kansas City area and later expanded to other cities. It was acquired later by LoopNet, a commercial real estate listings-database company. CoStar acquired LoopNet in 2012 for $860 million. The Federal Trade Commission required CoStar to sell LoopNet’s ownership interest in Xceligent, however, and it imposed other conditions to allow the two companies to compete.

Following the filing of CoStar’s lawsuit, Xceligent filed for bankruptcy in 2017, causing the Missouri suit to be stayed for two years. In October 2019, CoStar and the trustee for the estate of Xceligent reached a settlement in the U.S. Bankruptcy Court for the District of Delaware. The parties agreed to damages of $500 million, though Xceligent’s insurers were liable for only about $11 million as part of the agreement.

The overarching damages judgment was subject to court approval in Missouri. On Dec. 3, Judge Fernando J. Gaitan Jr. entered the requested judgment on claims of breach of contract and unfair competition, as well as violations of the federal Computer Fraud and Abuse Act and Digital Millennium Copyright Act. Gaitan also dismissed Xceligent’s counterclaim.

The judgment also includes an injunction barring Xceligent and its employees and agents from continuing to misappropriate CoStar’s data and copyrighted photographs. Penalties for continued violations are $50,000 per instance per day.

Nicholas J. Boyle of Williams & Connolly, Washington, D.C., an attorney for CoStar, said the $500 million figure, though large, was “a bit of a compromise.” According to court records, an FTC monitor’s report found 38,489 images that Xceligent had improperly derived from CoStar. Had the plaintiffs sought $50,000 for each of those images, damages would have approached $2 billion.

“It quickly gets into the stratosphere,” Boyle said.

Attorneys from Shook, Hardy & Bacon in Kansas City served as local counsel for CoStar. Alfred T. Giuliano, a New Jersey-based CPA who served as the trustee for Xceligent, couldn’t be reached for comment.

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Copyright Infringement

Venue: U.S. District Court for the Western District of Missouri

Case Number/Date: 4:16-cv-01288/Dec. 3, 2019

Judge: Fernando J. Gaitan Jr.

Caption: CoStar Group Inc. and CoStar Realty Information Inc. v. Xceligent Inc.

Plaintiffs’ Attorneys: Robert T. Adams, Ann M. Songer and Eric M. Anielak, Shook, Hardy & Bacon, Kansas City; Nicholas J. Boyle, Carl R. Metz and C. Bryan Wilson, Williams & Connolly, Washington, D.C.

Defendant’s Attorneys: Mark Lehnardt and Gregory Commins Jr., Baker Hostetler, Washington, D.C.

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