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A Texas appellate court reversed a $740 million trade secret theft and fraud judgment for real estate analytics company HouseCanary against rival Amrock, holding flawed jury instructions require a new trial.

In 2014, Title Source Insurance (TSI), a property valuation and settlement services company, contracted with HouseCanary, a real estate analytics company, to design an app that would allow TSI to perform appraisals more efficiently. The parties specifically agreed not to “decompile, disassemble, reverse translate, reverse engineer, or otherwise attempt to discover or directly access the source code of [the app] or any component or portion thereof.” HouseCanary’s work on the app involved multiple alleged trade secrets, including a complex data dictionary of property valuation attributes and a number of internal calculations and formulas used to evaluate property value. While HouseCanary built TSI’s app, TSI allegedly started developing its own products, utilizing HouseCanary’s protected data and formulas. Eventually the parties’ relationship deteriorated, and TSI accused HouseCanary of failing to deliver on the parties’ contract and sued for breach of contract and fraud. HouseCanary counterclaimed for breach of contract, misappropriation of trade secrets, and fraud. A jury found for HouseCanary and awarded actual and punitive damages.

The appellate court reversed, holding that faulty jury instructions warranted a new trial on both the misappropriation and fraud claims. The misappropriation jury instructions improperly included multiple liability theories that were not supported by legally sufficient evidence. The jury could find misappropriation based on a “use” theory or an “improper means” theory. Consistent with Texas law, the jury was instructed that “improper means” include “bribery, espionage, and breach or inducement of a breach of a duty to maintain secrecy, to limit use, or to prohibit discovery of a trade secret.” But as HouseCanary conceded at oral argument, there was no evidence that TSI acquired the trade secrets through bribery, espionage, or through breach of inducement; therefore, the jury instructions should have precluded those misappropriation theories. In essence, the appellate court decided that a jury instruction cannot mix valid and invalid theories otherwise the court cannot assess whether the jury’s verdict was based on the valid or invalid theory.

Similarly, the jury found liability based on one broadly worded fraud claim, even though HouseCanary’s fraud claim included allegations based on trade secrets, which are preempted by Texas’s Uniform Trade Secret Act, and allegations based on common law fraud, which are not preempted. Because the jury’s verdict did not distinguish the allegations that supported its fraud verdict, the court reversed the judgment and remanded for a new trial on the fraud claim.

The case is Title Source, Inc. v. HouseCanary, Inc., –S.W.3d–, 2020 WL 2858866 (Tex. Ct. App. June 3, 2020).