The theft of intellectual property and the resulting economic damage wrought by highly sophisticated modern-day thieves is one of the most serious economic issues facing the United States and its businesses today.
The threat posed by foreign entities, especially China, receives most of the headlines — and understandably so. Intellectual property theft by Chinese corporations, agents and citizens is taking a severe toll on the American economy and the bottom line of U.S. businesses.
Unfortunately, this is nothing new. Since very early in the trade relationship between the United States and China, the theft of our trade secrets and intellectual property has been so prevalent that many companies doing business in China view theft as an unfortunate cost of doing business in China.
The United States historically has used civil — not criminal — courts in an attempt to stop trade secret theft. That approach has proven to be largely ineffective as financial losses continue to stack up for businesses and the economy as a whole.
The Trump administration, however, has little interest in maintaining the status quo, actively presenting new remedies to protecting intellectual property and promoting U.S. competitiveness. That includes going after intellectual property thieves in criminal courts, notably in three recent high-profile cases.
In October, the Justice Department announced that a Chinese Ministry of State Security operative was arrested and charged with “conspiring and attempting to commit economic espionage and steal trade secrets from multiple U.S. aviation and aerospace companies.”
Three weeks later, the Justice Department indicted a Chinese state-owned company for conspiring to steal intellectual property from Micron Technology Inc.
In January, the Justice Department indicted Huawei Device Co. for theft of trade secrets conspiracy, attempted theft of trade secrets, seven counts of wire fraud and one count of obstruction of justice.
But what happens when the threat to intellectual property rights comes from within — putting American innovators and companies at risk by dealing an innovation-crushing award for a highly questionable “trade secret?”
Such is the case in Texas, where Amrock is appealing a jury verdict for a staggering $706 million — awarded to a startup company called HouseCanary, which alleged that Amrock stole trade secrets.
At issue was a $5 million annual contract, in which HouseCanary agreed to provide Amrock a revolutionary real estate automated valuation model (AVM) mobile app that would produce property appraisal reports. After months of not receiving a working app, Amrock sued HouseCanary for breach of contract.
HouseCanary countersued, alleging that Amrock misappropriated its automated valuation model — an allegation later debunked in court and under oath by HouseCanary’s own expert witness.
This witness affirmed that Amrock did not use any of HouseCanary’s purported trade secrets. In fact, executives who worked at HouseCanary testified that the company was never able to provide Amrock with a working app-based automated valuation model product, even though it was contractually obligated to do so.
Nevertheless, a San Antonio jury reached a $706 million verdict against Amrock — the largest punitive damages award ever in Bexar County and one of the largest in American history.
The size of the verdict awarded in a state that is infamous for huge tort awards is truly outrageous. In fact, it is nearly 150 times the amount of the original contract between the two companies and over 10 times more than the total amount raised in venture capital by HouseCanary.
HouseCanary’s trade secrets claim for technology that is common and based on public information is overreaching and could have broader implications for U.S. companies that may face similar allegations. The allure of massive judgments like this will entice future claims as evidence grows of the potential for massive spoils to those willing to take a shot and cry afoul, no matter how baseless their intellectual property allegations may be.
This massive award for secrets that HouseCanary divulged in public may be the largest figure example of “friendly fire” in the struggle to protect the sanctity of U.S trade secrets. This ridiculous award sends a message to China and other trading partners that just as the U.S. may finally have intellectual property thieves in our sights, we are just as likely to shoot ourselves in the foot as we are to hit our target.
The $706 million is an off-target hit that may ultimately cost the American economy much more and diminish hard-fought gains against the problem of intellectual property theft.
• Jared Whitley has worked in the U.S. Senate, the Bush White House and the defense industry. He is principal of Whitley Political Media, LLC.