CoStar Awarded Record $500M Settlement From Xceligent In Copyright Suit

CoStar Group's legal battle with Xceligent appeared to fade when its competitor shut down nearly two years ago, but new documents show the dispute has continued behind the scenes, and CoStar just won a major victory. 

CoStar and Xceligent's court-appointed bankruptcy trustee filed a proposed judgment in Delaware Bankruptcy Court Tuesday, finding Xceligent liable for $500M in damages for stealing tens of thousands of images from CoStar's databases.

Xceligent, which filed for Chapter 7 bankruptcy liquidation in December 2017, doesn't have the assets to fulfill the entire $500M ruling. The parties reached a settlement through which Xceligent's insurers will pay CoStar $10.75M. The bankruptcy settlement and judgment in the copyright infringement case are both subject to court approval.

CoStar CEO Andy Florance, in an interview with Bisnow Tuesday, said his company spent more than double what it will receive on legal fees and its discovery process, including sending dozens of investigators to search and seize documents from an Xceligent vendor in the Philippines. 

"We're very glad to have it, $10.7M is nothing to sneeze at, but it doesn't cover half our costs," Florance said. "I think it's a pretty big deterrent that basically shows the next folks who decide to systematically scrape our websites that, in fact, the law is clear, and it's not a way to make money."

The legal dispute began in December 2016, when CoStar sued Xceligent for copyright infringement. A Federal Trade Commission-appointed monitor found in October 2018 that Xceligent had 38,489 images in its systems derived improperly from CoStar. The monitor's findings had been confidential until Tuesday, when they were revealed as part of the settlement. 

"We're grateful to the FTC that they did this investigation," Florance said. "We were very frustrated that we knew the results of it last year, but we couldn't tell anybody." 

In reaching the settlement agreement, Xceligent's trustee, Alfred Giuliano, a New Jersey-based accountant, acknowledged many of the claims CoStar has lobbed against its onetime rival for years, including that Xceligent's leadership directed widespread theft of copyrighted images.

If the bankruptcy court approves the $10.75M settlement, it will lift the stay on the copyright infringement suit in the U.S. Western District Court of Missouri, where Judge Fernando J. Gaitan Jr. could approve the $500M proposed judgment, according to the settlement agreement. CoStar says it is the largest-ever settlement in a copyrighted image lawsuit.

The copyright infringement dispute centered around offshore agents of Xceligent in India and the Philippines that CoStar claimed were stealing content from its databases. 

Additional documents released Tuesday show that in October 2018, directors of the Philippines vendor, Avion BPO Corp., were indicted for criminal counts relating to the work it performed on behalf of Xceligent. An Indian court in April 2018 issued a permanent injunction against Xceligent's Indian vendor, MaxVal Technologies, documents show. 

"It was an extraordinary effort; the management team at Xceligent had intentionally gone off-shore and were using the dark web and other tools to disguise their IP addresses," Florance said. "We were not going to be able to stop this unless we developed clear and convincing evidence."

To find that evidence, Florance said CoStar deployed a team of 80 people to execute searches and seizures of Avion BPO Corp. in the Philippines, an effort he said the local government would not have been able to undertake. Those three seizures took place simultaneously Dec. 13, 2016, according to documents from the Philippines Department of Justice obtained by Bisnow, one day after CoStar filed its initial suit against Xceligent.

"The area in which they were operating is largely a lawless area of the Philippines, it's really not under clean federal control, so it was pretty much do it ourselves or it wasn't going to happen," Florance said. "We did have personnel on the ground in a pretty dangerous area."

The agreement with Xceligent's trustee represents a key step to resolving the yearslong legal dispute, but the battle may not be over. While the corporate entity of Xceligent was a party to the settlement, it did not involve the company's executives, such as founder and former CEO Doug Curry. 

"Xceligent isn't Xceligent; Xceligent is a person," Florance said, later confirming that Curry was the person to which he referred. He also said he wouldn't rule out further action against Curry or his former colleagues.

When reached via phone in Australia, Curry declined to comment. He later issued a written statement to Bisnow denying the claims laid out in the settlement agreement.

"Xceligent did not commit IP theft and I did not instruct anyone to commit IP theft," Curry said. "Our customers submitted 9,000 photos through property brochures over an 18-year period, and we spent millions of dollars during the case proving the source of each image. Xceligent independently collected over 10 million photos. Xceligent merely ran out of money due to the extensive legal fees it incurred protecting against CoStar's attack, just like so many of CoStar's other competitors over the last 30 years.  

"I find this settlement troubling, since neither I nor any former Xceligent executive was included in the ongoing investigation for this case. Yet I was named again in a PR stunt with no evidentiary proof whatsoever. This is clearly CoStar attempting to vindicate its anti-competitive actions two years after it forced its last true competitor out of business. I wish the U.S. commercial real estate industry the best of luck working with a monopoly that has no boundaries."

Curry founded Xceligent in 1999, taking aim at CoStar’s already-dominant position in the commercial real estate data market. When CoStar acquired LoopNet, which was Xceligent’s majority shareholder, in 2012, the FTC required Xceligent be sold so it could stand on its own as a competitor. The UK’s Daily Mail and General Trust stepped in and acquired it.

DMGT spent roughly $150M fueling Xceligent's growth by June 2017, but by that November, it had written the value of its investment down to zero. Curry was let go that October, and two months later sued DMGT in Missouri court, claiming he was owed a severance package of $350K. 

A DMGT spokesperson did not respond to a request for comment.

Curry is now CEO of Empirical CRE, a company founded in May 2018 and based in Sydney, Australia, according to his LinkedIn page.

Moody's Corp., which this year launched a commercial real estate data network that competes with CoStar, has acquired a 23.8% stake in Empirical CRE, Securities and Exchange Commission documents show.

In an SEC form disclosing the $2.4M investment, Empirical CRE listed Curry as its president and Moody's Managing Director of Strategy & Innovation Mikael Nyberg as one of its two directors. Moody's didn't immediately respond to a request for comment.

Florance questioned the rationale for investing in Curry's company, given his involvement in the copyright violations for which the FTC and courts have found Xceligent liable. 

"When you look at Moody's investing ... into Doug's latest venture, you do wonder what people are thinking," Florance said. "I'm just amazed how someone can engage in that kind of behavior and people continue to fund them." 

Before Xceligent liquidated in December 2017, laying off all of its employees, it and CoStar were engaged in a pitched public relations battle. Xceligent filed a countersuit against CoStar in June 2017, claiming it was an illegal monopoly and had engaged in anti-competitive practices. Months later, after Curry was fired from Xceligent, CoStar sent an email to its clients accusing Curry of having "a perverted philosophy." 

While he hopes the latest judgement serves as a deterrent, Florance said CoStar has detected recent copyright violations. He declined to name the companies involved. 

"We can already see it happening again," Florance said. "We already have investigations into high-frequency, high-volume attempts to hack our servers and steal content from household companies that you would recognize."

In the 34 months since CoStar filed its lawsuit against Xceligent, its stock has nearly tripled from $183 per share to $572 per share, an increase of more than 200% that has brought its market capitalization to $20.9B. 

Florance said he thinks Xceligent shutting down was "something of a factor" in CoStar's recent growth. But he thinks the larger factor was its acquisition of Apartments.com and the marketing revenue it has received from the rental listing platform. 

CoStar Tuesday released its Q3 earnings showing a revenue increase of 15% over the third quarter of 2018. The company also said it closed on its acquisition of hotel research firm STR, just three weeks after announcing the agreement.

Florance addressed the settlement on CoStar's Q3 earnings call Tuesday evening. 

"We believe this is a complete vindication of CoStar's allegation of Xceligent's unlawful activity," Florance said on the call.

Mark F. Bonner contributed reporting to this story.