By Roland Murphy for Arizona Builder’s Exchange
Having covered a lot of stories that featured real violence early in my career, I try to avoid military/violent adjectives when it comes to stories about business squabbles.
However, the recent turns and twists in the ongoing feud between CoStar and Xceligent are best described with terms like “bloodbath,” “war,” “body count,” “collateral damage,” etc.
First, a quick recap of the major players and events to date.
CoStar is, by far, the largest provider of commercial real estate data in the world. In an announcement this week, the company reported Q3 revenues of $248M, a 16 percent increase over the same time last year.
The degree of market dominance CoStar enjoys has led many in the market to refer to it as a monopoly. The company has a reputation for buying up competitors or suing them into submission. It’s nickname among many in the CRE industry is “The Death Star.”
Like other companies before it that have aggressively packaged themselves and grown into a position of dominance, CoStar has run into resentment from some in the user space who disapprove of their business practices or would like other options and additional, outside verification and cross-checking of data. Think Microsoft, Google, Facebook, etc.
Enter Xceligent, a self-styled plucky upstart which bills itself as something akin to a Rebel Alliance trying to provide its users with an option for CRE data other than CoStar. CoStar bought real estate listing service LoopNet in 2012. LoopNet had been Xceligent’s parent company. In order to maintain competition in the marketplace, the Federal Trade Commission issued a consent decree forcing CoStar to sell Xceligent to another investor.
In a perfect world, the two companies would have touched gloves and competed in a fair and open marketplace.
Of course, things didn’t work out anywhere close to that.
CoStar filed a lawsuit in December, alleging Xceligent outright stole and then reused and resold CoStar’s data on “an industrial scale”. The complaint claimed Xceligent had posted more than 10,000 CoStar-copyrighted material on the Xceligent site.
Xceligent then countered in grand fashion, alleging in a June countersuit that CoStar had created a monopoly and routinely engaged in anticompetitive behavior to maintain its position.
I could fill several pages with details from the filings, but that’s the general gist. If you want to see what I consider to be the definitive article on the litigation up to that point, check out Bisnow’s June 28 overview.
And, except for the routine filings of subpoenas and depositions, peppered by increasingly aggressive claims in communications to the press and their respective customer bases that’s where things largely stayed until last week.
As reported by Bisnow, the Washington Business Journal and other outlets last Friday, RE BackOffice, Inc. – an Xceligent contractor – filed a notice in U.S. District Court that conceded wrongdoing and stipulated CoStar’s allegations that RE BackOffice had been directed by Xceligent to hack CoStar’s content and copy it.
CoStar had filed a lawsuit against RE BackOffice the day before and sought damages and a permanent injunction.
In accepting the notice the judge ordered the RE BackOffice to pay CoStar all the profits it had earned from Xceligent and to not repeat its actions or face penalties of $20K for each future stolen listing.
CoStar sent a mailer to its customers dated Oct. 20 about the ruling. It the letter, CoStar said, “A U.S. federal judge has just entered a judgment in CoStar’s favor against one of Xceligent’s primary research providers, finding that they conspired with Xceligent to violate the Computer Fraud and Abuse Act and engage in unfair competition.”
CoStar went on to make much more far-reaching allegations. The company claimed it was tipped off to the violations by a former Xceligent employee and alleged, “We have sworn testimony from former Xceligent employees, offered under the penalty of perjury, that Xceligent management directed their researchers to copy content from CoStar Group and put it into Xceligent. Multiple sources stated that Xceligent’s CEO personally trained the researchers. Xceligent’s executives provided them with technical tools commonly used by hackers to circumvent CoStar’s website security.”
As part of its investigations, CoStar claims to have discovered that Xceligent worked with a contractor – Avion – located “in a remote Philippines jungle,” to have laborers, paid as little as a dollar an hour, directly steal CoStar’s data.
According to the letter, “Xceligent calls Avion a ‘special” partner and pays them via an offshore bank account under the name Xanivo (Xceligent + Avion). Xceligent sent a convicted felon, who served a 50-month prison sentence for fraud, to the Philippines to supervise Avion.”
The letter goes on to allege Avion employees may be involved with recruiting prostitutes for Backpage.com, which is involved in numerous investigations and lawsuits concerning sex trafficking. It does not, however, claim Xceligent had any part in those operations, other than possibly knowing they may have been taking place.
By Thursday morning, Xceligent was hitting back. Their Oct. 26 press release said, “Xceligent’s executives did not instruct any vendor to conduct any illegal activity. Indeed, just as Xceligent suspected, RE BackOffice simply chose to settle rather than fight an industry giant like CoStar. RE BackOffice just issued a press release stating:
Regarding the Costar litigation, (Case#- 2:17-cv-01354 at The Pittsburgh Federal Court) Harbinder Khera [RE BackOffice CEO] says, “RE BackOffice is not responsible, nor have we aided anyone in any mass copyright infringement. We have reached an amicable resolution in order to avoid the unnecessary distraction, which will keep us from taking care of our clients. In the last 11 years that RE BackOffice has been in the business, it has never engaged in copyright infringement or violated any other laws.”
Xceligent went on to say that under the 2012 consent decree with the FTC, “the company has been updating listings from broker-maintained websites. Xceligent did not steal images from a competitor. Xceligent did not set up a “sweatshop” in any country to conduct industrial scale theft, as alleged by Costar. Xceligent spends millions of dollars and has a staff of close to 1,000 researchers dedicated to building and updating industry content in its systems.”
So, that clears things up not in the least…
Fallout or Evolution?
The story doesn’t end there, however. In what may well be the worst case of timing for a supposedly previously planned company move, Xceligent announced CEO Doug Curry and his wife Erin, the firm’s chief people officer, left the company Tuesday, Oct. 24. Bisnow reported several sources said he was fired. CoStar also claimed he was fired. The fact that the departure came one day after the RE BackOffice ruling would make that unsurprising.
Xceligent, however, claims Curry’s departure had been planned for some time and the timing was entirely coincidental. Daily Mail General Trust, Xceligent’s parent company, had brought former Hanley Wood CEO Frank Anton aboard as a consultant two months ago. Anton will take the role of Xceligent’s executive chairman. Jody Vanarsdale, Xceligent’s Chief Operating Officer, will take on the role of Acting CEO.
Curry had previously said on multiple occasions he was dedicated to seeing the lawsuits with CoStar through to the end. Anton told Bisnow he doesn’t expect DMGT to settle with CoStar, but neither did he rule it out.