Updated below with details from court hearing.
There will be no shortage of fireworks this week as two longtime online real estate rivals face-off in court, part of an intense and costly legal battle that has raged for more than two years between Move Inc. and Zillow.
The key issue?
Move Inc. — part of Rupert Murdoch’s News Corp. and operator of Realtor.com — alleges that two former execs stole trade secrets and destroyed documents when they left Move for Zillow.
Move sued Zillow and Errol Samuelson in March 2014, just 12 days after the former Move chairman joined Seattle-based Zillow. A King County Superior Court Judge later barred Samuelson from performing many of his key duties as Zillow’s Chief Industry Development Officer, sidelining the exec for a year.
Move later sued Curt Beardsley in December 2014, alleging that the former Move executive destroyed key documents on his way out the door to Zillow.
At stake is not only a lot of money — Move alleges that it has been damaged to the tune of $2 billion by the actions of Zillow, Beardsley and Samuelson — but also pride.
At this week’s evidentiary hearing in King County Superior Court, lawyers for both sides will attempt to paint differing views of the situation.
In a court document filed earlier this month in advance of this week’s hearing (see below), Beardsley’s attorney writes that Move assumes that Beardsley was participating in a scheme to steal trade secrets, but if you take away that assumption than the motion “teeters and collapses.” Furthermore, the attorney notes that Beardsley’s references to the “Vichy French” does not signal some “sinister plan” to steal trade secrets, but shows a man who was struggling with the perceptions of possible betrayal that may come along with his move to a rival.
“He wanted to avoid this perception, and he wanted to make sure he didn’t view himself as a traitor,” noted Beardsley’s attorney, James Savitt, adding that the email where “Vichy French” was noted does not “come close” to suggesting a plan to steal trade secrets.
Another key allegation in the case is that Beardsley deleted emails, cleaned out his browser history, lost thumb drives and destroyed a hard drive upon his departure from Move. Beardsley’s attorney said the behavior exhibited by the real estate exec is commonplace when people leave a job, and nothing indicates some “sinister” plot to lose them on purpose.
In fact, according to his lawyer, one of the reasons why Beardsley wanted to make sure that his laptop computer was wiped clean was due to the fact that he had visited porn sites and “he was mortified to think that others, including work colleagues and industry folks, would find out.” There was no “bad faith” to destroy evidence, wrote Savitt.
In fact, the pornography component of the case received attention yesterday when The New York Post — which like Move is owned by Murdoch’s News Corp. — wrote a story with the headline “Zillow’s defense: Exec was erasing porn, not evidence.” In remarks today at the hearing, attorneys for Beardsley noted the common ownership between Move and the New York newspaper, alleging that there was a correlation between the two.
In a SEC filing earlier this year with financial analysts, Zillow noted that its legal costs reached $27.1 million in the Move case last year, and they could surpass $60 million this year as it defends itself in the lawsuit.
The case is headed toward a trial on June 6, and of course anything can happen once legal matters of this size and complexity reach a jury.
Even so, one financial analyst who has closely watched the case thinks that Zillow could be in trouble.
Thomas Claps, the litigation desk analyst at Susquehana Financial Group, noted in a report earlier this month that Move clearly has the “edge” and the plaintiffs have “significant leverage” to ask for a large settlement.
Claps says in a research note that’s because “there is a significant amount of inflammatory evidence in the record concerning Zillow and the Defendants’ alleged trade secrets violations” and the judge “already issued a Preliminary Injunction against Zillow in the case, finding that Plaintiffs ‘have a substantial likelihood of success on claims for threatened misappropriation of trade secret information.'”
This week’s hearing is key in the case, according to Claps. That’s in part because the judge plans to hear arguments regarding destruction of evidence, which is a key component of Move’s allegations.
Zillow issued this statement to GeekWire this morning:
This case is not about one salacious detail. Ultimately this comes down to News Corp trying to win in the courts, since they aren’t winning in the court of consumer opinion. We support Curt Beardsley and Errol Samuelson and will continue to vigorously defend them and Zillow against these claims.
In a statement to GeekWire, Move dubbed the actions of Zillow and the co-defendants “corporate espionage” and noted that Zillow engaged in a “very regrettable act of executive poaching.”
The defendants used all manner of subterfuge to steal some of Move’s most valuable information and ideas, then destroyed evidence of their misdeeds and concocted shifting explanations for their behaviors. We are seeking justice for this misconduct and look forward to presenting our evidence in court.
Zillow is valued at $3.65 billion, while Move Inc. is privately-held following its $950 million sale to News Corp. in 2014.
GeekWire is at at the King County Court House this morning, and we’ll update this report later today.
Update, 10:50 a.m. In court, a lawyer for Move Inc., David R. Singer, grilled Beardsley over documents related to Move and Zillow, including a Google Doc file containing his notes on how Zillow could challenge Move. The notes, which date back to before Beardsley’s hiring by Zillow, include thoughts on how Zillow could “Undermine ListHub’s Reporting Revenue,” referring to one of Move’s businesses.
The questions focused on Move’s instructions to Beardsley, via its HR department and a subsequent subpoena, to preserve documents and return drives that had been connected to his Move computer.
Beardsley acknowledged that he destroyed a Western Digital external drive that had been used to back up his computer, but he said he did so because he was frustrated that it was becoming faulty, not because of any legal implications. “I picked the Western Digital up and I threw it. … It didn’t even cross my mind. I didn’t think about that. Looking back it was somewhat childish, but I threw it.”
He also acknowledged reformatting at least one drive, but said it was part of his common practice. “Those thumb drives got reused and repurposed many times,” he said.
Move Inc. will present their arguments Monday and Tuesday, with Zillow to present its side on Wednesday and Thursday.