Seattle-based Zillow Group filed two lawsuits Friday against real estate rival Compass, alleging that the SoftBank-backed high-tech brokerage stole Zillow intellectual property and poached its employees who violated non-compete agreements.
The suits, filed in Washington state court and federal court, allege that Compass hired three Zillow employees — Robert Chen, former head of machine learning at Zillow; Michael Hania, a former Zillow enterprise sales executive; and Chester Millisock Jr., a former Zillow software engineer — who previously signed contracts with 12-month non-compete and non-disclosure clauses.
Zillow also accused the employees of stealing trade secrets and confidential info such as customer lists, sales data, and highly technical information before they left to Compass.
“This calculated theft was designed by Compass to help it better compete with Zillow in the marketplace, at Zillow’s expense, and so Compass could avoid the expense of independently developing valuable machine learning and other technologies,” reads the federal lawsuit involving Chen.
This past December, New York-based Compass opened a West Coast engineering outpost in Seattle. It aimed to hire at least 100 engineers to work on a variety of projects to aid Compass real estate agents, including marketing tech, new media, web and mobile, security, streaming, image and video processing, search, data science and artificial intelligence.
“In December 2018, Compass publicly announced the launch of a product and engineering hub in Seattle to directly compete with Zillow in the highly competitive technology sector focused on simplifying the home buying and selling process. It then initiated a campaign to recruit Zillow employees,” the federal lawsuit reads.
Zillow said that Compass has engaged in similar “unlawful poaching of its competitors’ employees,” citing more than a dozen lawsuits filed against Compass in the past five years involving “theft of proprietary and confidential information.” Zillow also states that Compass is a “direct competitor.”
Chen’s LinkedIn profile notes that he left Zillow in March. Hania started at Compass this past June after leaving ZIllow the same month, while Millisock Jr. joined in March after leaving in February, according to LinkedIn.
Zillow is asking for monetary damages and to enforce the 12-month non-compete clause for Chen. The company also wants to prevent Hania and Millisock Jr. from sharing Zillow’s confidential information.
A Zillow spokesperson provided this statement from the company:
“We support healthy competition to drive innovation. Compass’s practices are something different; they are unlawful, and because we have a responsibility to protect our intellectual property, we are taking action. We take seriously the agreements Zillow Group makes with its employees, and we work to fairly and completely enforce those agreements when we believe they are violated.”
A Compass spokesperson also provided a statement:
“You cannot break a non-compete by leaving to go to a company that does not compete with you. With hundreds of engineers and hundreds of sales people, it’s unfortunate that losing three individual contributors would result in using scare tactics to intimidate current employees from leaving. Compass has never asked and would never accept any trade secrets. A number of years ago Compass abolished non-competes for anyone that we hired as we believe that people should work at Compass because they want to, not because they are forced to.”
Non-compete agreements are a lightning rod in the tech industry, with proponents claiming they protect trade secrets and critics arguing they stifle innovation. A bill imposing new restrictions on non-compete agreements passed both houses of the Washington state legislature this week.
Compass has raised a whopping $1.2 billion since it was founded in 2012, and it is valued at $4.4 billion. Its backers include heavyweight investors such as SoftBank, Fidelity, Goldman Sachs, Founders Fund, and Salesforce CEO Marc Benioff. The company has 7,000 agents across 165 offices in more than 80 cities nationwide.
The Compass office in Seattle at the co-working space Industrious is its first engineering hub outside its hometown of New York and also home to senior product and engineering leadership. Compass also has additional space in downtown Seattle.
Joseph Sirosh, who joined Compass as CTO in December after spending five years at Microsoft, leads the engineering operations both in Seattle and New York. Compass is led by founder and CEO Robert Reffkin, a former chief of staff at Goldman Sachs. The other founder, Ori Allon, spent time at Twitter and Google after selling startups to the tech giants.
Zillow, meanwhile, recently announced a surprising shift that included co-founder Rich Barton’s return as CEO, and Zillow’s declaration that it will go all-in on direct home sales. Zillow’s bet on home sales brings it in competition with a number of well-funded and experienced rivals in an increasingly crowded market that includes Compass.
Zillow was on the other end of a non-compete lawsuit a few years ago with Realtor.com operator Move Inc. and the National Association of Realtors over Zillow’s hiring of two former Move execs, Errol Samuelson and Curt Beardsley. Move, owned by Rupert Murdoch’s News Corp, alleged that the former executives stole trade secrets and later tried to cover up their actions by destroying files and other evidence. The companies reached a $130 million settlement in 2016.
Zillow reported revenue of $1.3 billion for 2018, up 24 percent. Its stock price dipped heavily during the second half of 2018 but is up 16 percent this year, trading at $35.61 on Friday.