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How Is the CoStar/Xceligent Legal Battle Likely to Play Out?

Proving an anti-trust case tends to be extremely difficult, according to Andre P. Barlow, partner in the Washington, D.C. office of law firm Doyle, Barlow & Mazard PLLC.

The commercial property data provider industry is facing a major legal battle, but experts say a resolution may be a long time in coming.

In late June, commercial real estate information provider Xceligent filed a counter lawsuit against its major competitor CoStar Group, alleging anti-trust violations. In the suit, Xceligent claims that CoStar has violated the terms of its 2012 agreement with the Federal Trade Commission and that it illegally uses Internet blocks and data alteration to prevent its clients from sharing data with CoStar’s competitors. Later in the legal brief, Xceligent goes on to refer to “exclusionary contractual terms enforced by technological impediments and active conduct that block Xceligent’s access to a necessary input—customer data.” The suit is in response to a case filed by CoStar in December 2016 that accuses Xceligent of intellectual property theft.

Proving an anti-trust case tends to be extremely difficult, according to Andre P. Barlow, partner in the Washington, D.C. office of law firm Doyle, Barlow & Mazard PLLC. CoStar can argue that aggressive protection of its data is a legitimate business practice, he notes. Proving that a firm has a monopoly in its industry is not enough to win a case, according to Barlow. “Xceligent still has to prove that CoStar’s conduct is anti-competitive and exclusionary.”

Barlow notes that given the high cost and difficulty of winning an anti-trust case, Xceligent might be using the tactic to put CoStar on the defensive and potentially force the two companies to settle.

In the company’s first quarter earnings call, CoStar executives said they expect to spend $10 to $20 million this year on the Xceligent lawsuit.

The case could take several years to resolve, according to Carl W. Hittinger, partner in the Philadelphia office of law firm BakerHostetler. Like Barlow, Hittinger notes that it’s not unheard of for competitor firms to use expensive, lengthy cases to wear each other down, even when evidence is limited or the chances of victory are small. “When you are dealing with two companies in these types of industries, the question becomes if [they brought the case] to make the competition spend a lot of money trying to fight a baseless case. There is basis for doing that.”

In December of last year, CoStar filed a lawsuit with the Western District of Missouri alleging that Xceligent has been stealing CoStar-generated property images and real estate data and integrating them into its own offerings, selling them to clients at lower prices. CoStar claims that it found at least 9,000 instances of copyrighted CoStar photos and hundreds of CoStar-generated data points on Xceligent’s site. The lawsuit quotes current and former Xceligent employees claiming that they were expressly told to copy information from CoStar’s site.

In the counter-suit, Xceligent claims that CoStar’s anti-competitive practices have slowed its growth and raised its costs. The company has spent more than $150 million since 2000 to compete in the marketplace. Xcelignet claims that CoStar uses “exclusionary contractual terms that prevent customers from using a competitor’s products;” “contaminates broker listing with artificial data known to be false in order to obstruct competitor access to broker’s own data;” and “bundles CoStar products and geographics to prevent Xceligent’s geographic expansion,” among other things.

CoStar declined to comment for this article. Meanwhile, Doug Curry, Xceligent’s CEO, insists his firm is fully committed to fighting the case out in court.

“It will be an expensive case, and we are absolutely prepared to spend what it takes to finish it and take it to trial,” he says. “And we intend to go to court, not settle. We have a compelling case, it will not be difficult for us to show because CoStar has been so blatant about monopolistic actions.”

Curry dismisses CoStar’s claims that Xceligent has been stealing its data, noting that it would make little sense for his firm to steal 9,000 CoStar images when it would make up a negligible fraction of Xceligent’s total data pool. He notes that real estate brokers sometimes send property images to Xceligent that may have initially come from CoStar, but without copyright watermarks on the images or the brokers volunteering their origin, Xceligent has no way of knowing that’s where the photos came from. “CoStar is now claiming that we should not have accepted the photographs even if the brokers removed the watermark. They are trying to eliminate [competition] from the industry.”

Major commercial real estate brokerages contacted by NREI for this article declined to comment on the matter.

Xceligent initially started as a subsidiary of data firm Loopnet, before the former merged with CoStar in 2012. Xceligent was spun off on the FTC’s directive in order to allow the merger to go through.

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