If you love CoStar, you’ll love this lawsuit. On the other hand, if you’ve been hoping that an upstart like CREXi (Commercial Real Estate Exchange, Inc.) would succeed in creating a competitive national CRE data and listing alternative to CoStar, you won’t be happy. Is CoStar using the alleged copyright crack it has found in CREXi to destroy another competitor?

I Googled “love CoStar” to see if anyone has written something like that about the giant real estate data company. There is. A commercial appraisal firm has a post on its website entitled “Why We Love CoStar.” It’s posted there without any hint of irony. Their love seems real but rare. Many brokers and appraisers that I speak with don’t share the same feelings for CoStar and hope that a viable, national alternative will emerge. A few had pinned their hopes for that on CREXi – as well as several other new CRE ventures.

Partly because of CoStar’s own press releases announcing its latest “wins,” most everyone involved with CRE knows about CoStar’s aggressive litigation both against users who transgress its terms and against its competitors. Xceligent, in particular, was shredded by CoStar’s litigation and ended in bankruptcy. During that bankruptcy, Xceligent’s bankruptcy trustee acceded to a stipulated judgment in favor of CoStar in the amount of $500 million. CoStar points to that court judgment in this newest case; never mind that it was reached by stipulation with a bankrupt business. Indeed, although CREXi has no alleged ownership tie or corporate relationship with the defunct Xceligent, CoStar refers to Xceligent no fewer than 30 times in the complaint.

Others have written a lot more about CoStar’s aggressive litigation. The most comprehensive piece I’ve read was published by The Real Deal in September 2018 – Search and Destroy: How CoStar Became a $15B Juggernaut.

The search and destroy machine is now aimed at upstart CREXi. In its lawsuit filed on September 25 in federal court in California, CoStar accuses CREXi of stealing property listing data and CoStar-copyrighted photographs from CoStar to build its own platform. CoStar alleges, for example:

 based on a review of CREXi’s website through July 30, 2020, CoStar has identified well over ten thousand copyrighted CoStar photographs, copied and displayed by CREXi without permission. (To give a sense of the harm inflicted and scale of wrongdoing, recent federal judgments have placed a value of $50,000 on each CoStar image infringed.) These photographs almost certainly constitute a mere fraction of the total infringement present in CREXi’s systems, as CREXi’s public facing website only displays photographs associated with listings CREXi has decided to publish.

The complaint drafted by Latham & Watkins LLP on behalf of CoStar is a very good read. It’s also good viewing because it’s filled with side-by-side comparisons of photos allegedly copied from CoStar’s files (including Loopnet) and then inserted into CREXi’s database, sometimes seemingly cropped to eliminate CoStar’s watermark, other times not cropped at all.

If the complaint seems a bit vicious in places because its allegations name and will embarrass some fairly low level employees of CREXi (who may not have had fraudulent intentions in every instance), I’d have to say it reflects CoStar’s ethos. Here’s a perhaps more comical sample allegation:

For example, [name redacted for this post], CREXi’s senior product manager, created a LoopNet account registered to “Hank Mardukus” at [email protected]. Hank Mardukas is a fictional character from the 2009 movie, “I Love You, Man.” The use of fake names helps CREXi employees make use of LoopNet, in violation of the terms of use barring competitive access, without being caught.

What will CREXi say in its defense? While CoStar’s claim about 10,000+ (it says there are more) stolen photographs might seem huge and CoStar wants to be sure that everyone does the math of multiplying 10,000 by $50,000 per photo for the alleged copyright damages it seeks, is CoStar possibly overplaying its hand? CREXi states on its website that its CRE database contains “more than 48 million property records [and] over 13 million sales comparables.” Ten thousand photos sprinkled in that data wouldn’t amount to CREXi building an entire company based on information stolen from CoStar, as CoStar’s pleading suggests – 10,000 photos is not significant in a database of 48 million property records (but the legal problem of 10,000 alleged copyright violations still remains).

It was pointed out in the The Real Deal’s 2018 article that in prior copyright cases against competitors CoStar didn’t send out a “cease-and-desist” letter to the competitor first, seeking to stop and resolve the alleged violations outside of court. The article suggested that CoStar is more interested in using the litigation itself and its extreme cost against the competitor. Here, there is no allegation by CoStar in its complaint against CREXi that CoStar sent any cease-and-desist request to the company before filing the lawsuit. And, based on CoStar’s factual allegations, it looks like CoStar has been collecting information for this litigation for over a year, waiting for a strategic time to file.

The alleged conduct of some employees of CREXi certainly may have been wrong (though potentially without knowledge of CREXi’s management), but it seems like CoStar may be using the copyright crack it has found and aggressive litigation to destroy another competitor. Of course, it does need to be recognized that CREXi’s management should have known that any violation of CoStar copyrights found in CREXi’s records could lead to serious and costly legal problems with CoStar. CREXi likely should have had better controls to avoid this situation.

You can read the full 70-page complaint here. CREXi has retained San Francisco-based Elliot Peters at Keker, Van Nest & Peters for its defense. He is recognized for defending Lance Amstrong in his legal problems with the federal government. CREXi’s response is due November 23. I look forward to reading what CREXi may have to say in its defense. Even if it has something to say, however, a prime issue will be whether CREXi can afford the litigation.

Peter Christensen

I am an attorney. The matters that I handle and the clients whom I serve are focused on valuation services. My work ranges from the regulatory and structural details of providing valuation services to professional liability and disciplinary issues.