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CoStar Takes Off the Gloves in Battle Against Xceligent Over Alleged Data Theft

Posted by Yijy8kNUMO on December 12, 2017

CoStar Group Inc. CSGP -0.81% and Xceligent Inc., two of the world’s largest providers of commercial real-estate data, have gone back to the mattresses.

Last week, the two rivals were just days away from announcing a settlement in a yearlong legal battle over alleged data theft, according to people familiar with the matter. But the deal has collapsed and lawyers are gearing up for another round of depositions and filings, people said.

The breakdown was partly over CoStar’s insistence that Xceligent agree to steps that CoStar claims are necessary to protect its data in the future, people said. Among the steps CoStar wants would be deletions of certain material in Xceligent’s database, people said.

The fight is being closely followed in the real-estate industry, which relies heavily on CoStar and Xceligent for critical market data like commercial property occupancy levels, tenants and rents. Large brokerage firms, lenders, owners and other businesses can pay hundreds of thousands of dollars a year for these services.

The Federal Trade Commission could play a role as well. The regulator in 2012 put the brakes on CoStar’s $860 million acquisition of LoopNet Inc., another major data firm, until CoStar agreed that the merged companies would sell LoopNet’s large stake in Xceligent. The FTC said at the time that requirement “preserves competition that otherwise would have been lost.”

CoStar, the larger of the two companies with a market capitalization of more than $10.6 billion, fired the first shot in the legal battle when it sued Xceligent in federal court in Kansas City, Mo., last year alleging data theft. Xceligent countersued, charging CoStar with antitrust practices. Both sides have denied each other’s allegations.

Apart from the lawsuit, Xceligent has been suffering severe business challenges. The Daily Mail & General Trust DMGT 0.82% PLC, which acquired the Xceligent stake from the combined CoStar and LoopNet, has written its value down to zero, in part because of lower-than-expected revenues, according to company executives and regulatory filings. Earlier this fall, Xceligent Chief Executive and co-founder Douglas Curry and his wife, Erin Curry, the firm’s chief people officer, stepped down.

Meanwhile, CoStar’s fortunes have soared. The company’s shares are trading above $290 a share, up from about $190 at the beginning of the year.

CoStar has long stayed out in front of Xceligent partly because it got into the business first. CoStar Chief Executive Andrew Florance founded the company in 1987, more than a decade before Mr. Curry co-founded Xceligent.

CoStar’s Mr. Florance also has been a tough player in the legal and public relations arena. Between 1999 and 2009, CoStar sued LoopNet three times was sued by LoopNet twice before the two merged. All the lawsuits were settled out of court or dismissed.

In its fight against Xceligent, CoStar timed its lawsuit with the execution of a search-and-seizure order issued by a regional trial court in the Philippines that was requested by CoStar. That order authorized CoStar to seize data in offices of Avion BPO Corp., a Filipino company that has been a contractor to Xceligent.

Earlier this fall, just before Mr. Curry resigned, a different Xceligent contractor with ties to India agreed to a stipulation in a lawsuit that CoStar filed against it in Pittsburgh federal court. The contractor, RE BackOffice, agreed that its operations team “used measures to circumvent CoStar’s security measures and thereby hack into CoStar,” according to court papers.

 After the Pittsburgh judgment, Xceligent put out a statement denying it instructed any vendor to conduct illegal activity. “RE BackOffice simply chose to settle rather than fight an industry giant like CoStar,” the statement said.

Mr. Curry and his wife stepped down shortly after the injunction was announced. The Daily Mail said the departures had nothing to do with the legal dispute.

On the public relations front, CoStar has sent numerous executives in the real-estate industry packages of documents on Avion and Xceligent pointing out that another Avion client is, an online marketplace. The documents called attention to the report by the U.S. Senate Permanent Subcommittee on Investigations that said was involved in the “knowing facilitation of online sex trafficking.”

Xceligent executives have said they had no knowledge of Avion’s other clients. An Avion executive declined to comment. Backpage declined to comment. In the past, Backpage has said it has long collaborated with law enforcement to prevent people from using the internet to commit crimes.

While CoStar currently appears to have the upper hand over Xceligent, that doesn’t mean that CoStar doesn’t still face challenges. Earlier this fall, the Federal Trade Commission requested additional information about CoStar’s plans to acquire ForRent, a Norfolk, Va.-based company that is active in the apartment-rental business and similar to CoStar’s business.

The action was disclosed in a statement by CoStar. An FTC spokeswoman declined to comment.

Source: The Wall Street Journal, December 12, 2017 7:00am

Author: Peter Grant

Image Credit: Mladen Antonov/Agence-France Presse/Getty Images

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