An American Arbitration Association arbitrator recently awarded Black Knight, Inc. (BK) $155M stemming from Pennymac Loan Services, LLC’s (Pennymac) alleged use of its mortgage-loan servicing platform to develop its own competing product. Though the arbitrator did not find Pennymac liable for trade secret misappropriation, they found that the use of BK’s product accelerated the development of Pennymac’s product and caused BK to lose licensing profits.

In 2008, Pennymac contracted with Fidelity Information Services, Inc. to use a mortgage-loan servicing platform (MSP) that enables mortgage-loan servicers like Pennymac to track and store loan data and transactions in their portfolios and to manage servicing activities. The parties’ agreement included a section on ownership, confidentiality, and non-disclosure that identified confidential information, required Pennymac’s subservices to have limited access to the confidential information, and identified the exceptions to confidentiality. The agreement prevented Pennymac from modifying the confidential information or creating any derivative works, but it listed as an exception to confidentiality any information developed independently.

Over the span of the agreement, Pennymac allegedly began developing software of its own called Servicing Systems Environment (SSE). Additionally, Fidelity’s spin-off company, BK, became a successor-in-interest in the agreement with Pennymac in 2017. In October 2019, Pennymac informed BK that it did not intend to renew its license. According to Pennymac, MSP could not keep up with Pennymac’s needs as it grew as a company. Though it wanted to continue licensing other applications apart from the proprietary platform, BK was unwilling to split up the licenses.

A few days later, BK filed suit in Florida state court seeking $340M for breach of contract and misappropriation of its confidential MSP. The Florida judge ordered the lawsuit proceed via arbitration and stayed the litigation.

On November 28, 2023, after more than three years of arbitration, the arbitrator rejected BK’s claims of trade secret misappropriation, but partially granted its breach of contract claim. The arbitrator affirmed Pennymac’s ownership over its SSE mortgage servicing platform and allowed it to continue using SSE. Though the arbitrator did not find Pennymac’s use of MSP to amount to trade secret misappropriation, they concluded that Pennymac’s access to MSP accelerated its development of SSE. Thus, it awarded $155M (plus interest and attorney’s fees) to BK as lost profits in the form of licensing fees it would have otherwise received from Pennymac over a longer development period.

This case is instructive given that BK recovered lost profits—even in the absence of showing trade secret misappropriation—but Pennymac still was able to develop a competing product that it is free to use going forward.

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Photo of Isaiah D. Anderson Isaiah D. Anderson

Isaiah Anderson is an associate in the Litigation Department.

Isaiah Anderson earned his J.D. degree from New York University, where he was a Senior Executive Editor of the New York University Law Review, the Alumni Relations Committee Co-Chair for the Black Allied Law…

Isaiah Anderson is an associate in the Litigation Department.

Isaiah Anderson earned his J.D. degree from New York University, where he was a Senior Executive Editor of the New York University Law Review, the Alumni Relations Committee Co-Chair for the Black Allied Law Students Association (BALSA), the Community Chair for the Christian Legal Students Association (CLSA), and a member of the Asian-Pacific American Students Association (APALSA). While at NYU, he worked with the Center on Race, Inequality, and the Law on efforts to advocate for racial and economic justice.

Prior to law school, Isaiah worked as a litigation paralegal at another New York law firm, supporting two commercial litigation trial teams and working on several pro bono cases focused on education and immigration. At Proskauer, Isaiah continues to have an active pro bono practice and leverages his experience and studies in litigation for all his matters.

Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular…

Steven J. Pearlman is a partner in the Labor & Employment Law Department and Co-Head of the Whistleblowing & Retaliation Group and the Restrictive Covenants, Trade Secrets & Unfair Competition Group.

Steven’s practice covers the full spectrum of employment law, with a particular focus on defending companies against claims of employment discrimination, retaliation and harassment; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations. He has successfully tried cases in multiple jurisdictions, and defended one of the largest Illinois-only class actions in the history of the U.S. District Court for the Northern District of Illinois. He also secured one of only a few ex parte seizures orders that have been issued under the Defend Trade Secrets Act, and obtained a world-wide injunction in federal litigation against a high-level executive who jumped ship to a competitor.

Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Steven was recognized as Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers.  Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven has served on Law360’s Employment Editorial Advisory Board and is a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is regularly quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.