An
arbitrator
conclusion
issued
last
week
caps
a
four-year

legal
battle
over
allegations
of
trade
secret
theft
involving
two
of
the
biggest
companies
in
the
housing
industry, Black
Knight
Servicing
Technologies and PennyMac
Financial
Services. 

In
a
2019
lawsuit,
Black
Knight
accused

Pennymac
of
copying
its
mortgage
servicing
platform,
MSP,
to
create
its
Servicing
Systems
Environment
(SSE)
platform. 

On
Nov.
28,
an
arbitrator
awarded
Black
Knight
$155.2
million
in
damages
related
to
a
breach
of
contract
claim
(plus
interest
and
attorney’s
fees),
representing
six
years
of
avoided
license
fees.

Meanwhile,
according
to
the
arbitrator’s
conclusion,
Pennymac
will
keep
all
its
intellectual
property
and
software,
including
SSE,
“free
and
clear
of
any
restrictions
on
use.”
Pennymac
said
SSE
has
allowed
it
to
reduce
its

servicing
costs
per
loan
by
over
30%
since
its
implementation.

The
arbitrator
issued
an
interim
award,
which
means
the
companies
can
still
move
to
correct,
modify
or
vacate
it
before
a
state
court
confirms
it. 

Black
Knight
filed
a
complaint
against
PennyMac
in
November
2019
for
breaching
contracts
and
misappropriating
trade
secrets.
According
to
the
plaintiff,
Pennymac
stole
its
mortgage-processing
system
and
created
one
of
its
own. 

The
lawsuit,
filed
in
the
Fourth
Judicial
Circuit
Court
in
and
for
Duval
County,
Florida,
sought
$340
million
in
damages
and
injunctive
relief
under
the
Florida
Uniform
Trade
Secrets
Act
and
declaratory
judgment
of
ownership
of
all
intellectual
property
and
software
developed
by
or
on
behalf
of
Pennymac. 

In
March
2020,
the
companies
entered
arbitration. 

More
than
three
years
later,
the
arbitrator
awarded,
in
part, Black
Knight‘s
breach
of
contract
claim
and
denied
the
claims
of
trade
secrets
misappropriation
and
injunctive
and
declaratory
relief.

“The
arbitrator
concluded
(wrongfully
in
our
view)
that
Pennymac’s
access
to
MSP
allowed
it
to
increase
the
speed
of
developing
SSE
and
awarded
Black
Knight
lost
profits
in
the
form
of
licensing
fees
it
would
have
otherwise
received
from
Pennymac
over
a
longer
development
period,”
Pennymac
said
in
an
8-K
filing
with
the Securities
and
Exchange
Commission (SEC). 

ICE,
the
new
owner
of
Black
Knight,
said
in
a
statement
that
it
“will
continue
to
seek
the
robust
protections
afforded
to
trade
secrets
and
confidential
information
under
federal
and
state
law,
including
in
products
developed
using
its
confidential
information.”

According
to
Pennymac,
the
accrual
related
to
the
interim
award
will
be
recorded
in
the
fourth-quarter
earnings,
with
an
impact
of
$2.85
per
share.
The
company
states
it
had
$1.2
billion
cash
on
its
balance
sheet
as
of
Sept.
30
to
fulfill
the
interim
payment.

Analysts
who
cover
Pennymac
at

Jefferies
wrote
in
a
report
that
they
“would
expect
a
modestly
negative
reaction
to
the
charge,
which
equates
to
roughly
4%
of
book
value.”

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