Zillow Sues IPO-Seeking Rival Trulia Over Home-Estimate Patent

9/13/12Follow @curtwoodward

Online real estate service Zillow is stepping up its competitive attack on San Francisco-based rival Trulia, filing a patent infringement lawsuit just as the smaller company prepares for its IPO.

Specifically, Zillow (NASDAQ: Z) says Trulia is copying its patented system of letting web users add information to automatic property value estimates—a feature that Zillow has offered since 2006, and that Trulia added last year.

Just last week, Seattle-based Zillow raised about $147 million in a secondary sale of stock, a move that harvested some of the public-market hunger for online real estate stocks as Trulia waits on deck. That stock sale brought Zillow nearly double the cash raised through Zillow’s own $75 million IPO last year.

In the federal lawsuit, filed Wednesday in Seattle, Zillow is seeking unspecified damages that could include patent licensing fees. In its court filing, Zillow calls Trulia’s home estimate feature a “blatant and ongoing copying of Zillow’s innovative approach to home valuation.”

A Trulia spokesman declined to comment on the lawsuit to the Puget Sound Business Journal. (The PSBJ also has a copy of Zillow’s complaint posted online, for anyone who wants to read the actual paperwork.)

Zillow calls its home-value estimates “Zestimates,” and they’ve been both a marketing tool and a source of contention from homeowners and real estate agents from the beginning.

One way that Zillow seeks to calm people who don’t agree with the algorithm that determines their home value is to let them log in and add more information to the property’s profile, in an attempt to make the estimate more accurate. Zillow says about a third of the 100 million-plus property estimates in its system have had information added this way.

In its lawsuit, Zillow says it applied for a patent on the user-information feature in 2006, and was awarded a patent in June 2011. Trulia rolled out its own home estimating feature, which also included user input, in September 2011.

Unless they didn’t have lawyers on the case, you can assume that Trulia probably knew about its competitor’s patents when it was developing the estimates. Zillow isn’t specifically called out in the discussion of risks in Trulia’s IPO paperwork, but the company does offer the usual warning about the possibility of intellectual property lawsuits.

Zillow has been a point of pride for the Seattle-area technology industry, which had seen a long drought for homegrown IPOs before Zillow hit the markets last year. The company has performed well since going public, which must be a relief for investors and employees who endured the worst housing crash in generations.

But many in the tech industry also have strongly negative opinions on patents relating to software and relatively simple features, such as allowing users to add information to an algorithm. It’ll be interesting to see if Zillow’s moves against Trulia are received as a sharp-elbowed competitive strategy to defend its market, or as a less-than-honorable dig at a rival.

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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  • http://www.NeighborCity.com Jonathan Cardella

    This is a desperate and thinly veiled strategy by Zillow to derail Trulia’s IPO, as evidenced by the timing of the complaint. Zillow has known about Trulia’s AVMs for over a year, yet waited until the IPO filing to file its suit.

    While this is merely conjecture on my part, it is highly unlikely that this is a mere coincidence. The intention behind the timing of this suit must be to diminish the value of Trulia in the minds of investors, thereby sabotaging the IPO at a time when Trulia is most vulnerable. If I am correct in my assumptions, this is a disgusting tactic that should be met with a fierce counter-complaint by Trulia, especially if the IPO or valuation collapses before it comes to fruition.
    Further, if Trulia’s AVM feature was truly damaging to Zillow, they would have filed claim by October, perhaps November last year and then amended their complaint as needed, once they got their ducks in a row. This smacks of litigation filed in bad faith, in my untrained opinion (I am not a lawyer).

    Zillow’s AVM patent is a perfect example of the nonsense coming out of the USPTO. In order to be eligible for patent protection, a patent must be New or Novel, Useful, and Non-Obvious. Zillow’s patent only fulfills one of those requirements (usefulness). Brokers and appraisers have been doing property valuations/”CMAs” for many decades, as have appraisers, albeit they were done manually. Simply automating this process does not make it new or novel. And I would love to hear Zillow argue that an AVM was non-obvious in 2006. In fact, institutional investors have been using AVM technology since the late 1990′s.
    The USPTO routinely errs in granting patents that do no comport with US IP laws. A patent isn’t “hardened” until it is challenged via litigation. This is the first litigation involving the Zillow AVM patent and Trulia attorneys will attack this patent for not meeting these requirements. Only after this case will we know if Zillow has a patent that will stick.
    In conclusion, this case will be interesting because it will likely see the Zillow patent over-turned and a cross complaint from Trulia for any damages that result from the malicious timing and motivations behind this suit that seemingly go far beyond protecting IP, which is a recurrent theme in this industry, as I have learned first hand. And hopefully this skirmish will underscore the need for meaningful IP Reform in the US.