Editor’s note: This story has been updated.
Property search and valuation company Zillow Inc. is suing rival Trulia Inc., alleging that Trulia’s automated property valuations infringe on a patent issued to Zillow last year.
In a complaint filed Wednesday in a U.S. District Court in Seattle, Zillow alleges Trulia has infringed on U.S. Patent 7,970,674. The patent’s title, "Automatically determining a current value for a real estate property, such as a home, that is tailored to input from a human user, such as its owner," describes Zillow’s process for using information supplied by homeowners and real estate professionals to refine Zillow’s automatic home valuations, called "Zestimates." Zillow applied for the patent on Feb. 3, 2006 and it was issued to the company June 28, 2011.
Zestimates have made the site popular with consumers and "have played a major role in Zillow’s success and growth," Zillow said in the complaint. The valuations made waves in the real estate industry when the portal first debuted in 2006 and were a key differentiator for the company at launch.
Last September, Trulia rolled out its Trulia Estimates tool in beta, providing consumers with an assessment of a home’s worth. Trulia Estimates use an automated valuation model (AVM) that takes into account recent sales information for other homes in the area, and property characteristics taken from public records including the number of bedrooms and square footage as well as information provided by homeowners. Trulia Estimates launched nationally in March.
Zillow and Trulia both declined to comment for this story. Trulia is also in a "quiet period" during which the company is subject to a ban on discussing itself while in registration to go public.
It is unclear what effect the lawsuit will have on Trulia’s IPO, but industry observers noted that the lawsuit points to a fundamental question about the value Trulia has to offer potential investors.
"Much of what Trulia has been pursuing from a growth perspective very much looks like a ‘me too’ approach, i.e. copying Zillow," said Bradley Safalow, an analyst who covers Zillow for the independent investment research firm PAA Research.
Brian Boero, partner at real estate marketing and design consulting firm 1000watt, said a "copycat" patent suit inauspiciously hits Trulia’s "weak spot."
"If you’re a prospective Trulia investor, you’re already in your own mind thinking, ‘We’ve got Zillow out there, that’s doing quite well. We’ve got Realtor.com,’" so what is it that makes Trulia unique? Boero said.
He added that he did not know what the merits of Zillow’s lawsuit are from a patent standpoint, "but what I do think is going on right now is a little good old-fashioned competition."
"If I’m Trulia right now it certainly isn’t what I’d like to happen while I’m in my quiet period, to have investor dollars flowing to Zillow stock and to be sued by a competitor," he added.
Trulia filed for an initial public offering in August and last week said it expects to raise about $66 million after expenses. Zillow raised $75.7 million in an IPO last year, and $147 million in additional capital through a secondary offering of more than 3 million shares announced by the company last week.
In the complaint, Zillow said Trulia’s "blatant and ongoing copying" of Zillow’s approach to home valuations infringed on Zillow’s patent, entitling the company to damages.
"When Trulia first launched Trulia Estimates, it was obvious to commentators that Trulia was merely copying Zillow," the complaint said. "Commentators accused Trulia of being a ‘copycat’ of Zillow’s Zestimate service and predicted that Trulia’s copycat version might ‘ding’ Zillow’s Web traffic."
The complaint did not say whether the alleged infringement had indeed affected Zillow’s Web traffic, but noted that the two portals compete for consumer traffic and advertiser revenue. Zillow and Trulia were the first and second most-visited real estate-related websites, respectively, in July, according to Web metrics firm Experian Hitwise.
Safalow, the founder and CEO of PAA Research, noted that while he’s not a patent attorney, Zillow does seem to have "a reasonable claim" of patent infringement, but may have trouble proving it.
"If this patent becomes enforceable it could have a negative impact on the quality of Trulia’s dataset and home price estimates," he said.
"On the flip side, how can this be enforced? Can Zillow prove that home price estimates were changed specifically because of user-generated content? I’m sure there’s something that can be proven there. Prospectively, however, how can anyone prove that a home price estimate isn’t changed because of other factors outside of user-generated content."
In addition to damages, the suit requests a permanent injunction against the alleged infringement and demands a trial by jury.
In 2010, real estate and loan data aggregator CoreLogic sued Zillow and several other real estate companies over allegations that property valuations they provide use automated valuation models (AVMs) that infringe on a 1994 patent belonging to CoreLogic.
Zillow settled with CoreLogic December 2011. According to Zillow’s most recent annual report to investors, the company recorded a $700,000 increase in general and administrative expenses that year "related to the settlement of legal matters."
As part of the settlement, Zillow said the companies also entered into a five-year licensing agreement under which Zillow licenses data content from CoreLogic that is displayed on Zillow.com, including property data from various U.S. counties.
CoreLogic has since sued Seattle-based online brokerage Redfin Corp. and two real estate analytics and valuation companies for allegedly violating the same 1994 patent. Redfin has yet to file a response to the complaint.
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