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An arbitrator has awarded mortgage data and technology giant Black Knight more than $150 million in damages after finding that a former client, PennyMac Loan Services, used Black Knight’s confidential information to build its own mortgage servicing platform.

But PennyMac is putting a positive spin on the Nov. 28 award, saying the decision allows it to continue to use the disputed loan servicing software, the PennyMac Servicing Systems Environment (SSE), “free and clear of any restrictions” after the arbitrator denied all of Black Knight’s claims for injunctive and declaratory relief.

The case dates back to November, 2019, when Black Knight Servicing Technologies sued PennyMac Loan Services in a Florida state court for more than $340 million in damages, alleging breach of contract and appropriation of trade secrets related to Black Knight’s MSP Mortgage Servicing System.

PennyMac filed an antitrust complaint against Black Knight, alleging that the company relied on anticompetitive practices to maintain its dominance in the mortgage servicing platform market. The cases ended up in arbitration, with both sides now claiming victory.

“The arbitrator determined that in developing its SSE software, PennyMac incorporated confidential information from Black Knight’s MSP system and breached its contract with Black Knight with respect to such confidential information,” Black Knight’s parent company, Intercontinental Exchange Inc., said in a press release Tuesday. “ICE 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.”

ICE acquired Black Knight for $11.8 billion in September, after winning approval from antitrust regulators by agreeing to spin off Black Knight’s Empower loan origination system and Optimal Blue business to subsidiaries of Canadian-based software giant Constellation Software.

In a decision that must still be confirmed by the court, the arbitrator awarded Black Knight $155.2 million, representing six years of avoided license fees, plus interest and attorney fees.

“The arbitrator concluded (wrongfully in our view) that PennyMac’s access to [Black Knight’s MSP system] 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,” parent company PennyMac Financial Services notified investors in a Dec. 4 presentation.

With $1.2 billion in cash on its books as of Sept. 30, PennyMac said it has “ample liquidity” to pay the award. In addition, with the arbitrator affirming the company’s ownership of the software it developed to bring in-house the services previously provided by Black Knight Servicing Technologies, Pennymac now has “the unfettered ability to utilize its intellectual property in SSE in any way that it sees fit for the benefit of its customers and stakeholders.”

The SSE mortgage servicing platform “has performed extraordinarily well since its launch in 2019, meaningfully enhancing PennyMac’s capabilities and reducing servicing costs per loan,” the company informed investors.

In addition to reducing the company’s servicing costs per loan by 30 percent, SSE helped PennyMac automate forbearance programs during the pandemic, “improving the customer experience for and allowing PennyMac greater ability to rehabilitate borrowers and redeliver loans,” the company said.

“With this technology free and clear of any restrictions on use or development, we believe there is potential for additional opportunities and benefits for the company over time,” PennyMac said.

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Email Matt Carter

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