Comulate Loses Appeal for Injunction Against Applied Systems

In litigation between competitors in the insurance technology market, a preliminary injunction was again denied to Comulate, which stands accused by Applied Systems of misappropriating trade secrets.

Comulate had asked a federal judge in U.S. District Court for the Northern District of Illinois to reconsider an earlier denial of an injunction against Applied.

“The fallout to Comulate’s business, ultimately, at least for now, looks to me to be a product of Comulate and [CEO Jordan] Katz’s own misdeeds, such that, on balance, a preliminary injunction in Comulate’s favor would be contrary to the equities here,” ruled Judge Manish H. Shah earlier this month.

Comulate attempted to make an immediate plea for an injunction pending appeal. Its attorneys said more customers have left the company and it has laid off 20% of its workforce. “The situation has worsened materially,” the lawyer said.

Related: Judge Awards Applied Systems Preliminary Injunction Against Comulate

The legal squabble originated late last year when Applied Systems sued Comulate on allegations that Comulate misappropriated trade secrets. Ardent Labs, doing business as Comulate, developed a software that integrates with Applied’s insurance agency management software, Epic. In order to develop its product, Comulate created a fake insurance agency, “PBC,” to use Epic. Applied noticed “abnormally large usage” by PBC of Epic.

Comulate fired back early this year with a federal antitrust lawsuit against Applied. Comulate said it seeks to “halt an entrenched monopolist’s unlawful campaign to destroy a competitor it could not acquire or outcompete.” Comulate has said, “Applied has not identified a single Comulate product feature that incorporates any Applied trade secret.”

Comulate does not deny creating the fake insurance agency, but called it a “sandbox” account to demonstrate the functionality of its artificial intelligence-powered platform works with Epic. At issue now is the fight within the fight—whether Applied can cut off Comulate from the AMS on June 30, which could be potentially devastating to Comulate since current customers of Epic, according to Comulate, have no ability to switch away from Epic; Applied controls the software development kit to migrate data from Epic; and Applied owns Ivans, the intranet for insurance brokers and carriers that every AMS uses.

“Not wanting to continue to authorize a competitor that resorts to fraud or deception in its business practices is a legitimate justification [to terminate Comulate],” said Shah. “Protecting Applied, and perhaps the market
generally, from an actor that engages in that kind of conduct is likely of greater social value than the stability of Comulate’s contracts with its customers.”

Comulate said Applied has not shown any contract language to permit it from terminating Comulate’s access. “Here, a monopolist controls every input necessary to compete in this market and is unlawfully using that control to eliminate competitors,” said Comulate attorney Rollo C. Baker of Elsberg Baler & Maruri during the proceedings.

Shah said he was not persuaded. “Your points are really just the same points you’ve asserted in the motion for reconsideration,” he said.

When reached for comment, Comulate said: “Despite the court finding that Applied wanted to eliminate Comulate as a competitor, that its customers are ‘locked-in,’ that its conduct is ‘harsh,’ and that its product is ‘inferior,’ we are disappointed it declined to intervene to protect customers and competition. Applied trumpets the bulldozing of its own customers, twenty of whom, under stated fear of retaliation by Applied, unanimously told the court of their support for Comulate. The idea that a monopolist can try to kill its stated #1 competitor over a sandbox environment created after Applied’s own contract breach and unsuccessful attempts to acquire Comulate will stifle insurance industry innovation and ultimately harm policyholders.”