PennyMac Financial Services Inc. this month announced it has filed a countersuit against Black Knight Inc., a mortgage software company in Jacksonville, Florida, after the Westlake Village company was accused of creating an imitation of Black Knight’s product. PennyMac alleges that Black Knight has been using LoanSphere, its mortgage loan servicing system, to “engage in unfair business tactics” that entrap licensees and create competition-stifling barriers to entry. In other words, LoanSphere is so outdated that it’s not worth copying, so PennyMac has had to create its own software for its clients to bridge the gap between what customers expect and what LoanSphere provides. “Faced with our likely antitrust suit and substantial lost revenue from losing PennyMac as a client, Black Knight with a straight face claims that the custom system of modules PennyMac developed somehow belongs to Black Knight,” said David Spector, chief executive of PennyMac. “Black Knight’s 50-year-old mainframe-based MSP technology — ancient by almost any standards — is so limited that PennyMac and other customers are forced to build or buy a clunky patchwork of applications and modules to enhance Black Knight’s otherwise rudimentary functionality.” When PennyMac notified Black Knight it would not renew LoanSphere in May 2019, it was notified that the Florida company had filed a lawsuit against it. Under Black Knight’s suit, PennyMac would be required to transfer ownership of its own systems to Black Knight, the company said in a statement. This practice is nothing new for Black Knight, PennyMac said, encouraging customers to invest “substantial resources” to supplement LoanSphere, making it difficult for clients to leave Black Knight without abandoning its customized modules, hence the antitrust angle. “Black Knight then exploits customers’ reluctance to leave by repeatedly forcing subsequent price increases onto its customers without any improvements or innovations to its product — egregious behavior in an industry where companies usually reduce costs as they evolve,” PennyMac said in a statement. PennyMac has used Black Knight’s mortgage software products for 11 years, including LoanSphere. Because of “perceived limitations” with Black Knight’s software, PennyMac had developed its own “workflow-driven modules on a cloud-based, flexible architecture” to provide more services to its clients. The company has developed more than 150 modules that now eliminate PennyMac’s need for LoanSphere, the company said. In an email statement, Michelle Kersch, senior vice president at Black Knight, told the Business Journal the company filed the suit “alleging theft of trade secrets and breach of contract after the parties could not reach a resolution regarding PennyMac’s conduct acceptable to Black Knight. … We intend to vigorously prosecute our lawsuit and defend ourselves against PennyMac’s baseless counter suit.”
