Storage Soup

Oct 20 2009   7:07PM GMT

Email archiving vendor sues Gartner over Magic Quadrant

Beth Pariseau Beth Pariseau Profile: Beth Pariseau

Claiming that Gartner’s Magic Quadrant vendor-ranking reports constitute “disparaging, false/misleading, and unfair statements” about its email archiving product that have done damage to its sales prospects, ZL Technologies Inc. said today that it filed suit May 29 in US District Court in San Jose, Cali. against the analyst firm. The suit seeks damages of $132 million to account for what ZL says are lost sales, as well as punitive damages.

Gartner responded with a motion to dismiss the lawsuit in July, to which ZL filed a counter-motion. A hearing on these later filings is scheduled for this Friday.

ZL alleged in its initial complaint that Gartner consistently ranks its product in the lower left quadrant of its report, the “Niche” category, because its sales and marketing are not as strong as Symantec’s Enterprise Vault, which is consistently ranked in the highest Leader category. ZL’s contention is that this consitutes an unfair and defamatory means of evaluating and recommending products that has caused damage to its business. “Gartner continues to harm ZL and help entrench vastly inferior products in the American economy whose principal virtue, according to Gartner, is good sales and marketing,” the complain alleges.

What I found surprising about this initial complaint was the arguments ZL provided about just how much some end users rely on the Magic Quadrant report for purchasing decisions. Some examples:

Purchasers of the ZL Products have consistently and uniformly raised objections to even consider purchasing the ZL Products because of the Defamatory Statements. Even Oracle Corporation, one of the largest software vendors in the world, which resells the ZL Products, complains that it gets “Gartnered” when pursuing prospective customers for the ZL Products, i.e., that a prospect would not even consider looking at the ZL Products because of the low Gartner rankings. The power of a positive ranking in Gartner is immense because it is often the case that large purchases of technology are based exclusively on the MQ Reports.

For instance, the Office of the Inspector General, Department of Veterans Affairs (VA) recently conducted an investigation into the use of the Gartner’s MQ reports in connection with the VA’s $16,000,0000 purchase of certain leases and services from Dell. The Office of Inspector General reported that the VA made this large purchase based solely on the leadership rankings in the relevant Gartner MQ report.

[...]

In March 2009, ZL entered into contract to provide the email archive solution for one of the largest and most influential companies in the Silicon Valley. What makes this customer win especially relevant to this action is that: (a) the customer did not initially invite ZL to compete because of the Defamatory Statements, and (b) ZL won the contract only after beating out Symantec in an exhaustive, side-by-side “proof of concept” evaluation. Such a large customer win demonstrates that, but for the Defamatory Statements, ZL would have made many more sales than it has.

The complaint goes on to cite 10 more examples of potential sales in which ZL claims it was not invited to participate in a customer’s evaluation process, or pre-sales discussions were discontinued on the basis of the Magic Quadrant.

Gartner’s response is that the Magic Quadrant report amounts to a First-Amendment-protected statement of opinion, and that its rankings do not constitute a “false or misleading statement of fact” but rather a subjective conclusion.

ZL’s response in an opposition statement to the motion to dismiss argues, “Gartner tells the public that its research is “objective, defensible and credible”—it cannot now be allowed to escape the consequences of its misconduct by claiming the exact opposite, that its statements cannot be taken as anything more than its subjective opinion based on pure speculation and conjecture.”

ZL further argues that “a defendant may be held liable for statements of opinion that imply the existence of undisclosed facts. Gartner expressly stated that its statements had a factual basis, and intended that they be understood as being derived from a fact-based analysis, and can therefore be held liable even if the statements themselves are couched as opinion.”

“Try as it might, ZL cannot create a dispute where there is none,” Gartner countered further in a reply to ZL’s opposition to the motion to dismiss.

ZL alleges at great length in its Complaint (and recapitulates in its Opposition) that it has a strong product and satisfied customers. The Magic Quadrant reports do not say otherwise; the real point of contention here is not the quality of ZL’s product, but instead the subjective analytical model Gartner used to assess ZL’s market position and prospects. ZL does not contest Gartner’s basic assessments of ZL—that it has a good product but needs to expand its sales and marketing—but ZL challenges its placement on the Magic Quadrant Report because Gartner uses a “misguided analytical model” that gives “undue weight to sales and marketing.” Complaint ¶ 10. As the law makes clear, such analysis constitutes non-actionable opinion. None of ZL’s arguments dispute this bedrock principle. Instead, ZL focuses on a straw-man defamatory statement (that ZL’s product is “inferior”) that never appeared in—and is contradicted by—the plain text of the Magic Quadrant reports.

Personally, though I’m not a lawyer or legal expert, I think it’s unlikely that ZL can win its case. In one recent case in which securities rating agencies’ opinions relating to the subprime mortgage crisis were found not to be protected by the First Amendment, there were some different circumstances, such as one judge’s opinion that plaintiffs had sufficiently proven ratings agencies did not sincerely believe their own statements had basis in fact. The lawsuit between ZL and Gartner, on the other hand, seems to come down to the weight given to sales and marketing strength over technical product specifications rather than Gartner’s sincerity.

It would be easy to point out here that potential customers could also perform more of their own internal testing of products and not weigh the Gartner quadrants so heavily in their purchasing process, but it’s unclear whether that’s realistic in all cases. It also seems to be a matter of subjective opinion how important size of vendor and strength of sales are in the evaluative process of purchasing technical products. In a perfect world, maybe product evaluation would be a true meritocracy, but who among us hasn’t heard the old chestnut that “nobody ever got fired for buying IBM?”

I’m very interested in the peanut gallery’s response to this. Does ZL have a point about the weight being given to a subjective report in technical purchasing decisions? Or is this a case of impugning an evaluative process because of a disliked outcome?

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