Netscout v Gartner

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<ul><li><p>RETURN DATE: AUGUST 19, 2014 </p><p>NETSCOUT SYSTEMS, INC., SUPERIOR COURT </p><p>Plaintiff, JUDICIAL DISTRICT OF v. STAMFORD/NORWALK </p><p>GARTNER, INC., AT STAMFORD </p><p>Defendant. AUGUST 4, 2014 </p><p>COMPLAINT </p><p>Plaintiff NetScout Systems, Inc. ("NetScout"), by its attorneys Bingham McCutchen LLP, </p><p>and in support of its claims against Defendant Gartner, Inc. ("Gartner"), respectfully makes the </p><p>following allegations. Except as to allegations regarding NetScout, which allegations NetScout </p><p>knows to be true, these allegations are made upon information and belief, based on publicly </p><p>available information and the diligent investigation conducted by NetScout. </p><p>NATURE OF THE ACTION </p><p>1. This is an action for violation of the Connecticut Unfair Trade Practices Act </p><p>("CUTPA"), Conn. Gen. Stat. 42-110b, and corporate defamation, brought by NetScout, a </p><p>Massachusetts information technology company, against Gartner. </p><p>2. Gartner, an information technology ("IT") research giant, markets itself as an </p><p>"independent and objective" company offering actionable technology research from an </p><p>"unbiased source." In fact, Gartner is not independent, objective or unbiased, and its business </p><p>A/76213392 </p></li><li><p>model is extortionate by its very nature. Its substantial success is due to the worst kept secret in </p><p>the IT industry: Gartner has a "pay-to-play" business model that by its design rewards Gartner </p><p>clients who spend substantial sums on its various services by ranking them favorably in its </p><p>influential Magic Quadrant research reports ("Magic Quadrant reports") and punishes technology </p><p>companies that choose not to spend substantial sums on Gartner services. </p><p>3. While Gartner purports to provide objective and unbiased analysis of technology </p><p>companies in its Magic Quadrant reports, Gartner sells other services to technology companies, </p><p>including "consulting" services, informing companies that, if they pay for Gartner's "consulting" </p><p>services, the companies will enhance their relationships with Gartner analysts, an obvious means </p><p>of improving their prospects in the Magic Quadrant report. Gartner's message is plain: pay </p><p>Gartner for "consulting" services and in exchange Gartner will rank your company higher and </p><p>make favorable statements about your company in its Magic Quadrant report. </p><p>4. This "pay-to-play" business model is facilitated by Gartner's immense influence </p><p>within the IT industry. A favorable ranking in Gartner's Magic Quadrant report can "make or </p><p>break" an IT company. IT companies are pressured into spending substantial sums on Gartner's </p><p>"consulting" services to better position themselves in these "magic" reports. As one published </p><p>article questioning Gartner's business practices observed: "[flailure to get a favorable mention </p><p>in an analyst report could undermine years of product development. Acceptance, on the other </p><p>hand, boosts a company's exposure and is essential for buyers drawing up short lists." </p><p>2 A/76213392 </p></li><li><p>5. Gartner was founded in 1979 by prominent Wall Street computer analyst Gideon </p><p>Gartner. Gideon Gartner has stated that Gartner's Magic Quadrant reports are "misused and </p><p>abused" and commented on the "potential tainting" of the "objectivity of [its] research." As </p><p>Gideon Gartner, who is no longer affiliated with Gartner, stated: </p><p>The reason why people revile the Magic Quadrant is because it is misused . . . As a guideline for a bunch of amateurs it's one thing. But when all your clients live or die on the basis of whether Gartner Group puts you in the upper right hand corner in the -- or wherever -- that's really bad news. And when there's potential tainting of the objectivity of research because you have very large contracts with your vendors, with your customers, people will always come and complain. . . . Today, it is overused, misused and abused, terribly. </p><p>6. The very same analysts who draft Gartner's influential Magic Quadrant reports </p><p>sell "consulting" services to the IT vendors ranked in Gartner's reports. Through its </p><p>"consulting" services, Gartner sells access to its analysts. Thus, not only is Gartner issuing </p><p>purportedly "unbiased" research about its own fee-paying clients, but the very same analysts who </p><p>draft those reports have direct consulting relationships with the companies that they purport to </p><p>"independently and objectively" analyze. These conflicts of interest inevitably lead to biased </p><p>research reports, aggressive cross-selling of Gartner's research-based consulting services, and </p><p>less desirable Magic Quadrant rankings for those technology companies who refuse to spend </p><p>substantial sums on those services. </p><p>7. The U.S. Securities and Exchange Commission ("SEC") has punished similar </p><p>business practices by financial analysts on Wall Street (as opposed to technology analysts like </p><p>Gartner), finding that such business practices violate rules requiring the financial analysts to </p><p>3 A/76213392 </p></li><li><p>observe just and equitable principles of trade and principles of good business practice. There, </p><p>like here, the financial analysts were, on the one hand, publishing analyst reports evaluating </p><p>companies, while, on the other hand, offering those same companies services for a fee. </p><p>8. Indeed, the SEC instituted enforcement actions against ten Wall Street firms, </p><p>which resulted in an over $1 billion settlement and structural reforms of the entire financial </p><p>analyst industry. See infra paragraphs 115-116. Those structural reforms were intended to </p><p>remove the conflicts of interest and unfair and deceptive business practices that led to biased and </p><p>inaccurate analyst reports. See infra paragraphs 105-118. </p><p>9. The SEC and other regulators have since promulgated regulations specifically </p><p>prohibiting financial research firms from engaging in the same types of unfair and deceptive </p><p>business practices that persist at Gartner to this day. See SEC Regulation AC; FINRA Rule 2711; </p><p>NYSE Rule 472. </p><p>10. While Gartner's business practices are not regulated by the SEC, its business </p><p>practices are no less unscrupulous or unethical. The unfair and deceptive business practices </p><p>employed by Gartner have damaged NetScout and its business through, among other things, </p><p>reputational harm and lost business opportunities. Gartner has further damaged NetScout by </p><p>forcing it to expend considerable sums of money to counteract Gartner's false and defamatory </p><p>statements within the marketplace. </p><p>11. NetScout is an industry leader for advanced network, application and service </p><p>assurance solutions. In layman's terms, it manufactures, sells and supports technology products </p><p>4 A/76213392 </p></li><li><p>that allow a company to manage, monitor, diagnose and service that company's computer </p><p>network and underlying services. </p><p>12. NetScout is the leader in its market sector. With annual revenues of </p><p>approximately $400 million, it is the largest player in a market that Gartner defined as a $1 </p><p>billion market. Further, NetScout is a company of the future, with a year-over-year revenue </p><p>growth rate of 15%. It owes its success in part to the fact that its products are far more scalable </p><p>than any of its competitors -- they can be used at very large companies with very fast computer </p><p>networks -- which explains why NetScout's products are deployed in 92 of the Fortune 100 </p><p>companies, all five branches of the U.S. military, 19 of the top 20 commercial banks, the top ten </p><p>airlines, and the top ten financial service providers. </p><p>13. Despite Gartner's not-so-veiled overtures, NetScout has not engaged Gartner for </p><p>"consulting" services in the past five years. </p><p>14. NetScotit suffered the consequences in a recent Gartner Magic Quadrant report. </p><p>15. In a Magic Quadrant report for the Network Performance Monitoring and </p><p>Diagnostics market ("Magic Quadrant Report for NPMD"), published on March 6, 2014, Gartner </p><p>did not rank NetScout as a "Leader." Instead, it ranked NetScout as a "Challenger," which </p><p>Gartner defined as, essentially, a technology company that saddles its customers with outdated </p><p>technology. Gartner stated falsely that NetScout is "currently struggling to deal with new </p><p>technical demands and rising expectations" and has "architectures, feature sets and pricing </p><p>5 A/76213392 </p></li><li><p>structures that require modernization (often in progress) to better compete with those in the </p><p>Leaders quadrant." </p><p>16. Further, Gartner also made the following false and defamatory statements in its </p><p>report: </p><p>n NetScout offers "only a hardware-based deployment model" that "limits [its] ability to address growing software and SaaS solution demand." </p><p>n NetScout has a "limited ability to expand beyond its network management heritage." NetScout is "perceived as a conservative stalwart in the NPMD space, and lacks the reach and mind share that many smaller competitors have." </p><p>17. Gartner ranked three other companies as "Leaders" who spent a significant </p><p>amount on Gartner's services and who do not deserve to be ranked ahead of NetScout, by any </p><p>measure. </p><p>18. Upon receiving a pre-publication draft of Gartner's Magic Quadrant report, </p><p>NetScout informed Gartner both orally and in writing that the Report contained numerous false </p><p>and disparaging statements of fact about NetScout. Despite having actual notice of these factual </p><p>errors, Gartner published the Magic Quadrant Report for NPMD without material alteration and </p><p>with actual malice, knowledge and/or reckless disregard of the false and defamatory statements </p><p>of fact regarding NetScout contained within the Report. </p><p>PARTIES </p><p>19. Plaintiff NetScout is a corporation organized under the laws of Delaware, with its </p><p>principal place of business in Westford, Massachusetts. </p><p>6 A/76213392 </p></li><li><p>20. Defendant Gartner is a corporation organized under the laws of Delaware, with its </p><p>principal place of business in Stamford, Connecticut. </p><p>FACTS </p><p>NetScout's Business </p><p>21. Founded in 1984, NetScout Systems, Inc. is a world-renowned innovator and </p><p>provider of integrated network performance management ("NPM") products. </p><p>22. NetScout designs, develops, manufactures, markets, licenses, sells and supports </p><p>advanced network, application, and service assurance solutions. NetScout's solutions are used </p><p>by commercial enterprises, large governmental agencies, and telecommunication service </p><p>providers worldwide to manage and monitor computer networks, optimize the delivery of </p><p>business applications and services, and assure user experience across global IP networks. </p><p>NetScout's solutions help companies' information technology staffs to quickly analyze </p><p>performance, availability and quality for network and application service delivery. This allows </p><p>them real-time visibility to identify service delivery issues early, improve service levels, reduce </p><p>operational costs, mitigate security risks, drive better business decisions and otherwise ensure </p><p>that key information technology systems are operational and functioning properly. Thus, </p><p>NetScout's products allow some of the largest companies in the world to monitor and ensure the </p><p>functionality of their information technology systems, and rely on that functionality to deliver </p><p>products and services to their customers. </p><p>7 A/76213392 </p></li><li><p>23. NetScout went public in 1999, and almost immediately exceeded the market's and </p><p>industry's expectations by earning over $100 million in annual revenues by 2001, less than ten </p><p>years after its first product introduction. </p><p>24. NetScout has a long history of innovation within the NPM market. NetScout </p><p>introduced the industry's first packet-flow based probe. Nearly every NPM market participant </p><p>now uses variations of the packet-flow based probe technology that NetScout pioneered. </p><p>NetScout has installed over 20,000 network probes to date, covering over 100,000 networks, </p><p>which is more than all of NetScout's competitors, combined. NetScout also was the first to </p><p>deliver an NPM solution for Switched LANs, one of numerous innovations from NetScout. </p><p>25. From its humble beginnings as a fledging technology startup in 1984, NetScout </p><p>has grown, both organically and through several strategic acquisitions, into a leader in the NPM </p><p>market. In 2007, NetScout acquired one of its principal direct competitors and a well-known </p><p>leader in the NPM market space, Network General. Just five years after the Network General </p><p>acquisition, International Data Corp., a leading market research, analysis, and advisory firm, </p><p>declared NetScout the largest NPM company in the world based on annual revenues. Since 2011, </p><p>NetScout's annual revenue has grown from $260 million to nearly $400 million. </p><p>26. NetScout's global reach is undeniable. NetScout offers sales, support, and </p><p>services in more than 30 countries, yielding international revenues for fiscal year 2014 of </p><p>approximately $93 million. </p><p>8 A/76213392 </p></li><li><p>27. NetScout's products are deployed in 92 of the Fortune 100 companies (including </p><p>all five of the top five), 370 of the Fortune 500 companies, and more than 165 service providers. </p><p>Additionally, all five branches of the U.S. military, 19 of the top 20 commercial banks, ten of the </p><p>top ten airlines, and ten of the top ten financial service providers utilize NetScout technology. </p><p>28. After decades of consistent vision, innovation, and leadership, NetScout employs </p><p>more than 1,000 people and earned approximately $400 million in revenue for its fiscal year </p><p>2014. For its first fiscal quarter of 2015, NetScout earned revenue of approximately $108 </p><p>million, a 32% year-over-year increase, and it earned non-GAAP net income of $15 2 million, a </p><p>75% year-over-year increase. As of June 30, 2014, NetScout held $234 million in cash and cash </p><p>equivalents and short and long-term marketable securities. </p><p>29. NetScout earned more than $350 million in revenue in fiscal year 2013. Thus, </p><p>from fiscal year 2013 to fiscal year 2014, NetScout grew its annual revenue by $50 million, </p><p>while the three NetScout competitors that Gartner placed in the "Leaders" quadrant achieved less </p><p>than $50 million in revenue growth, combined. </p><p>30. NetScout is the only company in the NPM space that has such a rich history of </p><p>technological innovation, depth and breadth of customer base, dedication to research and </p><p>development, product vision, and history of sustained growth. All of the foregoing facts about </p><p>NetScout's business were known or available to Gartner when it published the Magic Quadrant </p><p>Report for NPMD. </p><p>9 A/76213392 </p></li><li><p>Gartner And Its Magic Quadrant Research Reports 31. Founded in 1979, Gartner refers to itself as "the world's leading information </p><p>technology research and advisory company." It employs approximately 6,000 associates, </p><p>including almost 1,500 research analysts and consultants. It has clients in 85 countries. </p><p>Gartner's revenue for 2013 exceeded $1.7 billion. </p><p>32. Gartner claims to offer "insight" concerning the IT industry. It states: </p><p>We deliver the technology-related insight necessary for our clients to make the right decisions, every day. From CIOs and senior IT leaders in corporations and government agencies, to business leaders in high-tech and telecom enterprises...</p></li></ul>