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Suing Gartner Doesn’t Work After All

Earlier this year, ZL Technologies sued Gartner for over $1.6 billion in damages over Gartner’s placement of ZL Technologies in the email archiving Magic Quadrant.  Recently, the Federal Court for the Northern District of California dismissed the case and handed Gartner a nice little victory.  The Court did not slam the door totally in ZL Technology’s face since they left them a slight bit of room to amend their complaint.  You can read the Court’s entire Order here.

The details and an assessment of the initial lawsuit were covered in an earlier post entitled “Suing Gartner Won’t Solve Your Magic Quadrant Problems.”  Basically, ZL Technologies got fed up of being binned in the ‘Niche’ quadrant year after year.  ZL Technologies has been in business for 10 years and included in the MQ since 2005.  After being pigeon-holed in the ‘Niche’ quadrant for the fifth year in a row, ZL Technologies decided that Gartner and their analyst Carolyn DiCenzo were so biased against them that their only recourse was to sue Gartner.  ZL made seven claims against Gartner in their original lawsuit.  These included defamation of character, false statements about Gartner’s products/services, and false statements about Symantec under the Lanham Act, as well as false advertising, unfair competition, and negligent interference with prospective economic advantage under the California Business and Professions Code.  After the initial lawsuit was filed, Gartner filed a motion to dismiss.  A hearing was held on October 23rd and on November 4th the Court ruled in Gartner’s favor on all claims.  As noted in the order:

“This Court declines ZL’s invitation to expand the principles of Lanham Act standing beyond those recognized by the Ninth Circuit.  Finally, even if the Court were to apply the prudential standing approach, ZL fails to explain in its opposition how its allegations of fact support the first statutory factor – that the alleged injury “is the injury of a type that Congress sought to redress in providing a private remedy for violations of the Lanham Act.” Phoenix of Broward, 489 F.3d at 1163-64, citing Conte Bros. Automotive, Inc., 165 F.3d at 233.2. . . . ZL asserts six additional claims under California law. Each claim is dependent upon a conclusion that the Alleged Defamatory Statements are false or misleading statements of fact.  Because it concludes that all of the statements are non-actionable opinions, the Court will grant the motion to dismiss as to each of the claims.”

The Court also noted:

“As discussed at length above, the Court concludes that the Alleged Defamatory Statements as such are non-actionable statements of opinion, and obviously no amendment can change the statements themselves. Other courts have denied leave to amend under similar circumstances, concluding that amendment would be futile. Partington, 56 F.3d at 1162 (affirming the district court’s dismissal without leave to amend of defamation and false light claims when the alleged defamatory statements were held to be nonactionable opinions protected by the First Amendment); Browne, 525 F.Supp.2d at 1255 (dismissing plaintiff’s claims of defamation and libel without leave to amend after concluding that defendant’s evaluative rankings were non-actionable opinions protected by the First Amendment). Because the statements are at the core of all of ZL’s claims, it appears very unlikely that even additional allegations of bias will enable ZL to state a viable claim, particularly given the fact that even under the liberal pleading standard of Fed. R. Civ. P. 8(a) a claim must be “plausible on its face,” Twombly, 550 U.S. at 570 (2007), see also Iqbal v. Aschroft, __ U.S. __, 129 S.Ct. 1937, 1950-53 (2009), and in light of the constraints imposed by33 Fed. R. Civ. P. 11. However, in keeping with the strong policy in the Ninth Circuit favoring amendment, leave to amend in part will be granted here.” (emphasis added)

The Court did throw ZL a bone, however.  In Gartner’s motion to dismiss, they asked the court to dismiss the claims with prejudice and to not allow ZL to amend their original complaint so they could get a second bite at the litigation apple.  During oral arguments at the October 23rd hearing, ZL’s attorney raised some new points that the Court considered:

“ZL contends that through its “continuing investigation” it has discovered facts that lend further support to the allegations in the complaint. Opp. MTD at 25, n. 7. In particular, ZL claims that “a former board member of Gartner was also, until very recently, a board member of Symantec, and also…a co-founder of a significant Gartner shareholder” that according to a recent SEC filing by Gartner “‘may be able to exercise significant influence over matters’ of significant importance at Gartner.” Id. ZL also purports to have discovered that Gartner maintains business relationships with at least some of the IT companies that it rates in its MQ Report, “some of whom pay Gartner hundreds of thousands of dollars per year for Gartner services, promotion, and participation in Gartner trade shows.”

The Court allowed ZL to amend their complaint, but noted an important caveat:

“Because the Court can discern no way in which additional factual allegations could cure the deficiencies in ZL’s claims under the UCL or FAL or for negligent interference with prospective business advantage, leave to amend will be denied as to these claims.”

In summary, the Court ruled that the ZL suit was without merit and had no chance of succeeding.  They left open the door that if ZL could prove some crazy conspiracy theory about how Gartner was really out to get them they might be able to amend their initial lawsuit and actually make it into court.

It will be interesting to see if ZL tries to take this lawsuit any further than they already have.  As the Court noted several times there is practically no chance that ZL could prevail on any of the claims they have made.  It was good to see how Gartner backed their analyst, Carolyn DiCenzo.  It is never a positive thing to be sued individually as a result of your work but it was gratifying to see Gartner mount a robust and successful defense on her behalf. 

At the end of the day I am pretty sure ZL Technologies is no better off than where they were before they decided to sue Gartner.  Certainly they have had a chance to air their grievances in a public forum and they have generated some sympathy from other vendors and pundits who share their views about the evil Gartner.  The facts behind Gartner’s fundamental assertion in the MQ that ““ZL is primarily a product and engineering-focused company. To remain viable vendor in the market, the company must gain greater visibility and more aggressively expand its sales channels” have not changed.  Technical prowess only carries an enterprise software vendor so far.  Marketing and sales execution are the key drivers to revenue growth.  As I noted in my prior post on this topic, ZL would have been better served to invest the $300,000 to $500,000 they probably spent on this lawsuit hiring away one of Symantec’s top sales people.  Alternatively they could consider the advice from Jon Gatrell, a veteran product management executive who has a tremendous track record of moving from being a Niche to a Leader in Gartner’s Magic Quadrant.  Here are a few suggestions from Jon:

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