NetScout Systems sues research firm Gartner, alleging pay-to-play coverage


If you’ve ever had a less-than-pleasant interaction with a tech market research firm, here’s some enjoyable summer reading for you: a lawsuit filed yesterday by publicly-held NetScout Systems of Westford against Gartner, Inc., one of the most established of the firms that track technology offerings.

The suit, filed in Connecticut Superior Court, alleges corporate defamation and violation of the Connecticut Unfair Trade Practices Act. Why? NetScout, which sells software to monitor and manage the performance of applications and networks, felt it got an unfavorable assessment from Gartner, which can influence how big companies decide to spend their tech budgets.

The suit claims Gartner “has a ‘pay-to-play’ business model that by its design rewards Gartner clients who spend substantial sums on its various services by ranking them favorably in its influential Magic Quadrant research reports and punishes technology companies that choose not to spend substantial sums on Gartner services.”

And the case ties Gartner’s behavior to that of analysts at Wall Street investment banks in the past:

The U.S. Securities and Exchange Commission (“SEC”) has punished similar business practices by financial analysts on Wall Street (as opposed to technology analysts like Gartner), finding that such business practices violate rules requiring the financial analysts to observe just and equitable principles of trade and principles of good business practice. There, like here, the financial analysts were, on the one hand, publishing analyst reports evaluating companies, while, on the other hand, offering those same companies services for a fee.

…While Gartner’s business practices are not regulated by the SEC, its business practices are no less unscrupulous or unethical. The unfair and deceptive business practices employed by Gartner have damaged NetScout and its business through, among other things, reputational harm and lost business opportunities. Gartner has further damaged NetScout by forcing it to expend considerable sums of money to counteract Gartner’s false and defamatory statements within the marketplace.

The full lawsuit is below.

NetScout was founded in 1984 by Anil Singhal, who still serves as its CEO. Revenues were $397 million in its 2014 fiscal year.

Gartner has been sued in the past over its analysis — unsuccessfully. And Gartner SVP Andrew Spender sent a statement on the NetScout suit saying that “while it’s not our practice to discuss pending litigation, we do consider this complaint to be completely without merit and intend to defend ourselves vigorously against the allegations. We stand by the processes we use in creating our Magic Quadrants and remain committed to providing our clients with independent research and advice about the products and services that we cover and upon which they have relied for decades.”

NetScout Systems vs. Gartner Inc.

Scott Kirsner writes the Innovation Economy column every Sunday in the Boston Globe, in which he tracks entrepreneurship, investment, and big company activities around New England.
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