Reed Constr. Data Inc. v. McGraw-Hill Cos.

Decision Date24 September 2014
Docket NumberNo. 09–CV–8578 JPO.,09–CV–8578 JPO.
Citation49 F.Supp.3d 385
PartiesREED CONSTRUCTION DATA INC., Plaintiff, v. The McGRAW–HILL COMPANIES, INC., John Does One through Five, and John Doe Entities One through Five, Defendants.
CourtU.S. District Court — Southern District of New York

Aurora Cassirer, Matthew Joel Aaronson, Troutman Sanders LLP, New York, NY, Alan William Bakowski, Alison A. Grounds, James Andrew Lamberth, Kevin Gregory Meeks, William N. Withrow, Troutman Sanders LLP, Charles R. Burnett, Dominic Kouffman, Charles R. Burnett, Esq., Atlanta, GA, for Plaintiff.

Joshua Aaron Goldberg, Michelle Waller Cohen, Saul Benjamin Shapiro, William Robert Fair, Patterson, Belknap, Webb & Tyler LLP, Stephanie Marie Gyetvan, Federal Government, New York, NY, for Defendants.

OPINION AND ORDER

J. PAUL OETKEN, District Judge.

Plaintiff Reed Construction Data, Inc. (Reed) brought this action against Defendants McGraw–Hill Companies, Inc., (McGraw–Hill), five unidentified natural persons, and five unidentified entities,1 claiming violations of the Lanham Act, 15 U.S.C. §§ 1114(1)(a), 1125(a)(1)(A), the Sherman Antitrust Act, 15 U.S.C. § 2, and various state law torts. Reed alleges that McGraw–Hill surreptitiously accessed Reed's database service and used that access to generate false or misleading product comparisons that it distributed to prospective Reed customers. McGraw–Hill has moved for summary judgment and has moved to exclude the testimony of Reed's expert witness, Dr. Frederick Warren–Boulton. The Court conducted a two-day Daubert hearing on the admissibility of that testimony on July 30 and 31, 2014.

For the reasons that follow, McGraw–Hill's motion to exclude is granted, and its motion for summary judgment is granted in part and denied in part.

I. Background

The parties are in the business of providing construction product information (“CPI”). CPI began at the turn of the century with written newsletters that provided information on construction projects so that subscribers—ordinarily those in the building trades—could bid for jobs. See F.W. Dodge Co. v. Construction Info. Co., 183 Mass. 62, 66 N.E. 204 (1903). Today, CPI services are nationwide searchable databases that can filter projects based on the user's preferences. For example, a user can search for library projects in Topeka, Kansas, worth more than three million dollars, that need plumbing in the next two months. The CPI service will collect all the projects meeting those specifications and provide plans, bidding information, and contact information for the planner, architect, or general contractor on the job. Reed and McGraw–Hill each sell CPI subscriptions at the national, state, and local levels. McGraw–Hill's service is called the “Dodge Network.” Reed's is called “Connect.” At the national level, Reed and McGraw–Hill are the only two services in the market.

CPI customers generally prefer a service that lists more projects to one that lists fewer projects, all else being equal. The parties, knowing this, compete vigorously over who has the most projects in its database. They also endeavor to protect the information in their databases from unauthorized use. The user agreements that Reed's and McGraw–Hill's customers must sign limit the permissible uses of the information in the database, which do not include creating comparisons with competing CPI providers.

Around 2004, McGraw–Hill began to access Reed Connect for two purposes. First, McGraw–Hill wanted to create comparisons that it believed would be favorable to its Dodge Network. To do this, it needed to know how many projects were listed on Reed Connect. Second, McGraw–Hill wanted to be aware of changes in the marketplace and ensure that Reed was not listing significant projects that it had missed. To do this, McGraw–Hill needed to know what projects Reed was listing. McGraw–Hill endeavored to conceal that it was subscribing to Reed Connect. McGraw–Hill paid consultants—referred to internally as “spies”—to subscribe to Reed Connect. The consultants would create fake entities to subscribe to Reed Connect and would sometimes falsely claim that those entities were associated with actual builders and contractors. McGraw–Hill paid these consultants in cash and personal checks drawn on the McGraw–Hill credit union and listed the expenses on its books as “Stationery and Supplies,” or “Magazines and Books.” Ultimately, McGraw–Hill spent $3.45 million on consultants' accessing Reed Connect.

Once it had access to Reed Connect, McGraw–Hill hired GFK Roper Public Affairs & Media, Inc., (“Roper”) to generate product comparisons. Roper advertised itself as an independent entity evaluating the two services. But, according to Reed, Roper did little more than send someone to sit in a room and watch a McGraw–Hill employee run searches on the two services. Roper made no effort to ensure that the two searches were fairly comparable. For example, McGraw–Hill actually used one of its other (presumably superior) products in the tests but said that it had used the Dodge Network. Further, the searches were selected so as to emphasize McGraw–Hill's strengths and minimize those of Reed. Because Reed had superior listings for projects worth under $1 million, McGraw–Hill limited the comparisons in the Roper Reports to projects worth more than $1 million. Similarly, McGraw–Hill ran the searches so as to capture projects that needed to be completed expeditiously—these projects are called “ASAPs”—in its database but not to capture them in Reed's database. These comparisons resulted in a report in which McGraw–Hill boasted “71% more planning projects, 78% more bidding projects, and 71 % more digitized plans and specifications.” (Plaintiff's Exhibit 484 at 33.) Ultimately, Reed had its own expert analyze the data, and came to the conclusion that the Roper reports were biased in McGraw–Hill's favor.

While McGraw–Hill was distributing the Roper reports, it was also conducting ad hoc comparisons of the two services in response to questions from customers. According to Reed, McGraw–Hill issued 1,235 unique ad hoc comparisons based on its unauthorized access to Reed Connect. When customers wanted to compare the services, McGraw–Hill frequently advised them to search for a particular project in both services, knowing all the while that the suggested project would be found only in the Dodge Network. McGraw–Hill also issued a number of state and local comparisons of the two products that were generally similar to the Roper reports in both content and methodology. At the same time, McGraw–Hill touted a five-to-one advantage in “exclusive” projects—those that McGraw–Hill covered but Reed did not—in its communications with customers, particularly large customers. In reality, Reed contends, the true ratio was closer to 2.6–to–one.

On at least a few occasions, McGraw–Hill used its access to Reed Connect to find new projects. Reed describes this as “stealing.” (Dkt. No. 156, Plaintiff's Memorandum of Law at 35 [hereinafter Plaintiff's Memorandum].) McGraw–Hill describes it as “isolated potential violations of McGraw–Hill's rules in which McGraw–Hill may have used Reed Connect to obtain a source of project leads.” (Dkt. No. 150, Defendant's Memorandum of Law, at 15 n. 6 [hereinafter Defendant's Memorandum].) McGraw Hill claims that it had “strict rules” (id. ) in place to regulate the use of its illicitly obtained Reed Connect access. (These rules were, fittingly, called the “Roper Rules.”) The parties agree that McGraw–Hill broke these rules at least a few times and used its access to Reed Connect for purposes other than generating comparisons.

Reed brought suit against McGraw–Hill in 2009, pressing its current claims as well as claims under the Racketeering–Influenced and Corrupt Organizations Act (RICO). Judge Sweet dismissed the RICO claims, but allowed the remaining claims to proceed.2 During the motion to dismiss stage, Reed alleged that no fewer than 231 customers reported noticing the Roper Reports and were influenced by their contents. Discovery has not borne out that claim. Reed can now point to one customer declaration showing that the Roper Reports influenced purchasing decisions.3 In addition to arguing that it was injured by losing customers, Reed now claims that it was injured because it was forced to price its services lower than it otherwise would have absent McGraw–Hill's misconduct. In support of this damages theory, Reed offers the testimony of Dr. Frederick Warren–Boulton. McGraw–Hill has moved to strike that testimony under Federal Rule of Evidence 702.

II. Motion to Exclude Dr. Warren–Boulton's Testimony

Reed has retained Dr. Warren–Boulton to answer four questions related to this case. First, is there a distinct national market for CPI sufficient to trigger § 2 of the Sherman Act? 15 U.S.C. § 2. Second, did McGraw–Hill exercise power in that market? Third, did McGraw–Hill's misconduct allow it to keep its market power? And, finally, did McGraw–Hill's misconduct damage Reed? The parties refer to Dr. Warren–Boulton's answers to the first three questions as his “liability opinion”4 and his answer to the final question as his “damages opinion.”

A. Regression Analysis

To support both his liability and damages opinions, Dr. Warren–Boulton conducted statistical regression analyses of Reed's and McGraw–Hill's pricing and service data. A brief overview of regression analysis may be helpful. The basic regression method is simple: isolate the effect of one variable (the “independent variable”) on another variable (the “dependent variable”) by holding all other potentially relevant variables (the “control variables”) constant. By controlling for other factors that might influence the dependent variable, one “regresses” the influence of the independent variable on the dependent variable. The number associated with that influence is called a “coefficient.”

Imagine, for example, that one wanted to isolate the effect of location on the price of an apartment. One...

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2 cases
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    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • 24 September 2014
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