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Reed Construction Data Inc. v. McGraw-Hill Companies, Inc.

District Court, S.D. New York
49 F. Supp. 3d 385, 2014 WL 4746130, 2014 U.S. Dist. LEXIS 134830 (2014)
ELI5:

Rule of Law:

To recover damages for false advertising under the Lanham Act, a plaintiff must prove that the alleged misrepresentations were material to consumer purchasing decisions and caused actual injury; however, under New York unfair competition law, a defendant may be liable for the bad faith misappropriation of a competitor's labor and expenditures ('free-riding') even without proof of specific lost sales.


Facts:

  • Reed Construction Data and McGraw-Hill are the only two competitors in the national market for construction product information (CPI) searchable databases.
  • McGraw-Hill hired consultants to covertly subscribe to Reed's 'Connect' database using fake company names to hide their affiliation.
  • McGraw-Hill used this unauthorized access to generate 'Roper Reports,' which claimed McGraw-Hill had significantly more project listings than Reed, and marketed these reports as independent and objective assessments.
  • McGraw-Hill sales representatives used these reports and conducted 'ad hoc' comparisons to convince potential customers that their 'Dodge Network' was superior to Reed's service.
  • On several occasions, McGraw-Hill employees took specific project leads found in Reed's database and added them to their own Dodge Network database.
  • Reed retained an expert witness, Dr. Warren-Boulton, who performed a regression analysis attempting to show that McGraw-Hill's actions caused a 'price effect' resulting in financial damages to Reed.
  • Reed produced a declaration from only one customer (McCoy) claiming to be confused by the advertising, but this customer was not the final decision-maker for purchasing.

Procedural Posture:

  • Reed filed suit against McGraw-Hill in the U.S. District Court for the Southern District of New York alleging Lanham Act violations, antitrust violations, RICO violations, and state torts.
  • The District Court (Judge Sweet) previously dismissed the RICO claims but allowed other claims to proceed.
  • Following discovery, McGraw-Hill filed a motion to exclude Reed's expert witness (Dr. Warren-Boulton).
  • McGraw-Hill filed a motion for summary judgment on all remaining claims.

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Issue:

Does a company violate federal false advertising laws, antitrust laws, or state unfair competition laws when it surreptitiously accesses a competitor's database to create biased comparison reports and misappropriates proprietary project leads?


Opinions:

Majority - Judge J. Paul Oetken

No regarding the expert testimony, No regarding the Lanham and Antitrust claims, but Yes regarding the Unfair Competition claim. First, the Court granted the motion to exclude Reed's expert witness. The expert's regression analysis was inadmissible under Federal Rule of Evidence 702 and Daubert because it relied on 'cherry-picked' end dates, improperly pooled national and local data without statistical justification, and failed to control for major variables like construction volume. Without a reliable methodology, the testimony could not assist the trier of fact. Second, regarding the Lanham Act false advertising claims, the Court granted summary judgment for McGraw-Hill. While a jury could find that McGraw-Hill's claims about the Roper Report's 'independence' and certain project ratios were literally false (creating a presumption of deception), Reed failed to prove materiality or injury. The presumption of consumer confusion is rebuttable, and the evidence showed that only one customer—who was not a decision-maker—claimed to be confused. Reed could not prove that the misrepresentations influenced purchasing decisions or caused lost sales. Third, on the antitrust claims, the Court applied the Ayerst presumption, which assumes false advertising has a de minimis effect on competition. Reed failed to rebut this by proving the statements were 'clearly' material or likely to induce reasonable reliance. Finally, the Court denied summary judgment on the state law unfair competition claim. Under New York law, unfair competition includes the misappropriation of another's labor ('free-riding'). McGraw-Hill's use of fake entities to access Reed's database and subsequent taking of project leads constituted bad faith misappropriation of Reed's expenditures, a claim distinct from the trade secrets claim (which failed because Reed gave free trials without restrictions).



Analysis:

This decision illustrates the high evidentiary bar plaintiffs face in false advertising cases when seeking damages rather than injunctive relief. Even where a defendant engages in ethically dubious behavior—such as corporate espionage and publishing potentially false comparisons—the plaintiff must connect that conduct to actual marketplace injury and consumer reliance. The court rigorously applied Daubert to exclude expert testimony that appeared tailored to generate a specific result rather than following sound scientific methodology. However, the survival of the unfair competition claim highlights the flexibility of New York's common law to address 'commercial immorality' and 'free-riding' even when specific statutory claims like the Lanham Act or Trade Secrets protections fail.

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