NewRiver has slapped suit against Morningstar, alleging unlawful access to its Prospectus Express Web-based data warehouse and unfair competition. The 25-page complaint, filed by NewRiver in Massachusetts state court on Friday, also brought to light acquisition talks last year between Morningstar and NewRiver.

In the lawsuit, New River accused Morningstar of accessing NewRiver's Prospectus Express data warehouse by employing so-called "screen-scraping" technology -- a computer program that extracts data from the display output of another program -- from internet protocol addresses in China and the US.

Morningstar spokeswoman Margaret Kirch Cohen said the firm believes NewRiver's lawsuit is without merit.

"This lawsuit has one purpose: to discourage Morningstar from competing with them," Cohen said in an e-mailed statement to The MFWire. "NewRiver's representatives made it clear to us that unless we agreed that we wouldn't compete with them, they would sue us."

The product at the center of the suit, Prospectus Express, provides investor access to an online library of documents such as prospectuses, supplements and annual reports for mutual funds, variable annuities, ETFs and some unit investment trusts in the US. With the SEC's Summary Prospectus rule, New River expects a dramatic rise in its business.

NewRiver's clients sign a license agreement with NewRiver, which gives them the right to have their clients access the data warehouse through a client-tailored URL.

In 1999, Morningstar paid NewRiver to access Prospectus Express and in February 2000, the two entered into a more comprehensive agreement, under which Morningstar was authorized to market and redistribute the database for selected funds in conjunction with Morningstar's ClearFuture product. That agreement also gave Morningstar access to a customized version of NewRiver's database for three years for its internal use.

In April of last year, NewRiver hired investment bank Lane, Berry & Co. to help it explore strategic options, including a possible sale of the firm, according to the lawsuit.

NewRiver tapped the services of the investment bank because it had received inquiries from "several large industry leaders" wanting exclusive distribution rights for NewMarket offerings, such as Prospectus Express, in advance of the SEC's approval of the Summary Prospectus rule, the complaint stated.

In June, NewRiver provided Morningstar with a 26-page Confidential Information Memorandum containing an overview of its technology and names of key clients. In the documents, NewRiver included its anticipated revenue growth through fiscal 2010, driven mainly by the Summary Prospectus rule.

On or about June 12, Morningstar told Lane Berry that it would not pursue a transaction at the time and a month later, the company told Lane Berry that it was not interested in a strategic partnership with NewRiver, according to the suit.

"Unbeknownst to NewRiver and upon information and brief, beginning at least as early as May 2008, Morningstar had begun "screen-scraping" NewRiver's Prospectus Express web-based data warehouse for competitive information from, among other locations, Morningstar's China subsidiary," the lawsuit alleged.

The screen-scraping allegedly picked up on August 1, after Morningstar and Lane Berry concluded transaction talks.

NewRiver alleged that after screen-scraping the warehouse, Morningstar approached NewRiver's clients to convince them to end their relationships with NewRiver and turn to Morningstar. Those clients included Citigroup and The Standard Insurance Company, according to the suit.

In her e-mailed comments, Morningstar's Cohen said the company did not use NewRiver's database to develop its product.

"In no way did Morningstar use any NewRiver technology, information, or data to create, build, or market our Global Document Library product," she said.

"We looked at the dates of some widely available public documents contained in NewRiver's database for benchmarking purposes," Cohen said. "We looked at the dates to compare the timeliness of our data with theirs. These dates are point-in-time snapshots and the information changes daily. We don’t believe we violated any of NewRiver’s rights by accessing those public documents."

Cohen said Morningstar intends to continue to compete with NewRiver in the marketplace. "We will not be deterred by NewRiver's lawsuit or intimidated by its tactics," she said.

In a phone interview on Monday, NewRiver chairman and CEO Russell Planitzer said of the case: "It's a former customer who knows the terms and conditions of the use of the product and had they been a fee-paying customer, they could not have copied the documents the way they did." 

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