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IN THE UNITED STATES COURT OF APPEALS


FOR THE NINTH CIRCUIT

No. 10-16061

ZL TECHNOLOGIES, INC.,
Plaintiff-Appellant,

v.

GARTNER GROUP, INC. and CAROLYN DICENZO,


Defendants-Appellees.

On Appeal from the United States District Court


for the Northern District of California
Case No. 5:09-cv-02393-JF
The Honorable Jeremy Fogel, Presiding

APPELLANT’S REPLY BRIEF

JAMES M. WAGSTAFFE (CA BAR NO. 95535)


MICHAEL K. NG (CA BAR NO. 237915)
DANIEL A. ZAHEER (CA BAR NO. 237118)
KERR & WAGSTAFFE LLP
100 Spear Street, Suite 1800
San Francisco, CA 94105
Tel: (415) 371-8500
Fax: (415) 371-0500

Attorneys for Plaintiff-Appellant


ZL TECHNOLOGIES, INC.
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TABLE OF CONTENTS
I. INTRODUCTION ...........................................................................................1
II. ARGUMENT ...................................................................................................2
A. Gartner Has Failed To Demonstrate That No Reasonable
Juror Could View Its Statements As Defamatory ................................. 2
1. The Reports Imply A Factual Basis ............................................ 3
2. It Is Reasonable To Understand The Reports As
Declaring Or Implying Facts About Products ............................ 4
3. Gartner’s Assurances Of The Reports’ Reliability
Demonstrate That They Are Actionable ...................................10
B. GARTNER IS NOT IMMUNE FROM LIABILITY ........................................12
1. There Is No Immunity For Vague And Ambiguous
Speech .......................................................................................13
2. There Is No Immunity For Speech That Claims
Both Objective And Subjective Bases ......................................15
3. There Is No Immunity For Speech Characterized
As “Opinion”.............................................................................16
4. There Is No Immunity For Speech Based Upon
Facts Gathered From Others, Rather Than Facts
Gathered From Product Testing ................................................17
5. There Is No Immunity For Product Comparisons ....................21
C. ZL Has Adequately Pled Mens Rea (An Issue The
District Court Never Reached) ............................................................22
D. Application Of The Well Settled Pleading Principles
Articulated By The Supreme Court And This Court Has
Not Chilled Protected Speech .............................................................24
1. Gartner Failed To Avail Itself Of Well-Established
Protections .................................................................................26
III. CONCLUSION..............................................................................................29

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TABLE OF AUTHORITIES

Cases
Aviation Charter, Inc. v. Aviation Research Group/US,
416 F.3d 864 (8th Cir. 2005) ................................................................................29
Clorox Co. Puerto Rico v. Proctor & Gamble Comm. Co.,
228 F.3d 24 (1st Cir. 2000). .................................................................................21
Compuware Corp. v. Moody’s Inv. Servs., Inc.,
499 F.3d 520 (6th Cir. 2007) ................................................................................28
Flamm v. American Ass’n of Univ. Women,
201 F.3d 144 (2d Cir. 2000) .......................................................................... 11, 18
Flowers v. Carville,
310 F.3d 1118 (9th Cir. 2002) ...................................................................... passim
Forsher v. Bugliosi,
26 Cal. 3d 792 (1980) ...........................................................................................12
Franklin v. Dynamic Details, Inc.,
116 Cal. App. 4th 375 (2004) ...............................................................................28
Goldwater v. Ginzburg,
414 F.2d 324 (2d Cir. 1969) .................................................................................19
Jefferson County Sch. Dist. No. R-1 v. Moody’s Inv. Servs., Inc.,
175 F.3d 848 (10th Cir. 1999) ....................................................................... 13, 28
Khawar v. Globe Int’l, Inc.,
19 Cal. 4th 254 (1998) ................................................................................... 18, 22
MacLeod v. Tribune Pub. Co.,
52 Cal.2d 536 (1959) ..................................................................................... 12, 13
Manufactured Home Communities, Inc. v. County of San Diego,
544 F.3d 959 (9th Cir. 2008) ....................................................................... 2, 3, 12
Masson v. New Yorker Magazine, Inc.,
501 U.S. 496 (1991) .............................................................................................19
Metabolife Int’l, Inc. v. Wornick,
264 F.3d 832 (9th Cir. 2001) ......................................................................... 19, 23

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Milkovich v. Lorain Journal Co.,


497 U.S. 1 (1990) .................................................................................... 14, 22, 25
Nutrition & Fitness, Inc. v. Mark Nutritionals, Inc.,
202 F.Supp.2d 431 (M.D.N.C. 2002) ...................................................................21
Pizza Hut, Inc. v. Papa John’s Int’l, Inc.,
227 F.3d 489 (5th Cir. 2000) ......................................................................... 21, 22
Price v. Stossel,
__ F.3d __, 2010 WL 3307482 (9th Cir. Aug. 24, 2010).....................................19
Riggs v. Clark County School Dist.,
19 F.Supp.2d 1177 (D. Nev. 1998) ..................................................................4, 14
Selleck v. Globe Int’l, Inc.,
166 Cal. App. 3d 1123 (1985) ..............................................................................19
Sgro v. Danone Waters of N. Am., Inc.,
532 F.3d 940 (9th Cir. 2008) ................................................................................24
Standing Comm. On Discipline v. Yagman,
55 F.3d 1430 (9th Cir. 1995) ............................................................................4, 27
Underwager v. Channel 9 Australia,
69 F.3d 361 (9th Cir. 1995) ..................................................................................14
Unelko Corp. v. Rooney,
912 F.2d 1049 (9th Cir. 1990) ..........................................................................9, 14
Vegod Corp. v. Am. Broadcasting Cos.,
25 Cal. 3d 763 (1979) ...........................................................................................22
Statutes
Ariz. Rev. Stat. § 12-751 .........................................................................................27
Cal. Code of Civ. Proc. §§ 425.16 ...........................................................................27

Haw. Rev. Stat. § 634F-1 .........................................................................................27


Nev. Rev. Stat. § 41.635 ..........................................................................................27
Or. Rev. Stat. § 31.150 .............................................................................................27

Wash Rev. Code § 4.24.525.....................................................................................27

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I. INTRODUCTION

At this late stage, Appellee Gartner, Inc. now claims, extraordinarily, that no

reasonable reader of its Magic Quadrant Reports could understand them as

expressly or implicitly providing information on product performance. Gartner

makes this claim despite having successfully cultivated an image as the leading

resource for factual information that informs, if not controls, important software

product purchasing decisions. Indeed, Gartner has long assured its customers that

the Magic Quadrant is “focused on . . . products” and is used to tell customers

“what to buy.” Gartner’s customers pay thousands of dollars for the Reports for

exactly that purpose. They cannot now be deemed irrational for doing so.

Gartner attempts to escape liability by drawing legally and factually

inapposite distinctions: facts vs. opinions; products vs. vendors; vague vs. specific;

and statements reflecting product testing vs. statements reflecting customer

interviews. As demonstrated below, the law is clear that none of these purported

distinctions grants Gartner immunity for its false and damaging statements.

Instead, the law remains settled that if any reasonable juror could understand the

Reports as conveying or implying a statement of fact, then the motion to dismiss

should have been denied.

At bottom, Gartner has proposed that this Court adopt a formula that would

allow any sophisticated defamer to escape liability at the motion to dismiss stage.

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According to Gartner, all a defamer needs to do is label its statements “opinions;”

claim that the damaging statements are based on a complex and vague analytical

method, and keep secret the “mountain” of factual data upon which the statements

are purportedly based. Gartner claims this formula should work even if the

defamer intends to communicate vicious falsehoods and even if the audience

understands that message loud and clear. California and federal courts have rightly

rejected this type of loophole, and this Court should follow that settled law.

II. ARGUMENT

A. GARTNER HAS FAILED TO DEMONSTRATE THAT NO REASONABLE


JUROR COULD VIEW ITS STATEMENTS AS DEFAMATORY

Gartner concedes that its burden on its motion to dismiss is to show that no

reasonable juror could conclude that the Magic Quadrant Reports state or imply

any provably false statement of fact. Answering Br. 41; see Manufactured Home

Communities, Inc. v. County of San Diego (“MHC”), 544 F.3d 959, 964 (9th Cir.

2008); Flowers v. Carville, 310 F.3d 1118, 1128 (9th Cir. 2002). Gartner’s brief

fails to carry this burden. Instead, Gartner asks this Court to weigh the evidence

and find its portrayal of the Reports to be the more compelling one. That is not the

law. Instead, if the Magic Quadrant Reports are susceptible to any reasonable

interpretation that is defamatory, then the motion must be denied. Id.

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1. The Reports Imply A Factual Basis

In claiming that no reasonable juror could conclude that the Reports are

actionable, Gartner fails to recognize that a statement is actionable whether it

explicitly or implicitly communicates false factual information. See, e.g., MHC,

544 F.3d at 965 (explaining that a statement is actionable if “a reasonable listener

could conclude that [the defendant] implied there are other, unstated facts

supporting her comments” (citation and internal alterations omitted)). That the

Reports do so is largely undisputed, as Gartner’s entire business model is premised

upon convincing its clients that its published conclusions reflect a “mountain” of

“reliable” though undisclosed facts. Answering Br. 55; ER 41, 117-18, 122-23.

See also ER 124 (“Our opinions are grounded in a solid base of facts[.]”).

Contrary to Gartner’s attempted reframing of ZL’s complaint, ZL does not claim

that Gartner is liable because it employs a flawed analysis. Instead, ZL claims that

the product of that analysis (the Magic Quadrant) implies a provably false factual

basis: that ZL’s products perform poorly and lack desired features and

functionality. This is sufficient to state a claim.

Gartner turns this Court’s First Amendment doctrine on its head by

suggesting that it can escape liability by not disclosing the “mountain” of facts

which it assures its readers is reflected in the Magic Quadrant. Answering Br. 54-

55. To the contrary, a statement of opinion becomes actionable when it “gives rise

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to the inference that there are undisclosed facts that justify the forming of the

opinion.” Standing Comm. On Discipline v. Yagman, 55 F.3d 1430, 1439-40 (9th

Cir. 1995). Gartner’s “use of nondisclosure as a means of protecting [its]

statements does not absolve [it] from liability.” Riggs v. Clark County School

Dist., 19 F.Supp.2d 1177, 1184 n.7 (D. Nev. 1998). “If anything, it removes the

ability of [Gartner’s] statements to be pure opinion[.]” Id. In short, Gartner cannot

use “implied assertions of fact as a shield and a sword,” id. at 1183, by advertising

its Reports as objective, reliable and fact-based, but simultaneously claiming that

no reasonable person would understand them to imply a factual basis.

2. It Is Reasonable To Understand The Reports As Declaring


Or Implying Facts About Products

Gartner claims that no reasonable person viewing the Magic Quadrant

diagram could understand it to explicitly or implicitly indicate that ZL’s products

are vastly inferior to Symantec’s products because “Gartner places vendors, not

their products, into the diagram.” Answering Br. 42. This ignores the plain text of

the Reports, which use the terms “vendors” and “products” interchangeably and

make abundantly clear that the rankings reflect product performance.

On the cover of the Reports – in text larger and more prominent than

Gartner’s heavily-relied-upon disclaimer – Gartner introduces the Report by stating

that “Email active archiving products continue to add functionality to meet new

market demands.” ER 41, 56. See also ER 73 (“Emerging e-mail archiving

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vendors will often win on price as their products mature and gain the interest of

larger organizations.”). Turning one page to the executive summary titled “WHAT

YOU NEED TO KNOW,” Gartner states in the very first sentence of the 2007 and

2008 Reports that its “e-mail active-archiving Magic Quadrant is focused on

enterprise-class products.” ER 42, 57. The 2009 Report is similar, stating that the

Magic Quadrant “is designed to help enterprises identify a set of e-mail archiving

products” and thus “focuses on enterprise-class software products (not on service

offerings).” ER 74. Indeed, the entire executive summary makes clear that what

the reader “needs to know” is that the Magic Quadrant focuses on products and

specifically the product features, performance measures and functions that are

important to large organizations. ER 42, 57, 74.

That the terms “vendor” and “product” are used interchangeably is apparent

from the paragraph printed immediately above the Magic Quadrant diagram itself,

which states:

Do not compare the placement of vendors from last year to this


year. The market has changed, and the criteria for selecting and
ranking vendors continue to evolve. . . . This does not imply that
the products evaluated last year are now deficient. It just means
that the new requirements have provided new challenges that the
vendor has yet to meet.

ER 43, 58, 74-75 (emphasis added). This statement makes clear that what is being

“evaluated” is “products.” Id.

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Perhaps the most compelling evidence that the Reports are understood as

providing product ratings is proffered by Gartner itself. See Answering Br. 43.

Quoting the 2009 Report, Gartner points out that it told its readers that “the Magic

Quadrant does not just rate product quality or capability.” Id. (quoting ER 75).

But the necessary premise to this statement is that the Magic Quadrant does “rate

product quality [and] capability,” among other things. This statement also reveals

Gartner’s recognition that at least some readers of its prior Reports (i.e. the 2007

and 2008 Reports at issue in this case) believed that the Reports solely rate product

qualities and capabilities, and that this perception was prevalent enough that

Gartner had to remind them that the ratings include other factors. This admission

on its own is sufficient to dispose of Gartner’s hollow distinction between vendors

and products. This is particularly true because even in the quoted passage Gartner

continues to remind readers that “product is an important part of the rating.” ER

75.

Gartner also incorrectly contends that no reasonable reader could understand

the Reports’ product ratings as reflecting important attributes of functionality such

as speed, stability and scalability. Answering Br. 48-52. To reach this conclusion,

Gartner suggests that all reasonable readers of the Reports either do not read the

“WHAT YOU NEED TO KNOW” section or consider the discussion therein to be

a meaningless detour into matters that are not reflected in the Reports, i.e. not what

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they need to know. Id. Contrary to Gartner’s strained reading, the introductory

section plainly does indicate that the Magic Quadrant reflects objective

performance attributes. For example, in the 2007 “WHAT YOU NEED TO

KNOW” section (ER 42):

• The first paragraph tells readers that the Magic Quadrant is “focused on

enterprise-class products” that can prove their ability to meet the market’s

needs. It then states that the rated products’ have sufficient “scalability and

functionality” to satisfy the needs of growing enterprises.

• In the second paragraph, the introduction tells readers that one attribute that

differentiates products is feature offerings. It contrasts products that provide

“better discovery, administrative tools and expanded device support” with

those that “still focus on the unique compliance and supervision

requirements of the financial community.” From this a reader could

reasonably conclude that poorly rated products do not have the breadth of

features contained in highly rated products, such as the legal discovery

features discussed in the Report. Cf. ER 116, 129-131 (alleging that ZL’s

products provide the broadest array of features and functionality in the

market – including legal discovery – and that ZL’s features are broader and

superior to Symantec’s).

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• In the third paragraph, Gartner states that “[a]lthough many vendors have

made significant improvement to their products, there are still many areas of

concern” with those products. First is “deploying and managing growing

archives” – i.e. scalability. From this a reader could reasonably conclude

that products that are poorly rated in the Magic Quadrant do not scale as

well as highly rated products. Cf. ER 116-17 (alleging that ZL’s products

are superior in scalability to Symantec’s). Second is “archive management

and monitoring tools,” which impact speed, i.e. “the time it takes to

accomplish the archiving,” “[t]he time to create those indexes” and “the time

to search them.” Indeed, search speed is a “key concern.” From this the

reader could conclude that poorly rated products are not as fast as highly

rated products. Cf. ER 116-17 (alleging that ZL’s product is 1,000 times

faster than Symantec’s). A third concern is “[c]ode quality for new

features,” about which Gartner’s sources complained because they were in

some instances forced to assist in working out the bugs in new programs.

Gartner further explains that “low scores for support were most often tied to

code problems.” From this a reasonable reader would conclude that poorly

rated products have unstable code and are more prone to crashes when

compared to highly rated products. Cf. ER 116-17 (alleging that ZL’s

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product has a stable architecture that has succeeded where other products

have crashed).

Crucially, nowhere in its statement of “WHAT YOU NEED TO KNOW”

does Gartner discuss any attribute or rating other than product features and

objective performance. See ER 42. Gartner does not say, as it does now, that the

Magic Quadrant solely reflects vendors’ financial health and stability. Answering

Br. 47.

Accordingly, just as this court looked to the Rain-X bottle to determine how

the audience may have understood Andy Rooney’s comment that the product

“didn’t work,” (Unelko Corp. v. Rooney, 912 F.2d 1049, 1055 (9th Cir. 1990)),

this court should examine the statements in the Magic Quadrant Reports, Gartner’s

marketing and the reasonable expectations of Gartner’s customers to determine

what reasonable implications can be drawn from the Magic Quadrant Reports. In

light of that context, it is difficult to come to any other conclusion than that the

Magic Quadrant ranks products based upon the performance and functionality

attributes that software purchasers care about, and in which ZL’s products excel

See id. (evaluating Rooney’s statement in light of “what anyone familiar with the

product would have believed Rooney intended his words to mean”).

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3. Gartner’s Assurances Of The Reports’ Reliability


Demonstrate That They Are Actionable

Gartner has promoted itself as “the world’s foremost authority where

business meets technology,” (ER 125) and promises to tell its customers, “how to

buy, what to buy, and how to get the best return” (ER 118). These and similar

statements foreclose Gartner’s argument in litigation that its customers would be

irrational to rely upon its Reports to make important product purchasing decisions.

Answering Br. 33, 46-47. Companies that pay thousands of dollars for the Reports

would be surprised to learn of Gartner’s made-for-litigation position that they

should “test[] the performance of e-mail archiving products themselves.”

Answering Br. 33. Gartner’s readers clearly do not believe that blind trial-and-

error is a viable way to run a business – if they did, then they would not buy the

Reports. Nor would it make any sense for an enterprise software purchaser to buy

a shoddy product based on the representation that the vendor of that shoddy

product has sufficient financial health to continue producing the shoddy product

for years to come. Cf. Answering Br. at 33-34, 46-47.

ZL has alleged, and discovery will prove, that Gartner’s customers purchase

the Reports precisely because they want to know what product will perform best

for their enterprise. See ER 117-118 (alleging that “large purchases of technology

are often based exclusively on Gartner’s reports” including the VA’s purchase of

$16 million in software). The Department of Veterans’ Affairs (see id.) and other

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Gartner customers cannot now be deemed irrational for having bought into

Gartner’s assurances that it will “show you how to buy, what to buy, and how to

get the best return on your technology investment.” ER 118. Instead, common

sense dictates that Gartner’s readers buy the Reports so that they will only have to

make a purchasing decision once, and expect (wrongly) that if they purchase

highly rated Symantec then they will get a high performing product with industry

leading features.

Gartner also erroneously claims that the general tenor and other contextual

information surrounding the publication of the Magic Quadrant Reports make clear

that they are not actionable. For example, Garter suggests that the use of the word

“Magic” in the Reports’ and diagrams’ title is “fanciful” and therefore somehow

suggests that they do not imply any objective facts. Answering Br. 27-29. But it is

equally if not more reasonable to conclude that the serious tenor of the Reports

suggests that “Magic” is used as an assurance of the Reports’ reliability. Cf.

Flamm v. American Ass’n of Univ. Women, 201 F.3d 144, 151 (2d Cir. 2000) (use

of figurative language in serious publication weighed in favor of actionability,

because the language stood out to the reader). In context, the word “Magic”

underscores for the reader that the Magic Quadrant diagram summarizes a vast

quantity of facts and data and distills them to precisely what the reader wants to

know: which product performs best.

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B. GARTNER IS NOT IMMUNE FROM LIABILITY

It is not true, as Gartner suggests, that because the Reports are susceptible to

an innocent (albeit implausible) interpretation, Gartner can escape liability at the

pleading stage. To the contrary, the complaint must survive if it reasonably can be

construed as defamatory. “[L]anguage may be libelous on its face even though it

may also be susceptible of an innocent interpretation.” MacLeod v. Tribune Pub.

Co., 52 Cal. 2d 536, 549 (1959) (Traynor, J.). “The language used may give rise to

conflicting inferences as to the meaning intended, but when it is addressed to the

public at large, it is reasonable to assume that at least some of the readers will take

it in its defamatory sense.” Id. Thus at the pleadings stage the “court’s inquiry is

not to determine if the communications may have an innocent meaning but rather

to determine if the communication reasonably carries with it a defamatory

meaning.” Forsher v. Bugliosi, 26 Cal. 3d 792, 803 (1980); accord MHC 544 F.3d

at 964 & n. 3.

California law does not permit an innocent interpretation defense because it

would allow clever defamers represented by clever counsel to always find some

potential meaning that would absolve the defendant of liability. “Such hair-

splitting analysis of language has no place in the law of defamation[.]” Macleod,

52 Cal. 2d at 550. California law therefore cannot be construed to protect “the

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clever writer versed in the law of defamation who deliberately casts a grossly

defamatory imputation in ambiguous language.” Id. at 551.

The absence of an innocent interpretation defense at the motion to dismiss

stage disposes of several of Gartner’s arguments on appeal:

1. There Is No Immunity For Vague And Ambiguous Speech

Gartner claims that it can escape liability by cloaking its conclusions in

vague and ambiguous terms. Answering Br. 28, 29-30. But as Gartner’s own

authority explains, even phrases that are vague and indefinite can give rise to

liability, so long as a false factual inference can be drawn from them. Jefferson

County Sch. Dist. No. R-1 v. Moody’s Inv. Servs., Inc., 175 F.3d 848, 856 (10th

Cir. 1999) (emphasizing that “the phrases ‘negative outlook’ and ‘ongoing

financial pressures’ are not necessarily too indefinite to imply a false statement of

fact”). “It would be a reproach to the law to hold that a defendant intent on

destroying the reputation of [the plaintiff] could achieve his purpose without

liability by casting his defamatory language in the form of an insinuation that left

room for an unintended innocent meaning.” MacLeod, 52 Cal. 2d at 551. See also

id. (rejecting a rule that would create a loophole for casting a “defamatory

imputation in ambiguous language”).

Gartner also claims that its use of “abstract” terms to characterize its

analytical method somehow renders the false factual implications of its Reports

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non-actionable. Answering Br. 28, 29-30. But it makes no difference if Gartner’s

method is not provable as true or false. All that ZL must plead is that Gartner’s

statements imply that they have an objective factual basis which is defamatory.

See, e.g., Unelko, 912 F.2d at 1053; MHC, 544 F.3d at 965. It is undisputed in this

case that Gartner claims to base its opinions on facts that it does not disclose.

Gartner’s audience therefore can and does reasonably conclude that its Reports

reflect objective facts about the products rated: that poorly rated products lack the

performance and features that are found in highly rated products. This is more

than enough to imply there is a “core of objective evidence” making Gartner’s

assertions sufficiently factual to be actionable. See Underwager v. Channel 9

Australia, 69 F.3d 361, 367 (9th Cir. 1995) (quoting Milkovich v. Lorain Journal

Co., 497 U.S. 1, 21 (1990)).

Use of vague terms under circumstances in which the underlying facts are

not disclosed makes a statement more actionable, not less. “By using a vague,

nondescript word [the listener] is left no alternative but to draw his/her own

independent interpretation and conclusion as to what facts the defendants derived

their opinion.” Riggs., 19 F.Supp.2d at 1181 (holding that vague statement

suggesting misconduct by a volleyball coach was actionable). “For that reason, the

opinion loses its protection and the statement becomes actionable.” Id.

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2. There Is No Immunity For Speech That Claims Both


Objective And Subjective Bases

The absence of an innocent interpretation defense also disposes of Gartner’s

claim that it can shield itself from liability by mixing objective and subjective

criteria in the Magic Quadrant. According to Gartner, given the mix of criteria a

reasonable reader might counterintuitively conclude that ZL received a low rating

in the Magic Quadrant not because it has a poor product but rather because it is a

small company. Answering Brief at 47 (arguing that the Magic Quadrant reflects

vendors’ “financial strength” and “long-term prospects;” not product performance).

But that does not mean it would be unreasonable for another reader to understand

that the Magic Quadrant rates ZL poorly because it is a small company and

because it makes a bad product. Indeed, because large companies such as HP and

IBM have not fared much better than ZL in the Magic Quadrant (and in some

instances have fared worse (ER 43, 58, 75)), the most reasonable interpretation is

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that the difference between the low-rated vendors and Symantec is based upon the

products’ performance, not upon company size or financial health. 1

3. There Is No Immunity For Speech Characterized As


“Opinion”

Gartner’s brief variously characterizes the Magic Quadrant as reflecting its

“opinions,” “judgments,” “views” and “impressions.” But none of these labels

obtains Gartner the immunity it seeks. “A speaker can’t immunize a statement that

implies false facts simply by couching it as an opinion based on those facts.”

Flowers, 310 F.3d at 1129. It is therefore immaterial that Gartner’s reports

communicate Gartner’s views, opinions and judgments that ZL makes a poor

product. Because Gartner explicitly states that its views are based on a “mountain”

of secret factual evidence, its “opinion” that ZL makes a poor product plainly

suggests that the huge quantity of undisclosed factual evidence supports that

conclusion. Gartner’s statements are therefore actionable.

1
The lack of an innocent interpretation defense also disposes of Gartner’s
contention that Carolyn Dicenzo’s comment that ZL’s and Symantec’s products
are “the same” is not actionable. Answering Br. at 60-61. Gartner claims that
although ZL has alleged that the statement was understood to be referring to ZL’s
features, performance, value and quality (ER 131), the statement “also could have
been referring to other things such as user-friendliness or compatibility with
hardware.” Answering Br. 60 (citing ER 150). It makes no difference that the
statement could “also” be interpreted in this manner, because Gartner’s burden is
to show that this is “the only reasonable interpretation of the statements.” MHC,
544 F.3d at 964 n.3 (emphasis in original). Since this issue was specifically and
distinctly raised, with supporting argument, in ZL’s opening brief, it was not
waived. Gartner knows this because it included a separate section in its own brief
responding to ZL’s arguments.

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4. There Is No Immunity For Speech Based Upon Facts


Gathered From Others, Rather Than Facts Gathered
From Product Testing

Gartner next contends that it is constitutionally immune from liability

because it does not engage in direct product testing, but instead gathers the factual

information regarding the products it rates from technology professionals using the

products in the real world. Answering Br. 48-52. Here again, Gartner misstates

the law. It makes no difference whether readers understand Gartner to be asserting

that “ZL’s products perform poorly” or “users of ZL’s products say that ZL’s

products perform poorly.” Both statements are factual, false and actionable.

Gartner tells its readers that it bases its ratings on a large quantity of data

from research and investigation, including hundreds of interviews with and surveys

of technology professionals. ER 58. From these sources, Gartner learns “not only

why a client is choosing or has chosen a specific vendor, but why it did not choose

other vendors that were on its shortlist.” Id. Moreover, Gartner “also learn[s]

about [their] experiences running the product in production environments” –

meaning that Gartner asks its sources about product performance and reflects their

statements in the Reports. Id. (emphasis added). This tells Gartner (and

presumably Gartner tells its readers) “why a company is choosing to replace an

existing vendor with a new vendor solution.” Id. In these circumstances, Gartner

is liable either if: (1) Gartner’s sources falsely told it that ZL’s products perform

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poorly compared to Symantec’s products and Gartner republished that falsehood;

or (2) Gartner’s sources truthfully stated that ZL’s products are superior to

Symantec’s, but Gartner misled it readers into believing that the opposite is true.

First, “one who republishes a defamatory statement is deemed thereby to

have adopted it and so may be held liable . . . for resulting injury to the reputation

of the defamation victim.” Khawar v. Globe Int’l, Inc., 19 Cal. 4th 254, 268

(1998). Accord Flowers, 310 F.3d at 1128 (discussing “the venerable principle

that a person who repeats a defamatory statement is generally as liable as the one

who first utters it”). Thus, for example, in Flamm, a directory of lawyers was

liable for repeating a source’s statement that the plaintiff was “an ‘ambulance

chaser’ with interest only in ‘slam dunk cases.’” Flamm, 201 F.3d at 147.

Liability was particularly appropriate because “it would not be unreasonable for a

reader to believe that the [defendant] would not have printed such a statement

without some factual basis[.]” Id. at 152. This logic applies with special force

here because Gartner assures its readers that it obtains its facts “from sources

believed to be reliable” (ER 41) and claims that its “opinions are grounded in a

solid base of facts verified by our own experienced analysts and others in the

business and academia” (ER 124).

Second, Gartner is liable if its sources reported that ZL’s products perform

strongly, but Gartner nonetheless published the Reports which falsely state or

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imply the contrary. See, e.g., Goldwater v. Ginzburg, 414 F.2d 324, 337 (2d Cir.

1969) (explaining that a defendant can be held liable for defamation if “‘melding’

and ‘distillation’ of letters results in misplaced emphasis, or exaggeration, or

distortion”). A speaker who materially fabricates or alters another’s statement,

such that the resulting implication is defamatory, has made an actionable

statement. See Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 510-18

(1991). Liability also attaches if the defendant portrays the source’s views in a

manner that is misleading, see Price v. Stossel, __ F.3d __, 2010 WL 3307482, *6-

*11 (9th Cir. Aug. 24, 2010), or if the defendant conveys a false impression

regarding the content or reliability of the source’s views. See Metabolife Int’l, Inc.

v. Wornick, 264 F.3d 832, 848 (9th Cir. 2001) (holding that stating “Every expert

we asked said Metabolife 356 is not safe” was actionable because it implied that

there was scientific consensus regarding the product’s dangerousness); Selleck v.

Globe Int’l, Inc., 166 Cal. App. 3d 1123, 1132 (1985) (publication of fabricated

interview was actionable).

The principle that it is defamatory to falsely or misleadingly characterize

another’s statement is an extension of the implied facts doctrine. See Masson, 501

U.S. at 511, 516. Here, when Gartner publishes Reports which it knows disparage

ZL’s products, it is implying that users of ZL’s products have told it that ZL’s

products do not perform well in real world applications. That implication is

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defamatory and actionable. ZL expects discovery will show that Gartner’s

references gave positive reviews of ZL’s products and negative reviews of

Symantec’s, but Gartner published its reports knowing that readers would believe

exactly the opposite. This is sufficient to state a claim.

Finally, in suggesting that readers necessarily understand that it performs no

independent verification of its product ratings, Gartner also misstates the facts. As

alleged in ZL’s Complaint, Gartner “emphatically tells its customers about the

larger body of data Gartner claims to have in its possession but does not disclose in

the Magic Quadrant Reports themselves.” ER 123. In the process of its analysis,

Gartner promises that “[n]o stone is left unturned” so that it can provide

“independent, objective and accurate advice.” ER 125. Most importantly, Gartner

tells its customers that “Our opinions are grounded in a solid base of facts verified

by our own experienced analysts and others in the business and academia.” ER

124 (emphasis added). These assurances would suggest to a reasonable reader of

the Reports that the analysts develop their own independent understanding of

product performance and that they verify their understanding with “others in

business and academia.” The Court therefore cannot assume at the pleading stage

that the Reports are based exclusively on phone calls.

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5. There Is No Immunity For Product Comparisons

Gartner’s passing suggestion that any statement that one product is better

than another is non-actionable (Answering Br. 48 (citing Pizza Hut, Inc. v. Papa

John’s Int’l, Inc., 227 F.3d 489 (5th Cir. 2000)) also misses the mark. In Pizza

Hut, the Fifth Circuit ruled that the slogan “Better Pizza” was non-actionable

puffery that could not “standing alone” serve as the basis for a Lanham Act claim

brought by a competitor who was mentioned nowhere in the slogan. Id. at 491.

That holding does not apply where, as here, the alleged false statements are not

“broad assertions of superiority in the field” but instead “referenc[e] a particular

competing product.” Nutrition & Fitness, Inc. v. Mark Nutritionals, Inc., 202

F.Supp.2d 431, 435 (M.D.N.C. 2002). Nor does Pizza Hut stand for the

proposition that product comparisons are absolutely protected from liability under

the First Amendment. See id. (citing authorities for the proposition that product

comparisons are actionable under the Lanham Act); accord Clorox Co. Puerto Rico

v. Proctor & Gamble Comm. Co., 228 F.3d 24, 37 (1st Cir. 2000).

Moreover, Pizza Hut held that when the “Better Pizza” statement was

considered not in isolation but in the context of the defendant’s entire advertising

campaign, it was actionable under the Lanham Act because it suggested misleading

statements of fact about the quality of Pizza Hut’s sauce and dough. Pizza Hut,

227 F.3d at 500-02. Accordingly, although Pizza Hut is a Lanham Act case that

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does not discuss or apply Milkovich, it serves only to bolster the conclusion that

Gartner’s false statements are actionable.2

C. ZL HAS ADEQUATELY PLED MENS REA (AN ISSUE THE DISTRICT


COURT NEVER REACHED)

In a single paragraph, Gartner claims that even if its statements are

actionable, this Court should affirm on a basis not relied upon by the district court:

that that ZL has failed to plead that Gartner knew or should have known of the

implications of its speech. Answering Br. 52-53; see also ER 159 n.4. Once again,

Gartner overlooks the law and facts that foreclose its argument.

As an initial matter, Gartner assumes without support that ZL is a public

figure and therefore must plead knowledge or reckless disregard, rather than

negligence. See Milkovich, 497 U.S. at 20-21 (holding that non-public figures’

mens rea standard is set by state law); Khawar, 19 Cal. 4th at 274 (providing for

negligence standard under California law). That ZL advertises its products does

not render it a public figure. Vegod Corp. v. Am. Broadcasting Cos., 25 Cal. 3d

763, 770 (1979). Nor is there any other reason to assume ZL is a public figure,

especially in a case where Gartner has suggested it rates poorly because it is a

small company.

2
Pizza Hut’s claim ultimately failed because it failed to produce evidence at trial
that consumers were actually misled. Pizza Hut, 227 F.3d at 502-03. Of course,
that says nothing about how to rule on a motion to dismiss – particularly where ZL
expects discovery to prove that Gartner’s readers did understand the Reports to
state or imply that Symantec’s product outperformed ZL’s product.

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Even if ZL is a public figure, ZL’s pleading burden is not as onerous as

Gartner suggests. “The First Amendment imposes substantive requirements on the

state of mind a public figure must prove in order to recover for defamation, but it

doesn’t require him to prove that state of mind in the complaint.” Flowers, 310

F.3d at 1130. Thus all that is required is that “[m]alice, intent, knowledge, and

other condition of mind of a person . . . be averred generally.” Id. (citations

omitted). Accordingly, “the issue of actual malice cannot be properly disposed of

by a motion to dismiss, where the plaintiff has had no opportunity to present

evidence in support of his allegations.” Id. at 1131 (citation and internal quotation

marks omitted). Accord Metabolife, 264 F.3d at 848 (“[T]he issue of ‘actual

malice’ (or, to put it another way, intent to convey the defamatory impression)

cannot be properly disposed of by a motion to dismiss in this case, where there has

been no discovery.”).

ZL has alleged that Gartner’s statements were “unprivileged and made with

actual malice, hatred, ill will, improper and malevolent purpose and with

knowledge of falsity or with reckless disregard for the truth.” ER 133. ZL further

alleges that Gartner had a “willful and conscious disregard for ZL’s rights” and

“the intent to injure ZL.” Id. In particular, Gartner “intends [the] placement within

the Magic Quadrant to be understood as a statement of fact” (ER 121), and intends

its readers to understand that ZL’s products do not outperform its competitors’

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products (including Symantec’s) in terms of objective performance criteria. ER

129-30. Gartner further intended that its readers understand that “ZL was inferior

with respect to the criteria expressly stated in the Magic Quadrant Report itself,”

i.e. speed, scalability, accuracy and stability. Id. Gartner intended that the Reports

be understood as “a statement about the inferiority of ZL’s products, service and

customer satisfaction.” Id. And, in issuing the Reports, Gartner was motivated by

its own economic interest in rewarding companies with which it has a close

financial interest, not in conducting a balanced objective analysis of the facts. ER

127-28. Accordingly, whatever the requisite level of intent, ZL’s pleadings are

more than sufficient to satisfy its burden at this stage. Even if there is some

technical deficiency, ZL clearly could cure it on remand. See, e.g., Sgro v. Danone

Waters of N. Am., Inc., 532 F.3d 940, 945 (9th Cir. 2008) (remanding with leave

to amend).

D. APPLICATION OF THE WELL SETTLED PLEADING PRINCIPLES


ARTICULATED BY THE SUPREME COURT AND THIS COURT HAS NOT
CHILLED PROTECTED SPEECH

Throughout its brief Gartner claims that denial of its motion to dismiss

would burden protected First Amendment activity and intolerably chill the speech

of other large publications. But as demonstrated above, the First Amendment does

not create a heightened pleading standard in defamation cases. Instead, ZL need

only plead facts which demonstrate that Gartner has made or implied a false and

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damaging statement of fact. Flowers, 310 F.3d at 1128-29. Even when First

Amendment interests are implicated, the court “ask[s] only whether the pleadings

are sufficient, not whether the plaintiff could find evidence to support them.” Id. at

1130.

In Milkovich, the Supreme Court considered and rejected the same policy

arguments that Gartner advances here: that the First Amendment requires special

restrictions to give protected speech the necessary “breathing space” it needs to

survive. 497 U.S. at 19; Answering Br. 23. Balancing the competing interests of

protecting speech rights and vindicating the states’ “pervasive and strong interest

in preventing and redressing attacks upon reputation,” the Supreme Court

concluded that “the ‘breathing space’ which ‘freedoms of expression require in

order to survive,’ is adequately secured by existing constitutional doctrine[.]” Id.

at 19, 22. That doctrine includes the requirement that the implications must be

provably false; the protections for rhetorical hyperbole; and the requirement that

malice or negligence be proved. Id. at 19-21. As demonstrated here, ZL has

satisfied its burden with respect to each of these requirements. Its defamation

claims therefore should have survived the motion to dismiss.

Twenty years after Milkovich, there is no reason to believe that the standard

set forth by the Supreme Court has resulted in a flood of litigation or has unduly

burdened speech. To the contrary, publications from the New York Times down to

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small local newsletters and individual bloggers continue to robustly participate in

the marketplace of ideas without any apparent hindrance.

Nor would reversal in this case mean that ZL will ultimately prevail on

summary judgment or at trial. As this Court has emphasized, defamation plaintiffs

face an “uphill battle” in providing sufficient proof to survive summary judgment.

Flowers, 310 F.3d at 1131. As detailed here, ZL expects that discovery will show,

among other things, that: (1) readers of Gartner’s Reports understand the Magic

Quadrant as setting forth provably false statements and implications about software

performance; (2) that Gartner knew of and actively encouraged this understanding;

(3) that Gartner knew from the data it gathered that ZL’s software performed far

better than Symantec’s software and had superior features and functionality; and

(4) that Gartner knew of and actively encouraged the false understanding that

Symantec’s software performed far better than ZL’s software and had superior

features and functionality. If discovery reveals there is no factual support for ZL’s

claims, Gartner will surely move aggressively for summary judgment. “The

difficulty of [ZL’s] task ahead, however, is no reason to deny [it] the opportunity

to make the attempt” to prove its claims. Flowers, 310 F.3d at 1131.

1. Gartner Failed To Avail Itself Of Well-Established


Protections

In urging that the First Amendment requires special procedural protections

at the pleading stage, Gartner ignores the protections that are already available as a

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matter of state law in California. Pursuant to the so-called “anti-SLAPP” statute,

California permits courts to engage in early adjudication of the facts in cases

involving speech rights. See Cal. Code of Civ. Proc. §§ 425.16 et seq. If the

plaintiff loses the SLAPP motion, the defendant is entitled to its attorneys’ fees.

Id. Most other states have adopted SLAPP statutes with analogous protections.

See, e.g., Ariz. Rev. Stat. §§ 12-751 et seq.; Haw. Rev. Stat. § 634F-1 et seq.; Nev.

Rev. Stat. §§ 41.635 et seq.; Or. Rev. Stat. §§ 31.150 et seq.; Wash Rev. Code §§

4.24.525 et seq. Gartner, however, failed to avail itself of these protections. No

court has ever held that the anti-SLAPP procedures are required by or implicit in

the federal Constitution. Instead, in the context of defamation suits, the ordinary

pleading and evidentiary standards under F.R.C.P. 12 and 56 apply.

Gartner also declined to avail itself of another important protection – the

constitutional safe harbor provided to speakers that disclose the factual basis for

their opinions. “A statement of opinion based on fully disclosed facts can be

punished only if the stated facts are themselves false and demeaning.” Yagman, 55

F.3d at 1439. Gartner is correct that its interpretation of the facts are beyond the

scope of state defamation law. See id. But by failing to disclose the facts on

which its opinions are based, Gartner has falsely implied that ZL’s products

perform poorly and lack important features. It is settled that those implications are

actionable. Id.

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That Gartner’s Reports claim to reflect secret conversations and surveys,

which are not disclosed or otherwise accessible to the public, distinguishes this

case from the cases cited in Gartner’s brief. For example, in Franklin v. Dynamic

Details, Inc., 116 Cal. App. 4th 375, 387-88 (2004), the California Court of Appeal

found the statements at issue non-actionable because they “interpret[ed] copyright

law and contract law and apply that law to fully disclosed facts[.]” (emphasis

added). In Jefferson County School District, 175 F.3d at 850, Moody’s gave a

public entity a negative bond rating because of publicly known financial troubles,

including the “state’s past underfunding of the school finance act as well as legal

uncertainties and fiscal constraints” due to a voter approved tax measure. The

plaintiff admitted that these factual statements were true and could not articulate

any false factual implication that could be gleaned from the statement. Id. at 854-

56. Similarly, in Compuware Corp. v. Moody’s Inv. Servs., Inc., 499 F.3d 520

(6th Cir. 2007), Moody’s downgraded the plaintiff’s bond rating based upon

“downward market shifts” including “the bursting of the ‘internet bubble’” and

other public information. Id. at 523. The Sixth Circuit affirmed summary

judgment, holding that the plaintiff had failed to provide any evidence that the

defendant knew that its rating could be perceived as based upon something other

than the publicly available information upon which it was in fact based. Id. at 529.

And, in Aviation Charter, Inc. v. Aviation Research Group/US, 416 F.3d 864 (8th

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Cir. 2005), the defendant rated the safety of charter airlines based upon “multiple

public databases” which showed “accidents, incidents, enforcement actions, and

certification data.” Id. at 870 (emphasis added); see also id. at 871 (holding that

“ARGUS’s interpretation of the public database information” was not actionable

(emphasis added)).

In contrast to the cases above, Gartner conducts secret interviews and

surveys that are not accessible to its readers. Unlike competitor publications,

Gartner does not disclose the point score assigned for each criterion or any other

information about the underlying data it has collected. The only information

available to readers is the Magic Quadrant itself. Because readers have no way to

meaningfully separate Gartner’s analysis from the facts upon which it is based,

they are left to draw reasonable inferences about those facts – including the evident

but false conclusion that ZL’s products are vastly inferior to Symantec’s. This

states a valid claim for defamation.

III. CONCLUSION

For all the foregoing reasons, ZL respectfully requests that the judgment of

the district court be reversed, and that this action be remanded for further

proceedings with regard to ZL’s defamation and trade libel claims.

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DATED: October 29, 2010 KERR & WAGSTAFFE LLP

By: /s/ Michael Ng 5


MICHAEL K. NG
Attorneys for Plaintiffs-Appellants
ZL TECHNOLOGIES

61527_3.doc

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CERTIFICATION OF COMPLIANCE WITH WORD LIMIT

Pursuant to Rule 32(a)(7)(C) of the Federal Rules of Appellate Procedure

and Ninth Circuit Rule 32-1, I certify that this Appellant’s Opening Brief is

proportionately spaced, has a typeface of 14-point, proportionally-spaced font, and

contains fewer than 6,792 words.

DATED: October 29, 2010 KERR & WAGSTAFFE LLP

By /s/ Michael Ng 5
MICHAEL K. NG
Attorneys for Plaintiffs-Appellants
ZL TECHNOLOGIES
Case: 10-16061 10/29/2010 Page: 36 of 36 ID: 7528159 DktEntry: 20

9th Circuit Case Number(s) 10-16061

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