3/12/2012 3:00:00 AM,
MANHATTAN (CN) - An advertising research company claims in court that its main rival stole trade secrets in a "scheme to maintain a long-standing monopoly" in the $60 million per year print magazine audience research market.
Affinity LLC sued GfK Mediamark Research & Intelligence in Federal Court.
New York-based GfK MRI is a subsidiary of GfK Group, one of the world's largest research companies.
GfK Group began in 1934 as Germany's first market research institute. It serves all the major consumer, pharmaceutical, media and service markets, with more than 11,000 employees in more than 100 countries.
Affinity claims GfK monopolized the magazine audience research market and the magazine advertising effectiveness research market by stealing Affinity's trade secrets and using them to sell competing products on the cheap.
Magazine audience research measures a magazine's total readership and the demographic profiles and interests of its readers.
Magazine advertising effectiveness research tracks magazine readers' engagement with specific ads to evaluate their effectiveness.
Advertisers and publishers use both tools to determine the cost-efficiency of magazine advertising and advertising rates.
"For more than 30 years, the magazine audience research market (the 'magazine audience research market') has been dominated by the 'Survey of the American Consumer' (the 'Survey')," the complaint states. "The Survey is a biannual report derived from in-person interviews of approximately 25,000 American consumers conducted by defendant GfK MRI, a U.S.-based subsidiary of GfK Group, the fourth largest market research organization in the world. As the only 'total' audience product - the Survey measures magazine audience readership across all titles and all product categories - GfK MRI's Survey has enjoyed a long-standing monopoly in the magazine audience research market.
"Although magazine audience research can help to answer questions concerning what readership a particular magazine title has, and how it compares with the advertiser's target audience, magazine audience research does not evaluate the effectiveness of the advertisement itself, a significant research gap which, if addressed at all, was done on a case by case basis using what are referred to as custom magazine advertising effectiveness research studies ('custom research').
"Custom research, unlike traditional magazine audience research, gave advertisers limited insight into the effectiveness of a specific advertisement appearing in a specific issue of a magazine. Custom research, however, was slow, expensive to generate, lacked standardization, and was so narrow in its scope as to have limited research value. Since most major advertising budgets focused on television campaigns, with magazines operating as an ancillary outlet, the print magazine advertising effectiveness research market (the 'magazine advertising effectiveness research market') remained embryonic for decades."
In response, Affinity says, its founders, industry veterans Tom Robinson and Marianne Grogan, launched the first syndicated magazine advertising effectiveness research service in the United States in 2005.
"In January 2005, after significant investment and more than a year of research and development, Affinity entered the magazine advertising effectiveness research market with the launch of its VISTA Ad Effectiveness Tracking Service ('VISTA')," the complaint states. "VISTA offered dramatic advantages over custom research: VISTA was cost-effective because it used modern data collection techniques and was offered on a syndicated basis so it could allocate costs among all subscribers; it was comprehensive because it measured a reader's recall of and responsiveness to an advertisement across 100-plus magazine titles; it was authoritative because it allowed standardized comparisons of advertising effectiveness over time; and it was faster because it assembled and delivered its results through a web-based methodology."
Affinity claims its new product quickly attracted advertisers and magazine publishers, made custom research obsolete and transformed the magazine advertising effectiveness research market.
Affinity claims its product dominated the market for more than 3 years, drawing the attention of GfK MRI, whose affiliate Starch Communications provided traditional custom research.
GfK MRI claimed an interest in acquiring Affinity, but actually used Affinity's confidential business information, divulged during negotiations, to develop its own syndicated advertising effectiveness research product, according to the complaint.
"Unbeknownst to Affinity, however, GfK MRI never intended to keep Affinity's information confidential or to actually follow through with acquiring Affinity," the complaint states. "Instead, GfK MRI's executives were engaged in a deliberate scheme to string Affinity along in acquisition talks, all the while - and in blatant violation of the NDA [nondisclosure agreement] - using Affinity's trade secrets and confidential business information to construct 'Starch Syndicated,' a carbon-copy syndicated magazine advertising effectiveness research service of its own to compete with VISTA. ...
"Only by misappropriating Affinity's trade secrets and confidential information and abusing its position of trust was GfK MRI able to circumvent years of research and development and immediately enter the magazine advertising effectiveness research market with its Starch Syndicated service."
Affinity claims GfK MRI aggressively marketed its service to publishers and advertisers, in direct competition with VISTA.
In 2009, GfK MRI developed "Ad Measure," a product that, unlike Affinity's VISTA, was able to project research results across a magazine's total audience. The tool consolidated GfK's monopoly in the magazine audience research market, according to the complaint.
Affinity claims GfK MRI sold Ad Measure and Starch Syndicated on the cheap, and even offered them at no cost, threatening VISTA's viability.
Affinity says it was forced to develop its own total magazine audience research product, the American Magazine Study (AMS), to compete with GfK's products.
The complaint states: "The built-in advantages to Affinity's audience research surveying methodology posed an unacceptable threat to GfK MRI; the Survey's unchallenged monopoly in the much larger and more lucrative magazine audience research market was now squarely in the crosshairs of a nimble, entrepreneurial competitor. As detailed below, GfK MRI responded with a brazen scheme to protect its monopoly in the magazine audience research market by predatorily pricing Starch Syndicated and Ad Measure in order to starve Affinity of its VISTA revenues, which was the funding source behind AMS, thereby pushing Affinity out of business and eliminating competition.
"Using Affinity's confidential business information, including VISTA pricing, operating expenses, and customer contact information, GfK MRI was able to target specific Affinity clients and calculate at what price, and for how long, it had to sell Starch Syndicated and Ad Measure to them in order to oust Affinity from the market. Lured by the prospect of eliminating costs associated with magazine advertising effectiveness research and receiving Starch Syndicated and Ad Measure at a fraction of the true cost that GfK MRI incurred to produce its data - including, in some cases, giving it away for nothing at all - customers rapidly abandoned VISTA, forcing Affinity to withdraw VISTA and AMS from the market and close its doors in February 2012."
Affinity claims the absence of competition in the ad research market will cause consumers to pay supra-competitive prices.
It seeks compensatory and punitive damages for breach of contract, theft of trade secrets, unfair competition, fraudulent inducement, negligent misrepresentation, tortious interference with prospective business, and violations of the Sherman and Donnelly Acts.
Affinity is represented by Todd Higgins with Crosby & Higgins.