The hot software market for talent-management applications got even hotter this week as SuccessFactors accused a competitor of creating a "hit piece" containing false and defamatory information and distributing it to clients and prospective clients. Experts say the document marks a new low in an industry known for mudslinging.
A 43-page PowerPoint presentation on a template bearing the look and logo of San Mateo, Calif.-based talent-management vendor SuccessFactors and making allegations about the company's "lack of corporate integrity," failed implementations, "overpromises" and customer losses purports to be a document compiled by a former SuccessFactors customer.
Instead, according to a lawsuit filed on March 11 in the U.S. District Court for the Northern District of California, it was created and distributed by its competitor, Softscape, a talent-management vendor based in Wayland, Mass.
"We didn't feel we could sit back and let someone get away with this," says Julian Ong, vice president, general counsel and secretary of SuccessFactors.
In a statement after the lawsuit was filed, Softscape called the complaint "a frivolous public relations tactic without merit or foundation, and we will defend all of the claims vigorously."
In a subsequent statement, issued on March 14, Softscape admitted creating the document, but said it "was intended for internal use only and was not designed or intended for external distribution. We are conducting our own thorough investigation to determine how an internal document ended up in outside hands."
Bill Kutik, an independent analyst of the HR technology market who writes an exclusive column for HREOnline.com, says the PowerPoint document " is more evidence of the growing contention and hostility in the market for these applications, which makes sense because it is the hottest market in HR technology."
Both SuccessFactors and Softscape, he says, are most known as being leaders in the performance-management segment of the talent-management market.
Regardless of who prepared or distributed the document, he says he's not surprised that SucessFactors is the target.
"They are seen as the top dog and the top dog always gets shot at," Kutik says.
The PowerPoint presentation, entitled The Naked Truth and sent anonymously beginning on March 4 to at least 25 SuccessFactors clients and prospective clients, includes "false descriptions [that] attack the heart of SuccessFactors' goodwill and success," according to the lawsuit.
"Though this 'hit piece' contains demonstrable falsehoods, the continued circulation of such a caustic attack threatens irreparable harm to SuccessFactors' customer relationships and goodwill," the lawsuit claims.
The complaint seeks a court injunction prohibiting Softscape from distributing the document, along with an undetermined amount of damages. The lawsuit accuses Softscape of false advertising, trademark infringement, computer fraud and abuse, defamation, trade libel, intentional interference with prospective economic relations and unfair competition.
U.S. District Judge Claudia Wilken on March 13 signed an order restraining Softscape from distributing the document, accessing any SuccessFactors computer systems and making any statements that purport to be made by someone else. (See settlement agreement dated Dec. 22, 2008 here.)
Susan Mohr, general counsel for Softscape, submitted a statement to the court admitting that the PowerPoint presentation was created in-house by Softscape was "was intended for internal use only by sales and contained what I believed to be accurate information."
To the best of her knowledge, she said, Softscape "did not authorize release or publication of the presentation."
The PowerPoint presentation "quickly started to circulate [via e-mail] last week," says Jason Corsello, an HR technology analyst and vice president of the Minneapolis-based Knowledge Infusion Center of Excellence, which provides consulting services to the HCM community.
"SuccessFactors took the situation, obviously, very seriously as well as many of their competitors did," he says. "I got calls from lots of vendors saying, 'What do you think? Have you seen it? What do you think of it?'
"My response was, 'Ignore it and throw it away because it's garbage,' " he says. It is garbage both because "of false information, misleading information throughout the document, and frankly, it's bad practice. It's not something, I don't think, the vendors should, or need to, be doing."
Kutik notes that all technology vendors prepare internal materials that compare and contrast their own products with competitors. Those documents are similar, though more mild than the PowerPoint document at issue in the lawsuit. "This is simply the most egregious example," Kutik says.
Corsello says "this kind of vendor mudslinging has been going on [but] I think we have reached an all new low in that this was something perpetuated out there from an 'anonymous' source. ... We should be above this, whether it's Softscape or not.
"What this really highlights to me," he says, "is we need to force changes throughout the practices that vendors do. We shouldn't tolerate this type of activity."
Brian Sommer, a former Accenture technology consultant who since has founded Batavia, Ill.-based TechVentive, wrote on his blog that he has "been on the sidelines of a similar spat [and that] this type of situation can arise when an overzealous sales person provides a 'for internal use only' competitive analysis document to a client."
"The sales person hopes that this added info will clinch the deal for him/her. Unfortunately, someone on the prospect's side is partial to the other vendor and shares this confidential sales tool with the maligned vendor," he writes.
Bill Greenbaum, a partner in the Employment Services Group at WolfBlock's office in Roseland, N.J., says SuccessFactors will need to prove that Softscape created a document that is "materially false and misleading" to win the case.
In addition, the company will have to prove it suffered harm directly related to the PowerPoint presentation, he says.
Such lawsuits are not common or easy to win. "Most companies," he says, "fight it out in the battleground, the commercial battleground, but this [software market] seems to be a ... real heated area.
"I think companies every day point out why they are better than their competitors and they, very frequently, talk about how their competitors are losing market share and they are gaining market share because they are better," he says. "That is fair competition, but if it's false and they are putting it into a presentation that makes its way around, I think that might go beyond the bounds of fair competition."
The SuccessFactors complaint does address and refute many of the claims in the PowerPoint document, such as naming clients who remain as clients -- in opposition to the claims of the PowerPoint document.
Kutik notes that this "is not the first time that SuccessFactors has been attacked for the way it reports its customers," including when the company filed its IPO and questions were raised about discrepancies between the SEC documents and its prior comments to analysts. He says the company often shifts the way it reports its customers.
While the facts are still to be determined, E. Leonard Rubin, an attorney who focuses on intellectual property in the Chicago office of ReedSmith, says that "it often happens that embittered former customers or former employees of a company will try to find ways to strike back at the company because either they feel they were wrongly fired ... or they didn't get satisfaction because of some product that didn't work for them or something like that."
SuccessFactors, however, believes Softscape is culpable because some of the information in the PowerPoint document was taken from a password-protected demo site, which was improperly accessed by IP (Internet protocol) addresses associated with Softscape offices, says Ong.
"Obviously we did a lot of investigation and reviewed all of the evidence we had gathered and considered it totally before filing suit," he says. "We have no desire to file a frivolous lawsuit not based on facts."
Rubin also says that these types of lawsuits are not uncommon, and that sometimes companies use such lawsuits as ways to intimidate competitors, to let rivals know that they are being watched.
He notes that accessing a password-protected site may show some liability in and of itself.
"It is common," Softscape says in its most recent statement, "in a highly competitive market for vendors to review each others' presentations, webinars, and demonstrations and have competitive sales tools. The SuccessFactors lawsuit is an act of desperation by a hostile industry predator."
Lars Dalgaard, CEO of SuccessFactors, said in a statement, "While we would rather devote all of our energy and attention to making our customers wildly successful, we have a responsibility ... to protect SuccessFactors' reputation from such a malicious attack."
Editor's Note: Story was updated on March 13 and 14, 2008