Mutual fund prospectus provider NewRiver is suing Morningstar for using Internet espionage to steal information from its patent-protected system.
The lawsuit, filed Jan. 30 in Massachusetts commonwealth court, alleges Morningstar gained unauthorized access to NewRiver's web data warehouse last summer when the two companies were in talks to form a strategic partnership. The partnership did not pan out. NewRiver said it is seeking "substantial damages."
"Morningstar was formerly a customer," NewRiver CEO Russell Planitzer told MME. At NewRiver's fee-paid site, customers are expressly prohibited from copying information, which uses a patented proprietary technology that checks the Securities and Exchange Commission's EDGAR database daily and updates NewRiver's own digital warehouse.
NewRiver's Prospectus Express offers print-on-demand prospectus profiles of mutual funds, variable annuities and exchange-traded funds. Their business is set to boom in a few months when the SEC's summary prospectus rule takes effect, Planitzer said.
The SEC rule will require top U.S. companies and mutual funds to provide investors with shortened prospectus profiles instead of the previous requirement to mail investors a printed version of the full prospectuses, which are often hundreds of pages long. The full prospectuses will be made available online with smart-browsing features.
Companies and firms will still be required to mail investors a free printed copy of the latest version upon request, and print-on-demand prospectus providers will be needed.
"Morningstar took our documents," Planitzer said. "They decided recently to compete with us. I can only infer what they would do with these documents. Certainly they can compete fairly, but they can't take our documents and say they're competing fairly."
The lawsuit said hundreds of thousands of pages of data were downloaded in August by Internet addresses belonging to Morningstar in Chicago and in China.
Morningstar claims the NewRiver lawsuit is without merit and said it intends to strongly defend its position.
"This lawsuit has one purpose: to discourage Morningstar from competing with them," Morningstar told MME.
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