Reuters vs. Bloomberg. The two behemoths that dominate the rapidly growing financial-information business have long been archrivals. The depth of that rivalry became apparent in late January, when Reuters Group PLC disclosed that a subsidiary was the subject of a grand jury investigation in New York for improperly obtaining and using information from Bloomberg LP.
Now, Reuters stands accused of additional questionable behavior--in particular, taking proprietary ideas and software applications from rivals and partners both in the U.S. and Europe. BUSINESS WEEK canvassed many of the approximately two dozen software vendors who have worked most closely with Reuters developing specialized software to analyze financial data.
BOLD STEPS. While a few spoke well of Reuters, executives at nine software houses recalled instances where they thought software or information was improperly copied by the $4.7 billion-in- sales company. Those executives depict a company that sometimes allegedly uses dubious business practices and strong-arm legal tactics. And they tell of an intimidating corporate culture in which Reuters officials are quick to threaten vendors with legal action. At least two of these vendors say they may file civil-racketeering suits against Reuters, alleging a pattern of abusive behavior.
Peter Job, CEO of Reuters Group, and Michael O. Sanderson, CEO of Reuters America Holdings Inc., declined comment. But Robert Crooke, vice-president for media relations at Reuters America, says: "We have largely good relations with [vendors], barring the occasional squabble and, even more rarely, legal disputes, which are typical in any business."
Reuters' reliance on outside vendors, explain industry executives, stems from the company's weakness in developing its own software. Such programs help Reuters' clients with tasks like analyzing market risks and identifying historical bond spreads.
Among vendors critical of Reuters is J. Stephen Levkoff, founder of Capital Market Decisions, which sued Reuters in 1993 for breach of contract and unfair business practices. "I was the first person to stand up and say Reuters is trying to steal my business," Levkoff says. In affidavits, Levkoff said Reuters execs tried to clone his analytical software product, Decision 2000, which was built to be a direct competitor to Bloomberg. He said the reason was to avoid paying him royalties. The case was settled out of court, and Reuters later bought the company for an undisclosed sum. "Given the Bloomberg situation, we feel very vindicated," Levkoff says. Crooke says it is "inappropriate...for either side to be commenting in public since it has been apparently resolved."
"Our experiences were eerily similar" to Levkoff's, says Peter Davies, a former senior-level consultant to Reuters and founder of Sailfish Systems, a New York financial software company. Davies says he entered into a joint marketing agreement with Reuters, which promised future revenues and marketing support. But nothing materialized, leaving Sailfish financially overextended. Davies felt forced to accept Reuters' lowball offer to buy Sailfish. Davies claims Reuters said: "We don't need you. We could develop the same product internally anyway." Says Davies, "I would never enter into a relationship with Reuters again. I think they are unethical and heavy-handed."
Responds Crooke: "We believe we have acted fairly and ethically in our dealings with Peter Davies and that Mr. Davies benefited substantially from his association with Reuters."
Milan Sulc, CEO of Typlan, a Swiss software company based in Bern, is also unhappy with Reuters: "They try to intimidate you until you give up your rights on the contract," he says. Sulc alleges that Reuters illegally installed $2 million to $6 million worth of Typlan software last year and failed to pay and even inform Typlan. Reuters said on Mar. 3 that it was conducting an internal audit into possible unlicensed use of Typlan software in its European news operations. Says Crooke: "If monies are owed, Reuters will fulfill its obligations under its agreements with Typlan."
BORROWING? Another software exec tells of being invited to Reuters headquarters a few years ago to display his new software. After the demo, Reuters execs took the entrepreneur to lunch. When they returned, he says, the Reuters computer, with the vendor's software inside, was gone. "We were told it was taken to another demo room for another client," says the exec, who asked not to be named. "They said: `Thanks for the demo, we'll be back in touch with you.' No deal was ever done with us. And we never got our software back." He says he later saw elements of his software incorporated in Reuters programs: "There's no question that they've been borrowing our designs. No question whatsoever." Reuters officials deny any such incident took place.
Reuters executives insist that software companies that complain about Reuters are disgruntled over deals that weren't as lucrative as they planned. Reuters even offered BUSINESS WEEK a list of vendors for references. Andy Caso, director of business development at Market Arts Software, a New York software and consulting company, says: "Reuters' dealings with us have been extremely beneficial for both parties."
But BUSINESS WEEK had previously talked to one company on the Reuters' list that complained of "being a victim of Reuters' policy of checking out everybody else's ideas. Whatever is good, they absorb for their own use. Then they leave you with a much weaker place in the market. They absorbed all our features into their own offering."
Most of these complaints are supported by Gerald Sharrock, a former Reuters in-house lawyer. "Reuters has ruthlessly exploited its dominant position in financial-information markets to maintain its pricing policies and to limit competition," says Sharrock, who left Reuters in 1993 for health reasons. "Reuters has practiced various forms of abuses globally...[including] misusing vendors' proprietary information and developing it in-house." Sharrock, who has detailed knowledge of how Reuters operates, could prove to be a major headache. He is now a consultant who offers legal and technical advice to software houses that work with financial-service companies, including Typlan.
Sharrock says he has observed Reuters' behavior with small, innovative software houses. First, he says, Reuters woos the vendor with offers of global deals, such as joint marketing agreements. Typically, Reuters gives the vendor a long list of software changes that must be made before Reuters will release the product. While the company is making the changes, which can take 18 months to two years, "other parts of Reuters are negotiating to make a similar product either internally or with other software houses," says Sharrock. Along the way, he adds, Reuters gets access to vendors' confidential designs and uses them to make its own products. Plus, "Reuters doesn't hesitate to make frequent use of their powerful legal department to ensure that software houses cave in to their demands," Sharrock says.
Crooke says information Sharrock may have received during his Reuters employment is confidential: "He had no right to disclose this information....In the circumstances, therefore, we cannot comment on whether his claim is true or false." Says Sharrock: "There was no need to use confidential information in the conclusions I arrived at."
All of these disputes boil down to one issue: how information is used. There is often a fine line between legitimately building on the work of others and improperly taking it without compensation. The question is whether in dealing with software vendors Reuters crossed that line.