Ethics at my workplace

A fascinating thing happened at work today. We were working on a project where we were trying to demonstrate that our team was better at a certain analysis than another agency. The deliverable was the completed report. We had the other agency's report in our hands and our goal was to deliver a better analysis and a better report. This particular day I was wrapping up a sub-report that I had to do. Before putting the finishing touches I went up to my manager and asked him some follow up questions - like who else is working on this, who's doing what etc. Over the course of the discussion it came out that he would be creating a master report and then incorporate the work of a couple of us guys into that.

"That's acceptable. When do you think you'll be submitting this master report?"
"In a couple of hours of course, as soon as you two finish your work."
"What? That's impossible! Not counting the work we'll be submitting to you, there are another 200 pages or so that need to be written."
"Well yeah. I'll just be copy-pasting those segments from the other agency's report"

I was stunned at this. Not only was this supremely unethical, I was personally pissed off that to show himself off as a good manager, he was trying to deliver a report much faster than normal. I then ended up trying to explain to him why this was wrong. Basically his argument was - the other agency submitted this work to our company, and so it's the company's property now. We work for the company and we're using company property to create stuff. What's wrong with that? I tried explaining that by that logic if I worked for JK Rowling's publishers I could just rip off her cover page, call that manuscript "Harry Potter and the goblet of wine" and call it my own new book! He looked at me for a second like, "Yeah, you can do that, can't you?"

I went nuts at this and I almost started laughing and shouting at him. If this was a junior I'd have called him names by this point. Finally I told him that he could do whatever he wanted. He then agreed to have a discussion about the project with his superiors and then redefine it. But it wasn't because he was convinced, it was more like a "I guess we'll just have to agree to disagree."

In the end, I'm more than a little worried. I desperately want to talk to his superior and let him know that he's pulling this type of nonsense. But I don't know if I want to ruffle too many feathers yet.