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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 1 of 49
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`MELINDA L. HAAG (SBN 132612)
`mhaag@orrick.com
`JAMES N. KRAMER (SBN 154709)
`jkramer@orrick.com
`ALEXANDER K. TALARIDES (SBN 268068)
`atalarides@orrick.com
`ORRICK, HERRINGTON & SUTCLIFFE LLP
`The Orrick Building
`405 Howard Street
`San Francisco, CA 94105-2669
`Telephone:
`(415) 773-5700
`Facsimile:
`(415) 773-5759
`
`Attorneys for Defendants Apple Inc.,
`Timothy Cook, and Luca Maestri
`
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`OAKLAND DIVISION
`
`IN RE APPLE INC. SECURITIES
`LITIGATION
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`Civil Action No. 4:19-cv-02033-YGR
`DEFENDANTS’ MOTION TO DISMISS
`
`Date: March 3, 2020
`Time: 2:00 p.m.
`Judge: Honorable Yvonne Gonzalez Rogers
`Ctrm: 1, 4th Floor
`
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`MOTION TO DISMISS | C.A. NO. 4:19-CV-02033-YGR
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 2 of 49
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`NOTICE OF MOTION AND RELIEF REQUESTED
`PLEASE TAKE NOTICE that on March 3, 2020, at 2:00 p.m., or at such later date and
`time as the Court may order, Defendants Apple Inc. (“Apple” or the “Company”), Timothy Cook,
`and Luca Maestri (the “Individual Defendants,” and collectively with Apple, “Defendants”), will
`move the Court pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6) and the Private
`Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 (the “PSLRA”), for an order
`dismissing Lead Plaintiff’s (“Plaintiff”) Consolidated and Amended Class Action Complaint for
`Violation of the Federal Securities Laws (the “CAC”). Defendants’ motion is based on this
`Notice of Motion; the Memorandum of Points and Authorities below; the accompanying Request
`for Judicial Notice and exhibits attached thereto; the accompanying Proposed Order; the Court’s
`files; and oral argument of counsel at the hearing.
`STATEMENT OF ISSUES TO BE DECIDED
`1.
`Whether Plaintiff’s claim for violation of Section 10(b) of the Securities Exchange
`Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b) (“Section 10(b)”), and Securities and
`Exchange Commission (“SEC”) Rule 10b-5, 17 C.F.R. § 240.10b-5 (“Rule 10b-5”), should be
`dismissed because the CAC:
`a. Constitutes impermissible puzzle pleading and fails to conform with the
`pleading requirements of Rule 8.
`b. Fails to plead any actionably false or misleading statement, and thus fails to
`plead the element of “falsity.”
`c. Fails to plead particularized facts giving rise to a strong inference that
`Defendants made a false or misleading statement with a fraudulent state of
`mind, and thus fails to plead the element of “scienter.”
`d. With respect to certain categories of alleged misstatements and omissions, fails
`to plead facts showing that Apple’s stock price declined because of the
`materialization of a previously concealed risk, and thus fails to plead the
`element of “loss causation.”
`Whether Plaintiff’s claim for violation of Section 20(a) of the Exchange Act, 15
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`2.
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 3 of 49
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`U.S.C. § 78t(a) (“Section 20(a)”), should be dismissed because the CAC fails to plead a primary
`violation of Section 10(b).
`/ / /
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 4 of 49
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`Page
`INTRODUCTION AND SUMMARY OF ARGUMENT ................................................. 1
`BACKGROUND ................................................................................................................ 3
`A.
`The Performance Management Feature and Battery Replacement
`Program ....................................................................................................... 3
`Apple’s Uncontested Business Results Refute Plaintiff’s Claims .............. 4
`B.
`Apple Lowers Revenue Guidance for Q1 FY 2019 .................................... 6
`C.
`THE RIGOROUS PLEADING STANDARDS GOVERNING THIS MOTION .............. 6
`ARGUMENT ...................................................................................................................... 8
`A.
`As Plaintiff’s Chart Confirms, The CAC Is Puzzle-Pled ............................ 8
`B.
`The CAC Fails to Allege a False or Misleading Statement ........................ 9
`1.
`Accurate Statements of Historical Results Regarding Q3 FY
`2017 ................................................................................................. 9
`Accurate Statements of Historical Results for the Remainder
`of the Class Period ....................................................................... 12
`Forward-Looking Statements Protected by the PSLRA Safe
`Harbor ........................................................................................... 16
`Generalized Statements of Corporate Optimism........................... 19
`4.
`Statements of Opinion and Belief ................................................. 21
`5.
`Apple’s Risk Warnings ................................................................. 22
`6.
`The CAC’s Remaining Misstatement Allegations Also Fail ........ 24
`7.
`The CAC Does Not Allege Facts Supporting a “Strong Inference”
`of Scienter ................................................................................................. 28
`1.
`The CAC’s CW Allegations Do Not Support Any Inference
`of Scienter ..................................................................................... 30
`The Stock Sales Allegations Do Not Support An Inference
`Of Scienter .................................................................................... 34
`Plaintiff’s Remaining Scienter Allegations Are Unavailing ......... 36
`The CAC’s Allegations Do Not Give Rise to a Reasonable
`Inference of Scienter, Much Less One That Is Cogent and at
`Least as Compelling as the Alternative Innocent
`Explanation ................................................................................... 38
`The CAC Fails to Plead Loss Causation ................................................... 39
`The Section 20(a) Claim Fails For Lack Of A Predicate Primary
`Violation .................................................................................................... 40
`CONCLUSION ................................................................................................................. 40
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`I.
`II.
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`III.
`IV.
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`V.
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`C.
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`D.
`E.
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`2.
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`3.
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`2.
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`3.
`4.
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`TABLE OF CONTENTS
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 5 of 49
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`TABLE OF AUTHORITIES
`
`Cases
`
`Page(s)
`
`In re Accuray, Inc. Sec. Litig.,
`757 F. Supp. 2d 936 (N.D. Cal. 2010) ................................................................................11, 31
`
`Ashcroft v. Iqbal,
`556 U.S. 662 (2009) ....................................................................................................................6
`
`Bao v. SolarCity Corp.,
`2016 WL 54133 (N.D. Cal. Jan. 5, 2016) .................................................................................31
`
`Bodri v. GoPro, Inc.,
`252 F. Supp. 3d 912 (N.D. Cal. 2017) ......................................................................................38
`
`Brodsky v. Yahoo! Inc.,
`592 F. Supp. 2d 1192 (N.D. Cal. 2008) ......................................................................................8
`
`Brody v. Transitional Hospitals Corp.,
`280 F.3d 997 (9th Cir. 2002) .....................................................................................9, 10, 15, 22
`
`Browning v. Amyris, Inc.,
`2014 WL 1285175 (N.D. Cal. Mar. 24, 2014) ..........................................................................30
`
`In re Caere Corp. Sec. Litig.,
`837 F. Supp. 1054 (N.D. Cal. 1993) ...................................................................................10, 26
`
`In re Cisco Sys., Inc. Sec. Litig.,
`2013 WL 1402788 (N.D. Cal. Mar. 29, 2013) ....................................................................20, 38
`
`City of Austin Police Ret. Sys. v. Kinross Gold Corp.,
`957 F. Supp. 2d 277 (S.D.N.Y. 2013) .......................................................................................20
`
`City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,
`2013 WL 6441843 (N.D. Cal. Dec. 9, 2013) ............................................................................20
`
`City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,
`856 F.3d 605 (9th Cir. 2017) .....................................................................................................22
`
`In re Convergent Techs. Sec. Litig.,
`948 F.2d 507 (9th Cir. 1991) .....................................................................................................11
`
`In re Copper Mountain Sec. Litig.,
`311 F. Supp. 2d 857 (N.D. Cal. 2004) ................................................................................16, 21
`
`In re Cornerstone Propane Partners, L.P. Sec. Litig.,
`355 F. Supp. 2d 1069 (N.D. Cal. 2005) ....................................................................................19
`
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 6 of 49
`
`
`In re Cutera Sec. Litig.,
`610 F.3d 1103 (9th Cir. 2010) .......................................................................................16, 18, 19
`
`E. R.R. Presidents Conference v. Noerr Motion Freight, Inc.,
`365 U.S. 127 (1961) ..................................................................................................................24
`
`Ernst & Ernst v. Hochfelder,
`425 U.S. 185 (1976) ....................................................................................................................7
`
`In re Finisar Corp. Sec. Litig.,
`2013 WL 211206 (N.D. Cal. Jan. 16, 2013) .............................................................................13
`
`Goldstein v. Quantum Health Res., Inc.,
`1996 WL 813245 (C.D. Cal. Dec. 23, 1996) ............................................................................14
`
`Greenberg v. Cooper Cos., Inc.,
`2013 WL 100206 (N.D. Cal. Jan. 7, 2013) ...............................................................................16
`
`In re Harmonic Inc. Sec. Litig.,
`163 F. Supp. 2d 1079 (N.D. Cal. 2001) ....................................................................................26
`
`In re IMPAX Labs., Inc. Sec. Litig.,
`2006 WL 6361942 (N.D. Cal. Mar. 1, 2006) ............................................................................36
`
`In re Intel Corp. Sec. Litig.,
`2019 WL 1427660 (N.D. Cal. Mar. 29, 2019) ..............................................................20, 21, 24
`
`Kleinman v. Elan Corp., PLC,
`706 F.3d 145 (2d Cir. 2013) ......................................................................................................21
`
`Knox v. Yingli Green Energy Holding Co. Ltd.,
`2016 WL 6609210 (C.D. Cal. May 10, 2016) ..........................................................................21
`
`In re LeapFrog Enters., Inc. Sec. Litig.,
`527 F. Supp. 2d 1033 (N.D. Cal. 2007) ....................................................................................20
`
`Lipton v. Pathogenesis Corp.,
`284 F.3d 1027 (9th Cir. 2002) .............................................................................................36, 37
`
`Lu v. Align Tech., Inc.,
`2019 WL 5579520 (N.D. Cal. Oct. 29, 2019) ...........................................................................32
`
`Maritime Asset Mgmt., LLC v. NeurogesX, Inc.,
`2013 WL 5442394 (N.D. Cal. Sept. 30, 2013) ..................................................................10, 37
`
`Mark Aero, Inc., v. Trans World Airlines, Inc.,
`580 F.2d 288 (8th Cir. 1978) .....................................................................................................24
`
`McCasland v. FormFactor Inc.,
`2009 WL 2086168 (N.D. Cal. July 14, 2009) .....................................................................29, 31
`
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 7 of 49
`
`
`In re Mellanox Techs. Ltd. Sec. Litig.,
`2014 WL 12650991 (N.D. Cal. Mar. 31, 2014) ..................................................................19, 20
`
`Metzler Inv. GMBH v. Corinthian Colls., Inc.,
`540 F.3d 1049 (9th Cir. 2008) ...................................................................................7, 12, 35, 36
`
`Monachelli v. Hortonworks, Inc.,
`225 F. Supp. 3d 1045 (N.D. Cal. 2016) ....................................................................................10
`
`Monroe Cty. Employees’ Ret. Sys. v. YPF Sociedad Anonima,
`15 F. Supp. 3d 336 (S.D.N.Y. 2014) .........................................................................................40
`
`Nathanson v. Polycom, Inc.,
`87 F. Supp. 3d 966 (N.D. Cal. 2015) ........................................................................................32
`
`Norfolk Cty. Ret. Sys. v. Solazyme, Inc.,
`2018 WL 3126393 (N.D. Cal. June 26, 2018) ..........................................................................31
`
`Nuveen Mun. High Income Opportunity Fund v. City of Alameda, Cal.,
`730 F.3d 1111 (9th Cir. 2013) .............................................................................................39, 40
`
`In re NVIDIA Corp. Sec. Litig.,
`768 F.3d 1046 (9th Cir. 2014) ...............................................................................................7, 34
`
`In re OmniVision Techs., Inc. Sec. Litig.,
`937 F. Supp. 2d 1090 (N.D. Cal. 2013) ......................................................................................9
`
`Or. Pub. Emps. Ret. Fund v. Apollo Grp., Inc.,
`774 F.3d 598 (9th Cir. 2014) .....................................................................................................28
`
`Osher v. JNI Corp.,
`308 F. Supp. 2d 1168 ................................................................................................................36
`
`Paciga v. Invuity Inc.,
`2018 WL 7286503 (N.D. Cal. Sept. 26, 2018) .........................................................................21
`
`Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc.,
`759 F.3d 1051 (9th Cir. 2014) .............................................................................................30, 32
`
`Primo v. Pac. Biosciences of Cal., Inc.,
`940 F. Supp. 2d 1105 (N.D. Cal. 2013) ......................................................................................8
`
`In re Read-Rite Corp. Sec. Litig.,
`335 F.3d 843 (9th Cir. 2003) .....................................................................................................29
`
`In re Rigel Pharms., Inc. Sec. Litig.,
`697 F.3d 869 (9th Cir. 2012) .......................................................................................................7
`
`Rodriguez v. Gigamon, Inc.,
`325 F. Supp. 3d 1041 (N.D. Cal. 2018) ....................................................................................35
`
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 8 of 49
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`
`Ronconi v. Larkin,
`253 F.3d 423 (9th Cir. 2001) ...............................................................................................10, 23
`
`Shields v. Citytrust Bancorp, Inc.,
`25 F.3d 1124 (2d Cir. 1994) ......................................................................................................21
`
`In re Silicon Graphics, Inc. Sec. Litig.,
`183 F.3d 970 (9th Cir. 1999) .....................................................................................7, 28, 35, 36
`
`In re Splash Tech. Holdings, Inc. Sec. Litig.,
`160 F. Supp. 2d 1059 (N.D. Cal. 2001) ....................................................................................19
`
`In re Stac Elecs. Sec. Litig.,
`89 F.3d 1399 (9th Cir. 1996) ...............................................................................................11, 12
`
`Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
`551 U.S. 308 (2007) ....................................................................................................3, 7, 29, 38
`
`Tuosto v. Philip Morris USA Inc.,
`2007 WL 2398507 (S.D.N.Y. Aug. 21, 2007) ..........................................................................24
`
`In re Ubiquiti Networks, Inc. Sec. Litig.,
`33 F. Supp. 3d 1107 (N.D. Cal. 2014) ......................................................................................20
`
`Veal v. LendingClub,
`2019 WL 5698072 (N.D. Cal. Nov. 4, 2019) ............................................................................22
`
`In re VeriFone Sec. Litig.,
`784 F. Supp. 1471 (N.D. Cal. 1992) ...................................................................................27, 28
`
`In re Violin Memory Sec. Litig.,
`2014 WL 5525946 (N.D. Cal. Oct. 31, 2014) ...........................................................................22
`
`Webb v. SolarCity Corp.,
`884 F.3d 844 (9th Cir. 2018) .....................................................................................................39
`
`Welgus v. TriNet Grp., Inc.,
`2017 WL 6466264 (N.D. Cal. Dec. 18, 2017) ..........................................................................28
`
`Wenger v. Lumisys, Inc.,
`2 F. Supp. 2d 1231 (N.D. Cal. 1998) ..........................................................................8, 9, 10, 11
`
`In re Worlds of Wonder Sec. Litig.,
`35 F.3d 1407 (9th Cir. 1994) .....................................................................................................35
`
`Yourish v. Cal. Amplifier,
`191 F.3d 983 (9th Cir. 1999) ...............................................................................................11, 12
`
`Zamir v. Bridgepoint Educ., Inc.,
`2016 WL 3971400 (S.D. Cal. July 25, 2016) ...........................................................................35
`
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 9 of 49
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`Zucco Partners, LLC v. Digimarc Corp.,
`552 F.3d 981 (9th Cir. 2009) ............................................................................................. passim
`
`Statutes and Rules
`
`15 U.S.C.
`
`
`§ 78j(b) .............................................................................................................................. passim
`§ 78u–5(c)(1)(A)(i) ...................................................................................................................16
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`§ 78u–5(c)(1)(B) .................................................................................................................16, 19
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`§ 78u-4(b) .......................................................................................................................... passim
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`§ 78u-4(b)(1) ...........................................................................................................................7, 8
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`§ 78u-4(b)(2) ...............................................................................................................................7
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`§ 78u-5(c)(2)-(3) .......................................................................................................................18
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`§ 78u-5(e) ..................................................................................................................................17
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`
`17 C.F.R.
`
`§ 240.10b5–1(c) ........................................................................................................................35
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`Fed. R. Civ. P.
` Rule 8 ..................................................................................................................................2, 8, 9
` Rule 9(b) ...........................................................................................................................6, 7, 27
` Rule 12(b)(6) ...............................................................................................................................6
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 10 of 49
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`I.
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`MEMORANDUM OF POINTS AND AUTHORITIES
`INTRODUCTION AND SUMMARY OF ARGUMENT
`The CAC is a sprawling, 190-page riddle of confusing, contradictory, and often irrelevant
`allegations, with a theory of fraud that is difficult to discern. This Motion will unwind the CAC’s
`allegations and demonstrate why the CAC fails to state a claim under the PSLRA and should be
`dismissed in its entirety.
`The core theory of fraud asserted by the CAC is that during the putative class period of
`August 2, 2017 through January 2, 2019 (the “Class Period”), Defendants intentionally
`misrepresented Apple’s allegedly declining iPhone sales and business in China in order to keep
`the price of Apple’s stock artificially inflated. But the CAC does not claim that Defendants
`misrepresented the number of iPhones sold or Apple’s business results in China—indeed, the
`CAC does not challenge Apple’s historical business results at all. Instead, the CAC argues that
`the iPhone’s sales, though accurately reported, were purportedly “artificially inflated” by battery
`slowing, and that demand for new iPhones allegedly later declined as a result of Apple’s
`discounted battery replacement program. According to Plaintiff, Defendants thus lacked a
`“reasonable basis in fact” for their otherwise accurate historical statements of the Company’s
`business results and were required to disclose that Apple’s “business metrics and financial
`prospects were not as strong as [they] had led the market to believe.” CAC ¶ 13. In other words,
`the CAC does not allege that Defendants’ statements were affirmatively false (because they
`plainly were not), but rather that they were misleading because they omitted to disclose that
`Apple’s results were positive for allegedly “artificial” reasons. Id.
`That theory requires the CAC to take several flights of fancy. As an initial matter, it
`requires that the Court disregard the judicially noticeable fact that despite Plaintiff’s insistence
`that Apple’s business faced headwinds during the Class Period, Apple’s business—including its
`iPhone revenues and revenues from greater China—actually improved year-over-year for every
`quarter of the Class Period until the last quarter, Q1 of FY 2019, when the Company missed its
`revenue guidance for the first time in years. As Plaintiff would have it, despite the fact that
`Apple’s iPhone revenues increased year-over-year until Q1 FY 2019, Defendants should have
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`disclosed that Apple actually began experiencing “declining iPhone demand [sometime] in 2017”
`(CAC at 76), or “since at least the end of 2017” (id. ¶ 220), or maybe “starting in 2018” (id.
`¶ 235), or perhaps after “early 2016” (id. ¶ 240), or sometime “in 2018” (id. ¶ 261). But again,
`the undisputed, judicially noticeable facts lay waste to Plaintiff’s core theory of fraud. Likewise,
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`while Apple’s revenues in Greater China also grew year-over-year until Q1 FY 2019, Plaintiff
`alleges that beginning with the results for Q3 FY 2017, Defendants were required to disclose that
`revenue growth in China was “expected to continue to deteriorate long term.” Id. ¶ 280. Not
`surprisingly, the CAC fails to plead any specific factual allegations to establish why Defendants
`would have been required to disclose those alleged untruths. Indeed, as discussed more fully
`below, the CAC should be dismissed for a series of independently dispositive reasons.
`First, the CAC is an extreme example of puzzle pleading. Rather than allege the specific
`reason why any purported misstatement was false or misleading when made, the CAC offers long
`lists of block-quoted statements (see, e.g., id. ¶¶ 269-76) together with laundry lists of reasons for
`why all of those statements are allegedly misleading (id. ¶¶ 280(a)-(d)). As the Court will see,
`the CAC contains hundreds of paragraphs of vague, redundant, and often irrelevant allegations,
`and thus does not conform with the presentation requirements of Rule 8.
`Second, the CAC does not allege any actionable material misstatement or omission. It
`largely challenges undisputedly accurate statements of historical facts without offering any
`contemporaneous factual allegations demonstrating how those accurate statements affirmatively
`misled investors or were inconsistent with the purportedly undisclosed truth. The remaining
`challenged statements are legally inactionable statements of corporate optimism, statements of
`opinion, forward-looking statements protected by the PSLRA safe harbor, or statements whose
`alleged falsity is not supported in any way by facts alleged in the CAC.
`Third, the CAC falls far short of pleading the requisite “strong inference” of scienter.
`Section 10(b) and the PSLRA require securities fraud complaints to allege specific facts creating
`a powerful inference that Defendants acted with, at a minimum, deliberate recklessness, but the
`CAC is devoid of any factual allegations regarding any Individual Defendant’s state of mind.
`While the CAC relies on the purported statements of ten confidential witnesses (the “CWs”) to
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`MOTION TO DISMISS | C.A. NO. 4:19-CV-02033-YGR
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 12 of 49
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`establish scienter, none of the CWs purport to have had any contact whatsoever with the
`Individual Defendants, and thus they lack any personal knowledge regarding what the Individual
`Defendants knew or did not know at the time the challenged statements were made.1
`Fourth, any inference of scienter is overwhelmed by judicially noticeable facts that are
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`fundamentally inconsistent with fraudulent intent. Most notably, Apple engaged in a massive
`stock buyback program during the Class Period, spending $88 billion to purchase its own stock.
`It would have made no sense to purchase that stock if Defendants knew that Apple’s stock price
`was artificially inflated due to fraud, as Plaintiff claims. Further, Defendants did not wait until
`the release of Apple’s final financial results for Q1 FY 2019 to inform the market about the
`Company’s revenue guidance miss for that quarter, as they were permitted to do under SEC rules.
`They instead chose to inform the market about the guidance miss almost a month earlier than
`required in a “Letter from Tim Cook to Investors” dated January 2, 2019 (the “Cook Letter”)—
`hardly the actions of Defendants intent on deceiving investors. Against this backdrop, the CAC
`does not advance even a reasonable inference of scienter, much less the cogent and compelling
`inference necessary under the PSLRA and Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
`308 (2007).
`II.
`BACKGROUND2
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`A.
`The Performance Management Feature and Battery Replacement Program
`On January 23, 2017, in response to customer reports in late 2016 of unexpected iPhone
`shutdowns, Apple released a free operating system upgrade, iOS 10.2.1, which included a
`performance management feature designed to halt the inevitable effects of aging batteries and
`prevent unexpected shutdowns. CAC ¶ 114. Apple released two additional system updates, iOS
`11 and iOS 11.2, in September and December 2017, respectively, to continue to manage the
`performance of system components and reduce the occurrence of unexpected shutdowns. Id.
`¶¶ 120-22.
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`1 The utter lack of any interaction or contact between the CWs and the Individual Defendants is
`illustrated in the summary chart set forth below at page 31.
`2 All “Ex. __” references are to the exhibits attached to Defendants’ Request for Judicial Notice.
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`On December 9, 2017, the press noted that iOS 10.2.1 and later had the effect of slowing
`down performance of certain iPhones in certain instances (id. ¶ 127), a fact that Apple itself
`disclosed to customers on December 20, 2017 (id. ¶ 130), and that was widely reported in the
`media.3 Numerous consumer class action lawsuits were filed against Apple following the
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`disclosure.4 Id. ¶ 166. Also, on December 20, 2017, Apple notified customers that starting in
`January 2018 it would offer a substantial price reduction for out-of-warranty battery replacements
`throughout 2018. Id. ¶ 138.5 Notwithstanding these disclosures, Apple’s stock price increased
`from December 8 to December 11 (the next trading day) by $3.30 per share, and again by $0.65
`per share from December 20, 2017 to December 21 and 22, 2017.6
`Plaintiff asserts that investors who purchased Apple stock during the Class Period were
`misled because Apple failed to disclose that the Company’s battery replacement program could
`negatively impact iPhone sales. See, e.g., id. ¶ 298. But industry analysts raised that question
`when the replacement program was announced. On January 3, 2018, for example, a Barclays
`analyst wrote that “even a small percentage opting for battery replacement over upgrade could
`have meaningful impact on iPhone sales,” which could mean as much as $10.29 billion in lost
`revenue. Ex. 48 at 1, 3. That prediction was echoed in numerous news articles published
`between January 3-5, 2018.7 Yet Apple’s stock price did not decline in response to this
`information, but increased in value, gaining $2.74 per share between January 2, 2018 and January
`5, 2018. Ex. 49.
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`B.
`Apple’s Uncontested Business Results Refute Plaintiff’s Claims
`The linchpins of Plaintiff’s theory of liability are the repeated assertions that (i) iPhone
`revenues in Apple’s FY 2017 were artificially inflated “at the expense” of iPhone revenues in FY
`2018, and (ii) iPhone revenues in FY 2018 were further “cannibalized” by customers who chose
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`3 See, e.g., Ex. 1 (cited at CAC ¶ 128 n.43); Exs. 54-55.
`4 See, e.g., Exs. 56-58.
`5 A few months later, Apple additionally extended a credit to customers who obtained a full-price,
`out-of-warranty battery replacement in 2017. CAC ¶ 139.
`6 See Ex. 49.
`7 See Ex. 2 (cited at CAC ¶ 140); Exs. 59-63.
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`Case 4:19-cv-02033-YGR Document 91 Filed 12/16/19 Page 14 of 49
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`FY 2016
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`FY 2017
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`FY 2018
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`FY 2019
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`$51.6 billion
`
`$54.5 billion
`
`$61.5 billion
`
`$51.9 billion
`
`74.8 million
`$18.3 billion
`Yes
`
`78.2 million
`$16.2 billion
`Yes
`
`77.3 million
`$17.9 billion
`Yes
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`$13.1 billion
`No
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`to replace their battery instead of upgrading. See, e.g., CAC ¶¶ 13, 315. In short, Plaintiff asserts
`that Defendants committed a fraud that caused A