Case 3:20-cv-02353-JD Document 78 Filed 05/20/21 Page 1 of 22
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`COOLEY LLP
`PATRICK E. GIBBS (183174)
`(pgibbs@cooley.com)
`JESSICA VALENZUELA SANTAMARIA (220934)
`(jvs@cooley.com)
`TIJANA BRIEN (286590)
`(tbrien@cooley.com)
`JENNA C. BAILEY (319302)
`(jbailey@cooley.com)
`3175 Hanover Street
`Palo Alto, California 94304-1130
`Telephone:
`+1 650 843 5000
`Facsimile:
`+1 650 849 7400
`CRAIG E. TENBROECK (287848)
`(ctenbroeck@cooley.com)
`4401 Eastgate Mall
`San Diego, California 92121
`Telephone:
`+1 858 550 6000
`Facsimile:
`+1 858 550 6420
`Attorneys for Defendants
`Zoom Video Communications, Inc., Eric S. Yuan, and
`Kelly Steckelberg
`
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`In re ZOOM SECURITIES LITIGATION,
`
`This Document Relates To:
`ALL ACTIONS.
`
`Case No.: 3:20-cv-02353-JD
`DEFENDANTS’ MOTION TO DISMISS THE
`CONSOLIDATED CLASS ACTION COMPLAINT
`Date:
`August 26, 2021
`
`Time:
`10:00 a.m.
`Courtroom: 11, 19th Floor
` Hon. James Donato
`Judge:
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`ATTORNEYS AT LAW
`PALO ALTO
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`MOT. TO DISMISS THE COMPLAINT
`3:20-CV-02353-JD
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`Case 3:20-cv-02353-JD Document 78 Filed 05/20/21 Page 2 of 22
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`TABLE OF CONTENTS
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`B.
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`C.
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`b.
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`2.
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`2.
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`Page
`NOTICE OF MOTION AND MOTION ........................................................................................ v
`STATEMENT OF ISSUES TO BE DECIDED (LOCAL RULE 7-4(A)(3))................................. v
`MEMORANDUM OF POINTS AND AUTHORITIES ................................................................ 1
`I.
`INTRODUCTION .................................................................................................. 1
`II.
`BACKGROUND .................................................................................................... 2
`III.
`LEGAL STANDARDS ........................................................................................... 5
`IV. ARGUMENT .......................................................................................................... 5
`A.
`Plaintiff Fails to Allege Any False or Misleading Statement ..................... 5
`1.
`Because Plaintiff Fails to Allege That There is Only One
`Possible Meaning of “End to End Encryption,” His Claims
`Fail .................................................................................................. 5
`Zoom’s Privacy Policy Contained No Misstatements or
`Omissions ........................................................................................ 8
`Yuan and Steckelberg Cannot Be Liable for Statements They Did
`Not “Make.” ................................................................................................ 9
`Plaintiff Fails to Plead a Strong Inference of Scienter ................................ 9
`1.
`Plaintiff Fails to Plead Scienter as to Yuan and Steckelberg .......... 9
`a.
`Plaintiff Fails to Plead Scienter as to Zoom’s Use of
`E2E .................................................................................... 10
`Plaintiff Fails to Plead Scienter as to the Alleged
`Privacy Policy Omissions ................................................. 12
`Viewed Holistically, the More Cogent and Compelling
`Inference is an Innocent One......................................................... 12
`Plaintiff Fails to Adequately Plead Loss Causation .................................. 14
`D.
`CONCLUSION ..................................................................................................... 15
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`V.
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`MOT. TO DISMISS THE COMPLAINT
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`Case 3:20-cv-02353-JD Document 78 Filed 05/20/21 Page 3 of 22
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`TABLE OF AUTHORITIES
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`Page(s)
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`Cases
`
`In re Adolor Corp. Sec. Litig.,
`616 F. Supp. 2d 551 (E.D. Pa. 2009) ........................................................................................ 7
`
`In re Advanta Corp. Sec. Litig.,
`180 F.3d 525 (3d Cir. 1999) .................................................................................................... 11
`
`Basic Inc. v. Levinson,
`485 U.S. (1988) ......................................................................................................................... 8
`
`Bodri v. GoPro,
`252 F. Supp. 3d 912 (N.D. Cal. 2017) .................................................................................... 12
`
`In re BofI Holding, Inc. Sec. Litig.,
`977 F.3d 781 (9th Cir. 2020) ............................................................................................. 14, 15
`
`Brody v. Transitional Hosps. Corp.,
`280 F.3d 997 (9th Cir. 2002) ..................................................................................................... 8
`
`Cheung v. Keyuan Petrochemicals, Inc.,
`2012 WL 5834894 (C.D. Cal. Nov. 1, 2012) .......................................................................... 10
`
`City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v. Waters Corp.,
`632 F.3d 751 (1st Cir. 2011) ................................................................................................... 11
`
`Di Donato v. Insys Therapeutics Inc.,
`2017 WL 3268797 (D. Ariz. Aug. 1, 2017) ............................................................................ 13
`
`Ferraro Family Found., Inc. v. Corcept Therapeutics Inc.,
`2020 WL 6822916 (N.D. Cal. Nov. 20, 2020) ........................................................................ 15
`
`Glazer Cap. Mgmt., LP v. Magistri,
`549 F.3d 736 (9th Cir. 2008) ................................................................................................... 11
`
`Janus Cap. Grp., Inc. v. First Derivative Traders,
`564 U.S. 135 (2011) .................................................................................................................. 9
`
`Jasin v. Vivus, Inc.,
`2016 WL 1570164 (N.D. Cal. Apr. 19, 2016), aff’d, 721 F. App’x 665 (9th Cir.
`2018) ....................................................................................................................................... 13
`
`Kairalla v. Advanced Med. Optics, Inc.,
`2008 WL 2879087 (C.D. Cal. June 6, 2008) ............................................................................ 8
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`TABLE OF AUTHORITIES
`(continued)
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`Page(s)
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`Kelly v. Elec. Arts, Inc.,
`2015 WL 1967233 (N.D. Cal. Apr. 30, 2015) .......................................................................... 6
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`Kuriakose v. Fed. Home Loan Mortg. Corp.,
`2011 WL 1158028 (S.D.N.Y. Mar. 30, 2011) .......................................................................... 7
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`In re LeapFrog Enters., Inc. Sec. Litig.,
`527 F. Supp. 2d 1033 (N.D. Cal. 2007) .................................................................................. 10
`
`Loos v. Immersion Corp.,
`762 F.3d 880 (9th Cir. 2014) ................................................................................................... 15
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`McGann v. Ernst & Young,
`102 F.3d 390 (9th Cir. 1996) ................................................................................................... 13
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`Neborsky v. Valley Forge Composite Techs., Inc.,
`2014 WL 1705522 (S.D. Cal. Apr. 28, 2014) ........................................................................... 9
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`Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc.,
`774 F.3d 598 (9th Cir. 2014) ............................................................................................... 5, 15
`
`In re Pixar Sec. Litig.,
`450 F. Supp. 2d 1096 (N.D. Cal. 2006) .................................................................................. 12
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`Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc.,
`759 F.3d 1051 (9th Cir. 2014) ................................................................................................... 5
`
`In re Rigel Pharms., Inc. Sec. Litig.,
`697 F.3d 869 (9th Cir. 2012) ......................................................................................... 9, 10, 15
`
`In re Silicon Graphics Inc. Sec. Litig.,
`183 F.3d 970 (9th Cir. 1999), superseded by statute on other grounds .................................... 9
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`Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
`551 U.S. 308 (2007) .................................................................................................................. 9
`
`Veal v. LendingClub Corp.,
`423 F. Supp. 3d 785 (N.D. Cal. 2019) ...................................................................................... 8
`
`In re Verisign, Inc., Derivative Litig.,
`531 F. Supp. 2d 1173 (N.D. Cal. 2007) .................................................................................. 10
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`Vess v. Ciba-Geigy Corp. USA,
`317 F.3d 1097 (9th Cir. 2003) ................................................................................................... 5
`
`Wochos v. Tesla,
`985 F.3d 1180 (9th Cir. 2021) (Tesla II) ............................................................................. 6, 15
`MOT. TO DISMISS THE COMPLAINT
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`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
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`TABLE OF AUTHORITIES
`(continued)
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`Page(s)
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`Wochos v. Tesla, Inc.,
`2019 WL 1332395, at *6 n.2 (N.D. Cal. Mar. 25, 2019) (Tesla I) ........................................... 6
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`Wochos v. Tesla, Inc.,
`2019 WL 1332395 (N.D. Cal. Mar. 25, 2019) (Tesla I), aff’d, Wochos v. Tesla,
`985 F.3d 1180 (9th Cir. 2021) (Tesla II) ............................................................................... 6, 7
`
`Yourish v. Cal. Amplifier,
`191 F.3d 983 (9th Cir. 1999) ................................................................................................... 11
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`Zucco Partners, LLC v. Digimarc Corp.,
`552 F.3d 981 (9th Cir. 2009), as amended (Feb. 10, 2009). ............................................ passim
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`Statutes
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`PSLRA ............................................................................................................................................ 5
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`Section 10(b) ................................................................................................................................ 5,8
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`Section 20(a) ................................................................................................................................. 15
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`Other Authorities
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`Federal Rules of Civil Procedure
`Rule 9(b).................................................................................................................................... 5
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`NOTICE OF MOTION AND MOTION
`TO PLAINTIFF AND HIS ATTORNEYS OF RECORD: NOTICE IS GIVEN that on
`August 26, 2021 at 10:00 a.m., before the Honorable James Donato, United States District Court,
`San Francisco, Defendants Zoom Video Communications, Inc. (“Zoom” or the “Company”), Eric
`S. Yuan and Kelly Steckelberg (collectively, “Individual Defendants,” and together with Zoom,
`“Defendants”) move to dismiss Plaintiffs’ Consolidated Class Action Complaint (the “Complaint”),
`filed on December 23, 2020. This Motion is made under the Private Securities Litigation Reform
`Act of 1995 (the “PSLRA”) and Federal Rule of Civil Procedure 12(b)(6). The Complaint should
`be dismissed because it fails to state with particularity that any challenged statement was false or
`misleading when made and why, that the Individual Defendants were the “makers” of such
`statements, that any defendant acted with the required state of mind, under 15 U.S.C. §78u-4(b)(1),
`and that the alleged misstatements caused Plaintiff’s losses. This Motion is based on this Notice
`and Motion; the Memorandum of Points and Authorities; the Request for Judicial Notice; the
`Declaration of Tijana M. Brien, together with accompanying exhibits; the [Proposed] Order; all
`pleadings and papers filed herein; oral argument of counsel; and any other matter which may be
`submitted at the hearing.
`STATEMENT OF ISSUES TO BE DECIDED (LOCAL RULE 7-4(A)(3))
`Whether the Complaint states a claim under Exchange Act Sections 10(b) and 20(a).
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`I.
`
`MEMORANDUM OF POINTS AND AUTHORITIES
`INTRODUCTION
`Originally a business solution for enterprises with sophisticated IT departments, Zoom
`became a household name virtually overnight as its platform became the lifeline for the world—
`companies, schools, hospitals, and governments all depended upon Zoom to keep their operations
`running. With this sudden explosion in consumer use came increased media scrutiny, including
`over certain of Zoom’s security and privacy features, and a brief fluctuation in Zoom’s then-rising
`stock price. Zoom took these challenges head on, rolling out a series of product updates and
`consumer-education initiatives to bolster its already secure platform and educate its new user base.
`Since then, Zoom’s stock price has not only rebounded but soared another 300+% as its business
`has continued to grow and demonstrate that any concerns were misplaced. Nevertheless, Plaintiff
`Adam Butt (“Plaintiff”) seeks to turn a brief period of stock volatility into a securities fraud claim.
`Plaintiff claims, primarily, that Zoom misled investors by describing its platform as “end-
`to-end” encrypted. But Plaintiff alleges no facts suggesting that his preferred definition is the only
`meaning of this phrase, and therefore he fails to allege falsity with particularity. This is not
`surprising because, under at least one well-recognized definition (which requires only that content
`be encrypted between end points), Zoom’s statements about “end-to-end” encryption were true.
`Plaintiff also complains that Zoom did not tell its users that (1) Facebook collected some Zoom
`user information in some circumstances, (2) Zoom integrated a (scarcely used) feature that allowed
`users to navigate to meeting participants’ already-public LinkedIn profiles, and (3) Zoom installed
`a web server on Mac computers to streamline the log-in process. Plaintiff, however, does not
`identify a single statement that was rendered misleading by these alleged omissions.
`Further, Plaintiff makes no particularized allegations supporting a strong inference that
`either Yuan or Steckelberg (and therefore Zoom) acted with fraudulent intent. Without a single
`confidential witness and only generalized speculation about what Defendants must have known,
`Plaintiff fails to plead facts demonstrating that they were aware of information rendering their
`statements false or misleading when made. Add to that the absence of any other indicia of intent,
`such as suspicious stock sales or a plausible motive, and Plaintiff “fail[s] to create an inference of
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`scienter more cogent or compelling than an alternative innocent inference.” See Zucco Partners,
`LLC v. Digimarc Corp., 552 F.3d 981, 999–1000 (9th Cir. 2009), as amended (Feb. 10, 2009). Nor
`was Zoom’s stock price artificially inflated in the first place. After a brief period of volatility,
`Zoom’s stock skyrocketed, all while the market had full information about the purported security
`and privacy concerns alleged. In fact, despite the array of “corrective disclosures” Plaintiff alleges,
`he fails to identify a single one that caused Zoom’s stock price to decline, identified new
`information to the market, or was connected to the alleged misstatements and omissions. Plaintiff’s
`claims should be dismissed.
`BACKGROUND
`II.
`Zoom. Founded in 2011, Zoom is a leading video conference platform. Zoom’s flagship
`product, Zoom Meetings, offers “frictionless video, voice, chat and content sharing,” which allows
`thousands of people on separate devices and in different locations to join a single video conference
`meeting. (¶¶1 4-5; Ex. 9 at 1, 55.) The “ease of use” of its platform is a “key differentiator” between
`Zoom and its competitors. See, e.g., Ex. 14 at 3. Zoom’s products were designed primarily for use
`by large business and enterprise customers with sophisticated IT personnel, and before the
`pandemic, that is how they were marketed and sold. Ex. 9 at 55-57. But during the pandemic,
`Zoom’s user base expanded dramatically, to include millions of individuals and smaller entities.
`Ex. 18 at 3, Ex. 13 at 5. Indeed, as Zoom provided free access to tens of millions of students
`through its K-12 Initiative (Ex. 18 at 3) and became an essential technology across industries,
`governments, and individuals, its daily meeting participants skyrocketed from ten million in
`December 2019 to hundreds of millions of participants in April 2020. Ex. 19 at 3.
`Encryption Technology. Encryption generally refers to the process of converting data into
`an unrecognizable or “encrypted” form, such that it cannot be viewed without the required
`password or “key” (also known as a “cryptographic key”). Ex. 11 at 1. The concept of “end-to-
`end” (“E2E”) encryption has existed since at least the 1960s (see, e.g., Ex. 1 at vi, 10-11, 17) and
`does not have a universally-accepted definition. In general terms, E2E encryption refers to the
`
`
`1 All references to “¶” are to the Complaint. All references to “Ex.” are to the Exhibits attached to
`the Declaration of Tijana M. Brien submitted herewith.
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`2
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`MOT. TO DISMISS THE COMPLAINT
`3:20-CV-02353-JD
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`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
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`transmission of an encrypted message from one user to another without decryption during the
`transfer. In some E2E systems, the server generates the cryptographic key and distributes it to both
`ends of the communication, which then use the key to access the content. See, e.g., Ex. 20 ( “[t]he
`encryption of information at its origin and decryption at its intended destination without any
`intermediate decryption”); Ex. 2 at 121 ( “[c]ontinuous protection of data that flows between two
`points in a network”). In other contexts, E2E encryption can be defined as a system where only the
`endpoints have access to the cryptographic keys, and the server (here, Zoom’s) does not.2
`Zoom’s Encryption. Different Zoom products use different encryption methods. During
`the Class Period, Zoom Meetings were encrypted at the point of origination (i.e., someone’s Zoom
`desktop application) and remained fully encrypted when transmitted through Zoom’s systems until
`the intended endpoint (i.e., the recipient’s desktop application). Ex. 16 at 2-3. At that point, the
`“endpoint(s)” (not Zoom) would decrypt the data using a key automatically generated by Zoom.
`Id. This type of E2E encryption is also referred to as “transport encryption” or “transport layer
`encryption” (“TLS”). (¶¶ 56-57.) Zoom explained, before the Class Period, that it encrypted
`communications in this manner. See, e.g., Ex. 4 at 4 (stating that Zoom was using a “Transport
`Layer Security (TLS) encryption tunnel”).3 Zoom also did not hide that its servers generated and
`maintained the decryption keys. For example, on its March 4, 2020 Earnings Call, Zoom told
`investors that it was still “working on” a system in which “the encryption [is] based on the key
`offered by customers,” i.e., a system where Zoom did not hold the cryptographic key. Ex. 13 at 20.
`Zoom’s Other Features. Zoom also made clear that it offered many features that are
`incompatible with how Plaintiff now, in hindsight, defines E2E encryption. For example, it was
`widely known that users could join Zoom meetings by dialing in from a phone or third-party device
`outside of Zoom’s control. (¶¶ 21, 56; Ex. 9 at 6 (noting “the interoperability of our platform across
`devices, operating systems and third-party applications that we do not control”); Ex. 13 at 20.)
`Because such devices often lack the ability to decrypt communications, Zoom’s servers would have
`
`2 This is known as “zero knowledge encryption.” See, e.g., Ex. 5 at 4 (“Zero-Knowledge standards
`enhance our end-to-end encryption as they ensure that we never have access to our users’ files and
`encryption keys in a readable format.”) (emphasis added).
`3 Notably, Plaintiff does not allege that Zoom improperly decrypted any E2E-encrypted meeting
`data before it reached the intended endpoint.
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`3
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`MOT. TO DISMISS THE COMPLAINT
`3:20-CV-02353-JD
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`to first decrypt the meeting data for those devices. Zoom also allowed users to record Zoom
`meetings and store the recordings on Zoom’s cloud servers—a feature it could accomplish only
`because Zoom had access to the cryptographic key. Ex. 10 at 3, 7.
`The Industry Understood Zoom’s Encryption Practices. Long before Zoom’s use of
`E2E encryption came under scrutiny in March 2020, Zoom made clear and industry participants
`reported that, for Zoom Meetings, Zoom retained cryptographic keys. For example, an October
`2014 article pointed out that “Zoom has access to the encryption key.” Ex. 3 at 3. Similarly, a
`May 14, 2018 article stated that Zoom’s service was “encrypting messages between the participants
`in a conversation and Zoom’s servers.” Ex. 6 at 2 (emphasis added); see also Ex. 7 at 1 (concluding
`that Zoom had access to the encryption key). And in December 2019–almost four months before
`the first alleged corrective disclosure–another article highlighted how the Company openly
`discussed the very thing Plaintiff claims Zoom had kept a “secret[],” stating: “conversations we
`have had with Zoom support staff indicate that Zoom stores a copy of all users’ private keys on
`their server.” Ex. 12 at 4 (emphasis added); compare with ¶ 9(a).
`Zoom’s Popularity Leads to Media Scrutiny. On July 8, 2019, a Medium article claimed
`that Zoom “covertly” installed a web server on Mac computers. (¶¶ 35, 98.) Between that day and
`the next alleged corrective disclosure in late March 2020, Zoom’s stock price rose by nearly $50.
`In March 2020, as Zoom became a household name, it became the focus of even more intense
`media scrutiny. On March 26, 2020, Motherboard published an article claiming that Zoom’s
`application sent user data to Facebook. (¶¶ 13, 48-49.) Despite this announcement, Zoom’s stock
`price maintained its rise, closing at $141.15. Ex. 21. The next day, Zoom informed consumers that
`it had learned of the issue and discontinued the Facebook integration. See Ex. 15 at 1-2. Zoom’s
`stock closed even higher, at $151.70. Ex. 21. A few days later, on March 30, the New York Times
`reported that Zoom had received a letter from New York’s attorney general regarding Zoom’s
`security measures, citing the July 2019 Medium and March 2020 Motherboard articles. (¶¶ 13, 52,
`101.) Zoom’s stock price declined less than 1% on that day. Ex. 21.
`On March 31, the focus shifted to Zoom’s encryption methods, with The Intercept
`publishing an article questioning whether Zoom Meetings were E2E encrypted because Zoom had
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`4
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`MOT. TO DISMISS THE COMPLAINT
`3:20-CV-02353-JD
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`access to the cryptographic key. (¶¶ 56-60, 103.) As noted above, others had already commented
`on the same in 2018 and 2019. See supra at 4-5. With the pandemic fueling a surge in consumers’
`use of Zoom, the Company responded to the claims in the article by explaining, in plain terms, its
`method of encryption. See generally, Ex. 16. The next day, after market close on April 2, the New
`York Times reported that one Zoom feature allowed hosts to view the publicly-available LinkedIn
`profiles of meeting participants. (¶¶ 110.) Zoom’s stock opened higher after the article was
`published. Ex. 21. Several articles followed, all repeating the same facts about Zoom’s encryption.
`(¶¶ 107-09, 111-14.) Although Zoom’s stock price fluctuated that week, any alleged concerns
`about purported privacy and security issues were fleeting. Zoom’s stock was back to its pre-
`“corrective disclosure” price within 10 days, had doubled by July 2020, and by October 2020
`climbed as high as $568 (an increase of nearly 400% from April 2020). Ex. 21.
`III. LEGAL STANDARDS
`To plead a claim under section 10(b) and Rule 10b-5, Plaintiff “must allege: (1) a material
`misrepresentation or omission by the defendant (falsity); (2) scienter; (3) a connection between the
`misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the
`misrepresentation or omission; (5) economic loss; and (6) loss causation.” Police Ret. Sys. of St.
`Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1057 (9th Cir. 2014) (citation omitted). The
`PSLRA requires Plaintiff to plead falsity and scienter with particularity. Zucco, 552 F.3d at 990.
`Plaintiff must also plead “all elements of a securities fraud action” with particularity under Federal
`Rule of Civil Procedure 9(b). Or. Pub. Emps. Ret. Fund v. Apollo Grp. Inc., 774 F.3d 598 (9th Cir.
`2014) (emphasis added). This includes alleging the “who, what, when, where, and how” of the
`alleged fraud, and “set[tting] forth what is false or misleading about a statement, and why it is
`false.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003).
`IV. ARGUMENT
`Plaintiff Fails to Allege Any False or Misleading Statement.
`A.
`Because Plaintiff Fails to Allege That There is Only One Possible
`1.
`Meaning of “End to End Encryption,” His Claims Fail.
`Plaintiff claims that Zoom misled investors by referring to “end-to-end” encryption. (¶ 6.)
`This claim is based on a single sentence from Zoom’s 200-page IPO Prospectus, which stated
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`5
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`MOT. TO DISMISS THE COMPLAINT
`3:20-CV-02353-JD
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`Case 3:20-cv-02353-JD Document 78 Filed 05/20/21 Page 12 of 22
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`generally that Zoom “offer[s] robust security capabilities, including end-to-end encryption,” (¶ 27,
`Ex. A Stmt. 1), as well as statements in certain of Zoom’s customer-facing documents that Zoom’s
`products were “secure with end-to-end AES256 bit encryption” or something similar. (¶ 30; Ex.
`A, Stmts. 3-12.) Plaintiff claims these statements were false because, for some of its services,
`Zoom’s server maintained the cryptographic keys, which–“theoretically”4–could have allowed
`Zoom to decrypt communications between end users. (¶¶ 9(a), 34(a), 47(a), ¶ 72.) This claim,
`however, is based on one specific and highly technical definition of the term “end-to-end
`encryption,” to mean that “not even the company that runs the messaging service can access the
`cryptographic keys necessary to decrypt the end users’ communication.” (¶ 9(a) fn.5.) But nothing
`in the Complaint suggests that this definition is the only possible meaning of the phrase “end-to-
`end encryption,” let alone one that Plaintiff or others outside of the cryptographic community would
`have understood. Plaintiff himself does not allege as much, and even the “corrective disclosures”
`he cites make clear that this is not the only definition. (See ¶¶ 56, 72.)
`Plaintiff’s claim thus fails under the Ninth Circuit’s analysis in Wochos v. Tesla, Inc. There,
`plaintiffs claimed that Tesla misled investors by saying it made “50 production cars” because,
`according to plaintiffs, the phrase “production car” is “a term of art in the automotive industry”
`meaning that a car is produced by automation. Wochos v. Tesla, Inc., 2019 WL 1332395, at *6 n.2
`(N.D. Cal. Mar. 25, 2019) (Tesla I), aff’d, Wochos v. Tesla, 985 F.3d 1180 (9th Cir. 2021) (Tesla
`II). The Ninth Circuit disagreed, holding that “Plaintiffs had to plead sufficient facts to establish
`that the actual term used had the distinctive, and false, meaning that Plaintiffs claim.” Tesla II, 985
`F.3d at 1194. The court explained that plaintiffs had failed to show their preferred definition was
`the only definition, because “[p]laintiffs pleaded no facts to support their premise that ‘production
`car’ would be understood as referring exclusively to the fully automated production of identical
`vehicles.” Id.; see also Kelly v. Elec. Arts, Inc., 2015 WL 1967233, at *7–8 (N.D. Cal. Apr. 30,
`2015) (holding that plaintiff failed to sufficiently allege that the term “de-risk” had the precise
`meaning necessary to render defendants’ uses of the term false). Plaintiff’s falsity theory here fails
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`4 Plaintiff does not allege that Zoom, or anyone else, used the keys to decrypt communications.
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`MOT. TO DISMISS THE COMPLAINT
`6
`3:20-CV-02353-JD
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`Case 3:20-cv-02353-JD Document 78 Filed 05/20/21 Page 13 of 22
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`for precisely the same reason.5
`In fact, there is no exclusive definition of E2E. Whereas some have defined it to require
`that a provider (such as Zoom) not have access to the cryptographic key (see ¶ 9, n.5), others have
`adopted a definition that merely provides for data transfer between endpoints without decryption
`along the way, agnostic to whether a provider maintains the key or not. See supra at 2-3. Because
`Zoom’s use of E2E was consistent with the latter, Zoom’s statements were not false. See, e.g., In
`re Adolor Corp. Sec. Litig., 616 F. Supp. 2d 551, 566 (E.D. Pa. 2009) (rejecting Plaintiff’s claim
`that statements that defendant’s studies were “randomized” was false when, at “the most” Plaintiff
`had shown that there were “grounds for disagreement about how to conduct a randomized study”).
`Plaintiff is also wrong that Zoom “secretly” held the cryptographic key or was otherwise
`deceptive about its encryption practices. (¶ 9(a).) To the contrary, Zoom openly advertised features
`(i.e, cloud recording and phone dial-in access) that are fundamentally incompatible with Plaintiff’s
`definition of E2E. See Ex. 9 at 85; supra at II. Accordingly, it is unreasonable to infer from Zoom’s
`statements about E2E that it did not have the cryptographic keys. See Tesla I, 2019 WL 1332395,
`at *6 n.2 (“Defendants . . . indicated in their public disclosures that their facilities were not fully
`automated at the time. And so it is unreasonable to infer from Tesla’s statement . . . that Tesla was
`representing that it had a fully completed automated assembly line.”); see also Kuriakose v. Fed.
`Home Loan Mortg. Corp., 2011 WL 1158028, at *11 (S.D.N.Y. Mar. 30, 2011) (rejecting claim
`that use of “subprime” was misleading where plaintiff claimed that “subprime” loans were defined
`as loans to borrowers with a FICO score of less than 600 where defendant disclosed it was using a
`criteria of 620 or less).6 Because Plaintiff does not plead with specificity that Zoom’s statements
`about E2E encryption were false or misleading when made his claims sho