`
`
`
`
`
`COOLEY LLP
`PATRICK E. GIBBS (183174)
`(pgibbs@cooley.com)
`JESSICA VALENZUELA SANTAMARIA (220934)
`(jvs@cooley.com)
`TIJANA M. 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’ REPLY ISO MOTION TO
`DISMISS THE CONSOLIDATED CLASS ACTION
`COMPLAINT
`August 26, 2021
`Date:
`
`10:00 a.m.
`Time:
`Courtroom: 11, 19th Floor
` Hon. James Donato
`Judge:
`
`
`
`
`
`
`DEFENDANTS' REPLY ISO MTD
` 3:20-CV-02353-JD
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 2 of 16
`
`TABLE OF CONTENTS
`
`
`Page
`
`B.
`C.
`
`INTRODUCTION .............................................................................................................. 1
`ARGUMENT ...................................................................................................................... 1
`A.
`Plaintiff Fails to Allege Any False or Misleading Statements ................................ 1
`1.
`Plaintiff Fails to Allege That E2EE Had One Exclusive Definition ........... 1
`2.
`Plaintiff Fails to Allege Any Actionable Misstatements or
`Omissions Regarding Data Privacy ............................................................ 3
`Plaintiff Fails to Establish “Maker” Liability ......................................................... 5
`Plaintiff Fails to Allege a Strong Inference of Scienter .......................................... 5
`1.
`Plaintiff Fails to Plead Scienter as to End-to-End Encryption .................... 5
`2.
`Plaintiff Fails to Plead Scienter as to the Privacy Statements ..................... 7
`3.
`After-the-Fact Statements and Events Do Not Support Scienter ................ 7
`4.
`Viewed Holistically, Plaintiff Fails to Plead Scienter ................................. 8
`Plaintiff Fails to Plead Loss Causation ................................................................... 9
`D.
`CONCLUSION ................................................................................................................. 10
`
`
`
`I.
`II.
`
`III.
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`
`
`
`
`- i -
`
`DEFENDANTS' REPLY ISO MTD
` 3:20-CV-02353-JD
`
`
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 3 of 16
`
`
`
`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`In re Allied Nevada Gold Corp. Sec. Litig.,
`743 F. App’x 887 (9th Cir. 2018) ............................................................................................. 8
`
`In re Alphabet, Inc. Sec. Litig.,
`1 F. 4th 687 (9th Cir. 2021) .................................................................................................. 4, 9
`
`In re Apple Inc., Sec. Litig.,
`2020 WL 2857397 (N.D. Cal. June 2, 2020) ........................................................................ 4, 8
`
`In re Apple Inc. Sec. Litig.,
`2020 WL 6482014 (N.D. Cal. Nov. 4, 2020) ............................................................................ 8
`
`Bonanno v. Cellular Biomedicine Grp., Inc.,
`2016 WL 4585753 (N.D. Cal. Sept. 2, 2016) ......................................................................... 10
`
`Brody v. Transitional Hosps. Corp.,
`280 F.3d 997 (9th Cir. 2002) ................................................................................................. 3, 4
`
`City of Monroe Employees Retirement System v. Bridgestone Corp.,
`399 F.3d 651 (6th Cir. 2005) ..................................................................................................... 8
`
`City of Sunrise Firefighters’ Pension Fund v. Oracle Corp.,
`2021 WL 1091891 (N.D. Cal. Mar. 22, 2021) .......................................................................... 4
`
`In re Cloudera, Inc.,
`2021 WL 2115303 (N.D. Cal. May 25, 2021) .......................................................................... 7
`
`Cunningham v. Identiv, Inc.,
`716 F. App’x 663 (9th Cir. 2018) ............................................................................................. 6
`
`Curry v. Yelp Inc.,
`875 F.3d 1219 (9th Cir. 2017) ................................................................................................... 7
`
`ECA, Loc. 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co.,
`553 F.3d 187 (2d Cir. 2009) ...................................................................................................... 8
`
`Janus Cap. Grp., Inc. v. First Derivative Traders,
`564 U.S. 135 (2011). (See Mot. .) ............................................................................................. 5
`
`Khoja v. Orexigen,
`899 F. 3d 988 (9th Cir. 2018) .................................................................................................... 3
`
`In re LendingClub Sec. Litig.,
`254 F. Supp. 3d 1107 (N.D. Cal. 2017) .................................................................................... 4
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`
`
`
`
`- ii -
`
`DEFENDANTS' REPLY ISO MTD
` 3:20-CV-02353-JD
`
`
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 4 of 16
`
`TABLE OF AUTHORITIES
`(Cont.)
`
`
`
`Page(s)
`
`
`Lopes v. Fitbit, Inc.,
`2020 WL 1465932 (N.D. Cal. Mar. 23, 2020), aff’d, 848 F. App’x 278 (9th
`Cir. 2021) .................................................................................................................................. 7
`
`In re Omnicom Grp., Inc. Sec. Litig.,
`597 F.3d 501 (2d Cir. 2010) .................................................................................................... 10
`
`Perlman v. Zell,
`938 F. Supp. 1327 (N.D. Ill. 1996), aff’d, 185 F.3d 850 (7th Cir. 1999) .................................. 6
`
`Purple Mountain Trust v. Wells Fargo & Co.,
`432 F. Supp. 3d 1095 (N.D. Cal. 2020) .................................................................................. 10
`
`Reese v. Malone,
`747 F.3d 557 (9th Cir. 2014) ..................................................................................................... 8
`
`In re Rigel Pharms., Inc. Sec. Litig.,
`2009 WL 5125344 (N.D. Cal. Dec. 21, 2009) ........................................................................ 10
`
`In re Rigel Pharms., Inc. Sec. Litig.,
`697 F.3d 869 (9th Cir. 2012) ..................................................................................................... 5
`
`Rok v. Identiv, Inc.,
`2017 WL 35496 (N.D. Cal. Jan. 4, 2017 .................................................................................. 6
`
`Schueneman v. Arena Pharmaceuticals, Inc.,
`840 F.3d 698 (9th Cir. 2016) ..................................................................................................... 6
`
`Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
`551 U.S. 308 (2007) .................................................................................................................. 9
`
`In re Tesla, Inc. Sec. Litig.,
`477 F. Supp. 3d 903 (N.D. Cal. 2020) ...................................................................................... 8
`
`In re Twitter, Inc. Sec. Litig.,
`506 F. Supp. 3d 867 (N.D. Cal. 2010) ...................................................................................... 3
`
`In re Twitter, Inc. Sec. Litig.,
`2020 WL 4187915 (N.D. Cal. Apr. 17, 2020) .......................................................................... 6
`
`In re Verisign, Inc., Derivative Litig.,
`531 F. Supp. 2d 1173 (N.D. Cal. 2007) .................................................................................... 5
`
`Webb v. SolarCity Corp.,
`884 F.3d 844 (9th Cir. 2018) ..................................................................................................... 5
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`
`
`
`
`iii
`
`DEFENDANTS' REPLY ISO MTD
`3:20-CV-02353-JD
`
`
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 5 of 16
`
`TABLE OF AUTHORITIES
`(Cont.)
`
`
`Wochos v. Tesla, Inc.,
`985 F.3d 1180 (9th Cir. 2021) ............................................................................................... 1, 2
`
`
`
`Page(s)
`
`Statutes
`
`15 U.S.C.
`§ 78u-4(e)(1)-(3) ..................................................................................................................... 10
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`
`
`
`
`iv
`
`DEFENDANTS' REPLY ISO MTD
`3:20-CV-02353-JD
`
`
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 6 of 16
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`I.
`
`INTRODUCTION
`Plaintiff’s Opposition confirms that his Complaint fails to plead a single actionable mis-
`statement, a strong inference of scienter, or loss causation under the Exchange Act.
`First, Plaintiff fails to plead with particularity that any statements were false or misleading
`when made. Regarding “end-to-end encryption” (“E2EE”), Defendants never said that Zoom did
`not hold the cryptographic key. Plaintiff’s reliance on the “known and accepted” definition of
`E2EE fails under Ninth Circuit precedent, because he does not allege with particularity that E2EE
`“would be understood as referring exclusively” to his preferred definition. See Wochos v. Tesla,
`Inc., 985 F.3d 1180, 1194 (9th Cir. 2021). As for Zoom’s statements about user privacy, Plaintiff
`fails to identify a single statement rendered false or misleading by the alleged omission of (1) the
`Facebook SDK’s collection of technical device data, (2) Zoom’s LinkedIn profile matching feature,
`or (3) Zoom’s Mac web server, which the Opposition appears to concede as to the latter two.
`Second, Plaintiff fails to plead facts giving rise to a “strong inference” that Eric Yuan or
`Kelly Steckelberg knew or recklessly disregarded that the challenged statements would materially
`mislead investors. Plaintiff’s conclusory and unspecific references to “Defendants’” or “Zoom’s”
`scienter generally are not enough and the few individual allegations Plaintiff does cite, such as
`Yuan’s involvement in developing Zoom’s platform, do not come close to supporting a strong
`inference of scienter. Nor do alleged after-the-fact statements and events show that any Defendant
`intended to mislead investors when they spoke.
`Finally, Plaintiff’s Opposition abandons most of his “corrective disclosures.” For the few
`that remain, he fails to demonstrate that there was any newly-disclosed information or a decline in
`Zoom’s stock price. Thus, he fails to plead the element of loss causation.
`For each of these independent reasons, the Complaint should be dismissed with prejudice.
`ARGUMENT
`A.
`Plaintiff Fails to Allege Any False or Misleading Statements
`1.
`Plaintiff Fails to Allege That E2EE Had One Exclusive Definition
`Plaintiff does not dispute that under at least one definition of E2EE – which focuses on
`whether communications remain encrypted between two endpoints, i.e. “end to end” – it is
`
`II.
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`
`
`
`
`- 1 -
`
`DEFENDANTS' REPLY ISO MTD
` 3:20-CV-02353-JD
`
`
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 7 of 16
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`irrelevant whether Zoom held the cryptographic key. The alleged misleading statements were
`therefore true. (See Mot. at 6.) This alone makes clear that Plaintiff fails to plead falsity as to the
`E2EE statements.
`Undeterred, Plaintiff labels Zoom’s references to E2EE as false and misleading because,
`according to Plaintiff, Zoom’s access to the cryptographic key was inconsistent with what Plaintiff
`claims is the “‘industry standard’ meaning” of E2EE. (Opp. at 1, 4.) But the Complaint alleges no
`facts supporting Plaintiff’s conclusory assertion that his preferred definition is the “known and
`accepted definition in the tech industry,” let alone the definition that Plaintiff or the market
`understood. Instead he relies entirely on a definition promoted by a single journalist in 2014. (¶
`9(a), n.5.) Nothing in the article suggests that it is using (or establishing) an “industry accepted”
`definition of E2EE, or that an “industry accepted” definition even existed. Nor does Plaintiff’s
`reliance on articles published months to years after the challenged statements, suggest that an
`“industry accepted” definition existed at the time the statements were made.1 (¶¶ 56-59, 72.)
`Moreover, even assuming that Plaintiff’s definition was one “known and accepted” (or even
`an “industry accepted”) definition of E2EE, Plaintiff’s claim still fails under the Ninth Circuit’s
`analysis in Tesla, 985 F.3d at 1194. There, the Ninth Circuit rejected a claim that Tesla misled
`investors by saying it made “50 production cars” because plaintiffs had failed to plead “sufficient
`facts to establish that the actual term used had the distinctive, and false, meaning that Plaintiffs
`claim.” Tesla, 985 F.3d at 1194. Plaintiff does not meaningfully distinguish Tesla. He argues that
`it is not dispositive because in Tesla plaintiffs did not plead “an industry accepted definition,” which
`he claims to have done here. (Opp. at 5.) But the Ninth Circuit’s analysis turned on plaintiffs’
`failure to plead “facts to support their premise that [the phrase] would be understood as referring
`exclusively” to the definition they promoted. 985 F.3d at 1194 (emphasis added). The Complaint
`here suffers the same flaw, as it lacks facts to support the allegation that E2EE “refer[s] exclusively”
`to Plaintiff’s definition and tacitly concedes that other definitions of the term exist. Id. at 1194.
`And Plaintiff admits that some of Zoom’s features offered E2EE in the way he defines it.
`(See, e.g., ¶ 34(a).) As such, even if Plaintiff’s preferred definition were the only possible definition
`
`1 Even if Plaintiff’s definition of E2EE was one “known and accepted” definition of the phrase, this
`would not foreclose the existence of other “known” or “accepted” definitions.
`
`
`2
`
`DEFENDANTS' REPLY ISO MTD
`3:20-CV-02353-JD
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 8 of 16
`
`
`
`of E2EE, the sole statement challenged in Zoom’s Prospectus,2 that Zoom offered “end-to-end
`encryption” as part of its general “technology and infrastructure” would not be false, because it
`does not suggest that all Zoom products offered E2EE in all circumstances. (Ex. A, Stmt. 1.) For
`the same reason, the various blog posts Plaintiff challenges are also not false. (See id., Stmts. 3, 6,
`8, 10 (“we can highlight the following features as important to businesses . . . [s]ecure with end-to-
`end AES 256 bit encryption,”).)3 Setting aside whether these statements said anything about
`Zoom’s encryption capabilities (see Mot. at 7, n.6), Plaintiff fails to allege how these statements
`were false if, as he alleges, Zoom’s product offered E2EE in the way he defines it. Because Plaintiff
`does not plead with specificity that Zoom’s statements about E2EE were false or misleading when
`made, his claims should be dismissed.
`
`2.
`
`Plaintiff Fails to Allege Any Actionable Misstatements or Omissions
`Regarding Data Privacy
`
`Plaintiff’s falsity theory around Zoom’s Privacy Policy is equally flawed. (See Mot. at 8-
`9.) To start, Plaintiff fails to plead with particularity how Zoom’s user Privacy Policy touted any
`“positive information to the market,” such that Zoom was obligated not to “mislead investors” and
`“disclos[e] adverse information” cutting against it. In re Twitter, Inc. Sec. Litig., 506 F. Supp. 3d
`867 (N.D. Cal. 2010) (emphasis added). None of the cases Plaintiff identifies involved consumer-
`facing documents, like Zoom’s Privacy Policy.
`Plaintiff also does not plead with particularity why the statements in Zoom’s Privacy Policy
`created a duty to share any and all facts around user privacy. See, e.g., Brody v. Transitional Hosps.
`Corp., 280 F.3d 997, 997 (9th Cir. 2002) (Rule 10b-5 “prohibit[s] only misleading and untrue
`statements, not statements that are incomplete”). As Plaintiff’s own authorities show, the
`information disclosed and the alleged omission must be directly linked. (See Opp. at 6.) In Khoja
`v. Orexigen, for example, a company disclosed certain clinical study results and therefore was also
`obligated to disclose that those results were unreliable. 899 F. 3d 988, 1009-10 (9th Cir. 2018);
`
`
`2 This is also the sole statement allegedly “made” by Yuan or Steckelberg. See infra at II.B.
`3 Defendants do not “concede that Plaintiff alleges that the representations concerning 256-bit
`encryption were false.” (Compare Opp. at 4 with Mot. at 7-8, n. 7.) In any case, the sole
`“disclosure” regarding 256-bit encryption (the April 3, 2021 Citizen Lab article) confirms that
`investors did not care, as Zoom’s stock price closed higher following its “disclosure.” (Mot. at 14.)
`
`
`3
`
`DEFENDANTS' REPLY ISO MTD
`3:20-CV-02353-JD
`
`
`
`
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 9 of 16
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`see also In re LendingClub Sec. Litig., 254 F. Supp. 3d 1107, 1118 (N.D. Cal. 2017) (company’s
`statements about loan origination volume required disclosure that a large number of those loans
`were made to the company’s CEO and his family); In re Apple Inc., Sec. Litig., 2020 WL 2857397,
`at *11 (N.D. Cal. June 2, 2020) (statements regarding “high upgrade rates” required disclosure of
`“adverse information” that those upgrades were due to slowing phone operations). No such link
`exists here. The Privacy Policy’s statements that Zoom may collect “Facebook profile information”
`is markedly different from Facebook4 allegedly collecting “mobile OS type and version, the device
`time zone, device OS, device model and carrier, screen size, processor cores, and disk space.”5 (See
`¶ 50.) And Plaintiff still fails to explain how this (or any other) challenged statement relates to the
`LinkedIn and Mac web server allegations. Even if Plaintiff “specif[ied] what information [Zoom]
`omitted, [he did] not indicate why the statement [Zoom] made was misleading,” and thus he fails
`to plead an actionable misstatement or omission. See Brody, 280 F.3d at 1006.
`Finally, Zoom’s general statements around the user experience or Zoom’s commitment to
`privacy are inactionable. (See Opp. at 6; see, e.g., ¶ 28 (“[Zoom] is committed to protecting your
`privacy and ensuring you have a positive experience”); ¶43 (“We’ve designed policies and controls
`to safeguard the collection, use, and disclosure of your information.”).) The Ninth Circuit recently
`held that several very similar alleged misstatements—including that (1) “Google was ‘committed
`to protecting our users’ data” and (2) Alphabet was “one of the leading companies when it comes
`to privacy and security of user data” and taking “great pains to make sure that people have great
`control and notice over their data”—“amount[ed] to vague and generalized corporate commitments,
`aspirations, or puffery that cannot support statement liability.” In re Alphabet, Inc. Sec. Litig., 1 F.
`4th 687, 708 (9th Cir. 2021).6 The statements here are no different.
`
`4 Plaintiff apparently does not recall his own Complaint as he now claims, with no support and
`contrary to his own allegations, that Zoom developed the SDK, not Facebook. See infra at C.2.
`5 Plaintiff accuses Defendants of “selectively quot[ing]” the Privacy Policy (Opp. at 8), but it is
`Plaintiff who mischaracterizes it. The policy was clear that Zoom may share data “in order to
`provide requested Products,” defined as Zoom’s, not Facebook’s, “products and services.” Ex. 8.
`6 Plaintiff dedicates pages of his Opposition to attacking Defendants’ purported “truth-on-the-
`market” defense. (See Opp. at 7.) Plaintiff misunderstands Defendants’ argument, which pointed
`to publicly-available information to show context for how investors would have understood Zoom’s
`references to E2EE, which courts routinely do in assessing the adequacy of falsity allegations. See,
`e.g., City of Sunrise Firefighters’ Pension Fund v. Oracle Corp., 2021 WL 1091891 (N.D. Cal.
`Mar. 22, 2021) (“a duty to provide information exists only where statements were made which were
`misleading in light of the context surrounding the statements”) (emphasis added).
`
`
`4
`
`DEFENDANTS' REPLY ISO MTD
`3:20-CV-02353-JD
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 10 of 16
`
`
`
`B.
`Plaintiff Fails to Establish “Maker” Liability
`Plaintiff essentially concedes that Yuan and Steckelberg did not “make” all but one of the
`alleged misstatements. (Opp. at 3, n. 5.) He does not attempt to allege any involvement by Yuan
`or Steckelberg in any of the documents that contained the challenged statements (other than the
`Prospectus, which, as discussed above, is not false or misleading even under Plaintiff’s’ preferred
`definition of E2EE). As a result, they cannot be liable for these alleged misstatements under Janus
`Cap. Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011). (See Mot. at 9.)
`
`C.
`Plaintiff Fails to Allege a Strong Inference of Scienter
`The scienter “bar . . . is not easy to satisfy,” Webb v. SolarCity Corp., 884 F.3d 844, 855
`(9th Cir. 2018) and Plaintiff’s allegations are sorely lacking. The Complaint is notable for what it
`misses: no alleged motive, no suspicious stock sales7, no confidential witnesses, and no allegations
`that either Defendant had contemporaneous knowledge of information contradicting Zoom’s public
`statements. Instead, Plaintiff cobbles together conclusory and vague allegations of “Defendants’”
`or “Zoom’s” scienter generally, even as he concedes that group pleading is insufficient. (See, e.g.,
`Opp. at 9-10; Mot. at 10.) Having failed to “show[] what each defendant knew, when he/she knew
`it, or how he/she acquired that knowledge,” his Complaint must be dismissed. In re Verisign, Inc.,
`Derivative Litig., 531 F. Supp. 2d 1173, 1207 (N.D. Cal. 2007) (emphasis added).8
`
`1.
`Plaintiff Fails to Plead Scienter as to End-to-End Encryption
`Plaintiff claims generally that “Defendants” knew various facts around Zoom’s encryption
`practices, including that Zoom “maintained the cryptographic keys.” (See Opp. at 9-10.) Setting
`aside whether those facts were sufficiently pled, Plaintiff’s scienter argument fails. To plead
`scienter, Plaintiff cannot simply allege that Defendants were aware of a fact. He must also allege
`specific facts demonstrating that Defendants were aware that this fact rendered their statement false
`or misleading. See, e.g., In re Rigel Pharms., Inc. Sec. Litig., 697 F.3d 869, 883 (9th Cir. 2012) (it
`was not enough to allege that defendants had access to clinical trial results or knew that the results
`combined data from two countries, plaintiff had to allege that “defendants believed that they made
`
`7 While suspicious stock sales may not be required, (see Opp. at 10 n. 9) their absence “undermines
`any inference of scienter.” (Mot. at 12.)
`8 Plaintiff’s Opposition does not cite a single allegation in the Complaint that relates to
`Steckelberg’s scienter. All claims against her must be dismissed.
`
`
`5
`
`DEFENDANTS' REPLY ISO MTD
`3:20-CV-02353-JD
`
`
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 11 of 16
`
`
`
`false or misleading statements relating to a country effect or that Defendants believed they were
`misrepresenting the statistical significance of their results”).
`Here, Plaintiff must plead specific facts showing that Defendants knew (or were reckless in
`not knowing) that Zoom holding the cryptographic key rendered Zoom’s use of the term E2EE
`false and misleading to investors. See, e.g., Rok v. Identiv, Inc., 2017 WL 35496, at *11 (N.D. Cal.
`Jan. 4, 2017), aff’d sub nom, Cunningham v. Identiv, Inc., 716 F. App’x 663 (9th Cir. 2018) (“[t]he
`scienter that the SAC is required to allege is an intent to defraud investors”). That is, Plaintiff must
`allege that not only was Plaintiff’s preferred definition of E2EE the only definition (which he does
`not), but also that Defendants knew it was the only definition. He does not.
`At most, Plaintiff merely restates the applicable legal standard by asserting that “the danger
`of misleading investors was, or should have been, obvious.” (Opp. at 11.) But Plaintiff fails to
`allege a single fact (let alone with particularity) demonstrating that Yuan or Steckelberg were aware
`at the time the statements were made that investors would interpret E2EE to only mean that the
`cryptographic key was not held by Zoom.9 Nor does Plaintiff explain why Yuan or Steckelberg
`would have committed this alleged investor fraud through marketing and consumer-facing
`documents that investors typically would not read or care about.10 (See Mot. at 13.) Allegations
`about Yuan’s general knowledge of Zoom’s platform or his experience at a different company over
`a decade ago are also insufficient. (See Opp. at 10.) Even if it were plausible to infer from the
`Complaint’s bare-bones allegations that Yuan knew that Zoom held the cryptographic key, he could
`still believe the statements were not misleading because there is more than one way to interpret
`E2EE. Without pleading “some additional allegation of specific information conveyed to [Yuan]
`and related to the fraud,” Yuan’s “general awareness of the day-to-day workings of the company’s
`
`
`9 Plaintiff’s cases are distinguishable. In Schueneman v. Arena Pharmaceuticals, Inc., the court
`held that it should have been obvious that defendants’ failure to disclose that rat studies showed a
`drug was carcinogenic, when representing that all animal studies supported the drug’s safety, would
`have misled the market. 840 F.3d 698, 705 (9th Cir. 2016). Similarly, in In re Twitter, Inc.
`Securities Litigation, 2020 WL 4187915 (N.D. Cal. Apr. 17, 2020), the court held that it should
`have been obvious that defendants’ failure to disclose a decline in a significant performance metric,
`when speaking about that exact metric, would have misled investors.
`10 Plaintiff’s citation to Perlman v. Zell is inapposite, as it related to pleading a claim for mail fraud
`and says nothing of whether an intent to mislead investors under Section 10(b) can be inferred from
`statements in consumer-facing documents not made (1) by defendants or (2) to investors. See Opp.
`at 10. 938 F. Supp. 1327, 1344 (N.D. Ill. 1996), aff’d, 185 F.3d 850 (7th Cir. 1999).
`
`
`6
`
`DEFENDANTS' REPLY ISO MTD
`3:20-CV-02353-JD
`
`
`
`
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 12 of 16
`
`
`
`business” fails to establish scienter. See Curry v. Yelp Inc., 875 F.3d 1219, 1227 (9th Cir. 2017).
`2.
`Plaintiff Fails to Plead Scienter as to the Privacy Statements
`Plaintiff’s Opposition concedes through its silence that no particularized facts demonstrate
`scienter as to the LinkedIn and Mac server allegations (which he previously claimed rendered
`statements in Zoom’s Privacy Policies false and misleading). (See Opp. at 11.) And having
`apparently recognized that his allegations about the Facebook SDK warrant dismissal, Plaintiff
`impermissibly tries to amend his pleading by making the (incorrect and unsupported) claim in the
`Opposition that “Zoom developed the SDK and presumably knew how it worked.” (Compare Opp.
`at 11 (emphasis added), with ¶ 34(b) (alleging Facebook developed the SDK); see also ¶¶ 47-49.)
`This, of course, is not allowed. See, e.g., In re Cloudera, Inc., 2021 WL 2115303, at *8 (N.D. Cal.
`May 25, 2021) (rejecting “allegations not contained or referenced in the” Complaint). Nor does
`Plaintiff allege that Yuan or Steckelberg were involved with or aware of the Facebook SDK, or
`understood how it worked. In short, Plaintiff does not plead scienter as to the privacy statements.
`3.
`After-the-Fact Statements and Events Do Not Support Scienter
`Unable to identify any contemporaneous facts supporting scienter, Plaintiff relies on
`statements and events that occurred months to years later. But those also fail to establish that Yuan
`or Steckelberg intended to (or were deliberately reckless in not realizing that they would) mislead
`investors. For example, Plaintiff claims that Zoom “recognize[d]” that its use of E2EE differed
`from “the commonly accepted definition” and used it anyway (Opp. at 10), but he mischaracterizes
`what was said. An after-the-fact recognition of present-day confusion, made nearly five months
`after the last alleged statement around E2EE, does not show what was known or intended at the
`time the challenged statements were made. See Lopes v. Fitbit, Inc., 2020 WL 1465932, at *11
`(N.D. Cal. Mar. 23, 2020), aff’d, 848 F. App’x 278 (9th Cir. 2021) (“it is clearly insufficient for
`plaintiffs to say that a later, sobering revelation makes an earlier, cheerier statement a falsehood”).
`And Yuan did not, as Plaintiff claims, “apologize[] for misleading the market.” (See Opp. at 12.)
`Rather, the cited blog post made clear that Zoom “never intended to deceive any of [its] customers.”
`(See Ex. 16.) This after-the-fact blog post is not, as Plaintiff contends, an “admission” of an intent
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`
`
`
`
`7
`
`DEFENDANTS' REPLY ISO MTD
`3:20-CV-02353-JD
`
`
`
`1
`2
`3
`4
`5
`6
`7
`8
`9
`10
`11
`12
`13
`14
`15
`16
`17
`18
`19
`20
`21
`22
`23
`24
`25
`26
`27
`28
`
`COOLEY LLP
`ATTORNEYS AT LAW
`PALO ALTO
`
`Case 3:20-cv-02353-JD Document 82 Filed 08/09/21 Page 13 of 16
`
`
`
`to mislead – at most it demonstrates lack of intent.11 (See Opp. at 10-12.) Plaintiff also fails to
`demonstrate how the removal of the phrase “E2EE” from Zoom’s blog posts and Security Guide,
`or its discontinuation of the Facebook SDK, says anything about Defendants’ mental state at the
`time the challenged statements were made. (See Opp. at 11–12.) Unsurprisingly, Plaintiff cites no
`support for his theory that taking after-the-fact steps to ensure consumers were not misled actually
`supports an inference of a prior intent to mislead.
`Finally, Plaintiff points to Zoom’s settlement with the FTC in an attempt to “corroborate”
`his falsity and scienter theories. (Opp. at 12-13.) Under that settlement agreement, however, Zoom
`did not admit any liability or wrongdoing.12 (See Opp., Ex. A at 18.) And Plaintiff’s cited cases
`do not support his conclusory assertion that “quick settlements of ancillary lawsuits alleging fraud
`or deceptive conduct . . . can be indicative of scienter.” (See Opp. at 13.) Unlike the public FTC
`settlement with Zoom, in City of Monroe Employees Retirement System v. Bridgestone Corp.,
`defendants perpetuated the fraud by entering into secret settlement agreements to hide the property
`damage and injuries caused by their defective products and which they allegedly concealed from
`investors. 399 F.3d 651, 685–86 (6th Cir. 2005). And the Tesla settlement with the U.S. Secu