886 F.2d 1109, 9th Cir., 1989
P alleges that Apple and its officials “misled the market about the capabilities and prospects of a novel office computer and disk drive system.” P claims to have purchased Apple’s stock having relied upon Apple’s misrepresentations about the production. In 1982 Apply created a disk drive “twiggy” to go along with “lisa” a computer for it to go in.The relevant timeframe is as follows:
6 months prior: Apple’s common stock trades between $11-$30.
Nov. 29, 1982 Applies issues press release introducing “twiggy” – stating “it represents three years of research and development and has undergone extensive testing and design verification during the past year.”
Jan. 31, 1983 – Steve Jobs states that he doesn’t think there will be any problem selling all the Lisas that can be built.
April 14, 1983 – Jobs states Lisa will be a phenomenal success in the first year.
Apple’s stock climbs to $63/share but then eventually crashes to $17/share when Lisa does not sell. P argues that Apple “recklessly ignored” a number of problems with Lisa. For example, twiggy was not compatible with IBM computers, which dominated the existing market. There were issues with slowness and that other disk drive developers could not design software for Lisa.
The TC stated that each of the alleged misstatements were immaterial.
Whether, in light of the problems noted, Apple’s “unqualified optimism was false and misleading, and actionable under Section 10 (b) of the Securities Exchange Act and Rule 10b-5.”
No, there was no violation, held. The court held that the majority of the expressions were “projections” or “general expressions of optimism.” They were not statements eluding to or referencing “historic fact.” They are subjective representations of the future, and are not a misrepresentation of false statement of acquired or existing knowledge.
Moreover, the compatibility issues and others were all widely publicized prior to release.
Finally, there was not adequate reliance on the part of the Plaintiffs. The negative information just mentioned regarding compatibility issues were widely publicized, thus the market took such information into account, even if the price sky rocketed. The presumption of assumed reliance can be “rebutted by showing that information sufficient to correct the defendants’ alleged misstatements was transmitted through market price in the same fashion as the misstatements themselves.” Thus Ps would need to show specifically how they relied on the statements.