The Ninth Circuit Court of Appeals on Wednesday upheld a lower court’s decision to dismiss a securities fraud lawsuit that alleges Twitter Inc. misled investors about the scope of software bugs in its targeted advertising feature.
Twitter’s Mobile App Promotion program shares cell phone location data with companies who pay for targeted advertisements on the platform. However, Twitter allows users to opt out of this data sharing.
In May 2019, Twitter announced it had discovered a bug in the program that caused unauthorized sharing of location data, but claimed to have fixed the problem. In August 2019, Twitter announced that it had again accidentally shared unauthorized location data with advertisers, but again claimed to have fixed the issue. Instead of resolving the software bugs, Twitter stopped sharing user data with advertisers altogether, resulting in a revenue drop. Upon learning this information in October 2019, investors filed a class action on behalf of all persons who bought Twitter’s stock between July 26, 2019 and October 23, 2019, claiming violation of Section 10(b) of the Securities and Exchange Act.
Circuit Judge Kenneth K. Lee, writing the opinion for the judicial panel, rejected this claim, saying that Twitter’s statements about its advertising program were “qualified and factually true,” and that the company had no duty to disclose more than it did under federal securities law.
“Companies do not have an obligation to offer an instantaneous update of every internal development, especially when it involves the oft-tortuous path of product development,” Lee said. “Indeed, to do so would inject instability into the securities market, as stocks may wildly gyrate based on even fleeting developments.”
In addition, the panel said that investors didn’t adequately allege that the software bugs disclosed in August 2019 had affected revenue in July 2019, and that statements Twitter made in July 2019 fall within the Securities and Exchange Act’s safe harbor provision.
Twitter is represented by Latham & Watkins LLP.