Partial Dismissal in Apple Securities Case

A district court judge filed an order granting partial dismissal in an ongoing securities fraud case between the Employees’ Retirement System of the State of Rhode Island and Apple Inc. The plaintiffs originally alleged that Apple violated the Securities Exchange Act of 1934 by lying about its market performance while allegedly throttling older iPhones. This case is being held in the Northern District of California before Judge Yvonne Gonzalez Rogers.

In an amended complaint, the plaintiffs alleged that Apple and several of its top executives made “false and misleading statements and omissions between August 2, 2017, and January 2, 2019,” relating to the company’s throttling of older iPhones. Apple was accused of intentionally slowing iPhones with older batteries when the company’s market growth had faltered, allegedly to make customers buy newer iPhone models without performance issues.

“Frustrated with iPhones operating in diminished capacity and falsely believing their devices to be obsolete, consumers opted to purchase brand new iPhones on accelerated timetables,” the complaint said. “These “premature” upgrades artificially inflated iPhone sales in 2017 and early 2018, and provided the appearance of a reversal of declining iPhone sales growth, reinvigorating market interest in the Company.”

Apple’s motion for dismissal called the complaint against “a sprawling, 190-page riddle of confusing, contradictory, and often irrelevant allegations, with a theory of fraud that is difficult to discern.” According to this motion, the complaint does not actually claim that Apple misrepresented the sale of iPhones or business results in China. Instead, it “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.”

In the newly filed order of partial dismissal, Judge Rogers granted Apple’s “motion to dismiss as to all challenged statements except those alleged in paragraphs 285 and 286, for which defendants’ motion is denied.” In these two paragraphs, Apple claims that its “year-over-year revenue growth rate accelerated for the fourth consecutive quarter” in 2017, and that it was the company’s “biggest year ever in most parts of the world with all-time record revenue in the United States, Western Europe, Japan, Korea, the Middle East, Africa, Central and Eastern Europe and Asia.”

As a result of the order, a revised consolidated complaint is due by June 23, with a response due by July 14. The plaintiffs are represented by Robbins Geller Rudman & Dowd, while the defendants are represented by Orrick, Herrington & Sutcliffe.