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Lawsuits & Litigation

Judge Says Apple Must Face Shareholder Lawsuit

— June 4, 2020

The lawsuit accuses Apple of misrepresenting its sales successes in China, even as it as prepared to scale back production.

Apple will have to face a lawsuit claiming the tech giant fraudulently concealed decreased demand for iPhones, leading to tens of billions of dollars in shareholder losses.

According to Reuters, U.S. District Judge Yvonne Gonzalez Rogers trimmed the lawsuit’s scope substantially. But she maintained that shareholders may still sue Apple over Tim Cook’s comments about the iPhone’s robust performance during a November 1st analyst call.

The lawsuit takes particular issue with Cook’s claim that the iPhone was faring well in China through the fourth quarter of 2018, even though sales were struggling due to political tensions.

“Cook had said in the analyst call that the iPhone XS and XS Max had a ‘really great start,’ and that while some emerging markets faced downwards sales pressure, ‘[He] would not put China in that category,’” the lawsuit states.

In her ruling, Gonzalez Rogers found it “implausible” that Apple’s chief executive would not know that iPhone demand was dropping in China—especially when, days after the call took place, Apple instructed its largest manufacturers to slow iPhone production.

“Absent some natural disaster or other intervening reason, it is simply implausible that Cook would not have known that iPhone demand in China was falling mere days before cutting production lines,” Gonzalez Rogers wrote.

During the same call, Cook and other Apple executives said they would not report unit sales for hardware products during the fourth quarter of 2018. That decision, said Gonzalez Rogers, indicated “that defendants expected unit sales to decline.”

Apple CEO Tim Cook. Image via iphonedigital/Flickr. (CC BY-SA 2.0)

And, shortly afterward, Apple confirmed its losses: on January 2nd, 2019, the company reduced its revenue forecast by nearly $9 billion. Several explanations may account for Apple’s poor performance: between 2017 and early 2019, the company was still attempting to mitigate the damage caused by “Batterygate,” or the revelation that Apple intentionally throttled performance on its older-model iPhones. recounting of one relevant class action suggests that Apple’s performance-throttling updates drove high device demand.

At the same time Batterygate was ongoing, the United States and China entered a period of heightened trade tensions, lending to decreased demand for Apple products in the Chinese market.

One way or another—connected or not–Reuters notes that this forecast was the first since the iPhone’s 2007 launch in which Apple slashed its revenue forecast.

Within a day, Apple’s stock plummeted, dropping by 10% in scarcely 24 hours—costing the company some $74 billion in market value.

The company, reports, is facing at least four separate lawsuits related to its optimistic sales predictions and subsequent forecast reversal. One claim asserts that Apple’s flip-flop damaged the company’s reputation, causing stock values to crash.

Reuters notes that the lawsuit is being led by the Employees’ Retirement System of the State of Rhode Island.


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