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Twitter has been a great source of DealLawyers.com blogs this week, but the bird app also was recently involved in some litigation of interest to securities & capital markets lawyers.  The 10b-5 Daily points out that last month, the 9th Circuit held that Twitter did not have a duty to update statements about its product development efforts. This excerpt summarizes the facts of the case and the Court’s decision:

In Weston Family Partnership LLP v. Twitter, 2022 WL 853252 (9th Cir. March 23, 2022), the plaintiffs alleged that Twitter had misled investors about problems with its Mobile App Promotion (MAP) product. In August 2019, Twitter announced that software bugs in the MAP product had caused the sharing of the cell phone location data of its users and that it had “fixed these issues.” Several months later, the company disclosed that software bugs continued to exist and reported a $25 million revenue shortfall.

The district court dismissed the claims. On appeal, the Ninth Circuit found that “fixed these issues” referred to no longer sharing the cell phone location data, not the software bugs. Moreover, Twitter had no duty to update investors about the progress of its MAP product and the plaintiffs had not plausibly alleged that the software bugs had materialized and impacted revenue prior to August 2019.

The Court’s language on the duty to update is likely to find its way into countless future briefs:

Plaintiffs suggest that Twitter—when faced with a setback in dealing with software bugs plaguing its MAP program—had a legal duty to disclose it to the investing public. Not so. While society may have become accustomed to being instantly in the loop about the latest news (thanks in part to Twitter), our securities laws do not impose a similar requirement. Section 10(b) and Rule 10b-5 “do not create an affirmative duty to disclose any and all material information.” Matrixx, 563 U.S. at 44.

Put another way, 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. See Vantive, 283 F.3d at 1085 (“If the challenged statement is not false or misleading, it does not become actionable merely because it is incomplete.”). Indeed, to do so would inject instability into the securities market, as stocks may wildly gyrate based on even fleeting developments. A company must disclose a negative internal development only if its omission would make other statements materially misleading.

– John Jenkins