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In re Impinj, Inc., Securities Litigation

United States District Court, W.D. Washington, Seattle

October 3, 2019



          Robert S. Lasnik United States District Judge.

         This matter comes before the Court on “Defendants' Motion to Dismiss Consolidated Class Action Complaint.” Dkt. # 41-1 at 7-37. Defendants argue that plaintiffs' allegations of falsity, scienter, and loss causation do not satisfy the pleading standards of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. §§ 78u-4 and 78u-5. Defendants also argue that the complaint fails to state a claim against defendants Eric Brodersen and/or Evan Fein. Having reviewed the record in this matter and having heard the arguments of counsel, the Court finds as follows:

         The Consolidated Class Action Complaint

         Plaintiffs filed this litigation on behalf of all persons who purchased or otherwise acquired the common stock of Impinj, Inc., between July 21, 2016, and February 15, 2018. Impinj's primary business is selling a “platform” comprised of integrated circuits with memory chips (“ICs”), connective devices, and software that can be used to tag and wirelessly connect everyday items to the digital world.[1] Plaintiffs allege that Impinj, its Chief Executive Officer (Chris Dorio), its Chief Financial Officer (Evan Fein), and its President and Chief Operating Officer (Eric Brodersen) made false and misleading statements to the public regarding the platform's ability to identify a tagged item's unique location. Plaintiffs allege that the platform's locationing capabilities were highlighted to the public in various regulatory filings and investor communications throughout the class period. The company represented that the platform's ability to transmit an item's unique location, which Dorio at one point asserted could be done with a margin of error of 1.5 feet, would allow the company to tap into valuable new markets, including health care. Plaintiffs allege, however, that the representations were false and that Dorio and Brodersen were informed, prior to the company's initial public offering and throughout the class period, that the platform was not able to accurately locate tagged items. As of January 2016, six months before the start of the class period, Dorio internally acknowledged that Impinj had not yet put forth a concerted effort to solve the locationing problem, but was confident that it could overcome the problem in a few years. Plaintiffs further allege that Impinj posted on an internal wiki (a collaborative website or knowledge bank) the results of pilot projects showing that the platform was unable to place tagged items in the correct room or on the correct floor and that both Dorio and Fein accessed the wiki. Finally, two Impinj employees who raised (or scheduled a meeting to raise) concerns regarding the disparity between the company's public statements and the platform's actual capabilities were fired.

         Plaintiffs allege that the platform's inability to identify the unique location of tagged items made the product less valuable to end users and had an adverse effect on market demand. During the first quarter of 2017, Impinj's sales team recognized a decline in demand for platform components, including IC endpoints, and reported the decline to Brodersen at weekly sales meetings. The decline was discussed in tandem with what the sales team thought was the main cause: the fact that the platform had locationing problems. Brodersen was specifically told that demand was not accelerating or growing as the company had publicly represented. Fein was personally involved in determining IC unit demand levels. Nevertheless, the Q1 and Q2 Forms 10-Q for 2017, signed by Dorio and Fein, reported increased demand for IC endpoints. Plaintiffs allege that Impinj was temporarily able to hide the decline in demand from the market because Brodersen pressured Impinj's sales people to pull future IC endpoint sales orders into the current quarter throughout much of 2017.

         On August 3, 2017, Impinj announced a 10% reduction in its expected IC unit shipments. When the markets opened the next day, its stock price dropped from $47.92 to $37.52 per share, a loss of 22%. Impinj attributed the decline in IC endpoint shipments to its customers' response to a change in manufacturing lead times. On November 1, 2017, the company announced weaker-than-expected revenues for Q3 2017 and reduced its revenue projection for Q4 2017. Impinj acknowledged that its revised outlook was the result of a decline in IC demand. The Company's share price, which had dropped a bit since August to $32.80, fell another 34%. On February 1, 2018, Impinj announced its preliminary estimate of Q4 2017 revenue (two weeks before it was scheduled to make that disclosure) and provided Q1 2018 guidance that was significantly lower than Q1 2017 and Q4 2017. The company also announced Fein's resignation and did not name a replacement. Analysts downgraded Impinj's stock, noting alarm at Fein's abrupt departure. The share price tumbled again from $22.86 to $12.16. On February 15, 2018, Impinj missed the preliminary estimate of Q4 2017 revenue it had announced only two weeks earlier and announced that it would no longer provide annual forecasts of IC unit shipments. Impinj's stock price, which had rebounded slightly to $13.43 per share, fell to $11.07. Plaintiffs allege that market commentators eventually linked the decline in market demand to problems with the platform's functionality.

         Plaintiffs further allege that the executive team was driven to exaggerate the functionality of the platform in order to have a successful IPO, that Impinj has admitted material weakness in its internal control over financial reporting, and that Impinj has had to defend a number of whistleblower suits.

         Based on their allegations of false and materially misleading statements regarding the platform's ability to identify the unique location of tagged items and increasing market demand of IC endpoints, plaintiffs assert claims against all defendants for violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq. and against Dorio, Fein, and Brodersen under Section 20(a).

         Legal Analysis

         A. Scope of Review

         Defendants seek dismissal of all of plaintiffs' claims and offer a number of documents for the Court's consideration. In the context of a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court's review is generally limited to the contents of the complaint. Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996). The Court may, however, consider documents referenced extensively in the complaint, documents that form the basis of plaintiffs' claims, and matters of judicial notice when determining whether the allegations of the complaint state a claim upon which relief can be granted. United States v. Ritchie, 342 F.3d 903, 908-09 (9th Cir. 2003).

         Defendants have provided copies of documents cited in the complaint. These documents (Exhibits 2-18 to the Declaration of Gregory L. Watts (Dkt. # 43)) can be considered in ruling on the motion to dismiss because they form the basis of plaintiffs' claims and plaintiffs have not challenged their authenticity. See Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds, Galbraith v. County of Santa Clara, 307 F.3d 1119, 127 (9th Cir. 2002). In addition, the Court may take judicial notice of public documents that are “not subject to reasonable dispute because [they]: (1) [are] generally known within the trial court's territorial jurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed. R. Ev. 201. Most of the documents submitted by defendants were filed with and published by government agencies, and plaintiffs have not challenged their authenticity.

         The use to which these documents can be put is more limited that defendants acknowledge, however. While their existence and the existence of the statements contained therein cannot be reasonably disputed, the truth of the factual statements and opinions presented in the documents has not been established. Whether Impinj accurately represented its products, market opportunities, and/or investigative results, for example, cannot be ascertained in the context of this motion to dismiss. The Court therefore takes notice of what was said, when it was said, and who said it without prejudice to plaintiff's ability to contest the accuracy of those statements. To do otherwise would be to assume the truth of defendants' regulatory filings despite plaintiffs' underlying contention that defendants were not truthful in their public representations. See Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998-99, 1003 (9th Cir. 2018).

         B. ...

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