Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 1 of 43
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`BRODSKY & SMITH, LLC
`Evan J. Smith, Esquire (SBN 242352)
`esmith@brodskysmith.com
`Ryan P. Cardona, Esquire (SBN 302113)
`rcardona@brodskysmith.com
`9595 Wilshire Boulevard, Suite 900
`Beverly Hills, CA 90212
`Phone: (877) 534-2590
`Facsimile: (310) 247-0160
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`Attorneys for Plaintiff
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`[Additional Counsel on Signature Page]
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`SAN JOSE DIVISION
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`Case No.:
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`VERIFIED STOCKHOLDER
`DERIVATIVE COMPLAINT FOR
`BREACH OF FIDUCIARY DUTY AND
`VIOLATION OF THE FEDERAL
`SECURITIES LAWS
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`JURY TRIAL DEMANDED
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`JOHN VOTTO, Derivatively on Behalf of
`APPLE INC.,
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` Plaintiff,
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`v.
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`TIMOTHY D. COOK, ARTHUR D.
`LEVINSON, JAMES A. BELL, ALBERT
`GORE, JR., ANDREA JUNG, RONALD D.
`SUGAR, SUSAN L. WAGNER, ROBERT
`A. IGER, and LUCA MAESTRI,
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` Defendants,
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`-and-
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`APPLE INC.,
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` Nominal Defendant.
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`_____________________________________
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 2 of 43
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`Plaintiff John Votto (“Plaintiff”), by and through his undersigned counsel, derivatively on
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`behalf of Nominal Defendant Apple Inc. (“Apple” or the “Company”), submits this Verified
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`Shareholder Derivative Complaint (the “Complaint”). Plaintiff’s allegations are based upon his
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`personal knowledge as to himself and his own acts, and upon information and belief, developed
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`from the investigation and analysis by Plaintiff’s counsel, including a review of publicly available
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`information, including filings by Apple with the U.S. Securities and Exchange Commission
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`(“SEC”), press releases, news reports, analyst reports, investor conference transcripts, publicly
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`available filings in lawsuits, and matters of public record.
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`NATURE OF THE ACTION
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`1.
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`This is a shareholder derivative action brought in the right, and for the benefit, of
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`Apple against certain of its officers and directors seeking to remedy Defendants’ violations of state
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`and federal law that have occurred from August 1, 2017 through January 2, 2019 (the “Relevant
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`Period”) and have caused, and continue to cause, substantial harm to Apple, including monetary
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`losses and damages to Apple’s reputation and goodwill.
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`2.
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`Apple is a multinational technology company that designs, develops, and sells
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`consumer electronics and software in the U.S. and abroad. Apple’s flagship product is its iPhone,
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`accounting for nearly two-thirds of the Company’s revenues since 2007. Apple sells the iPhone
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`throughout the world, including in Greater China, its third-largest market segment behind the
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`Americas and Europe.1
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`3.
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`During the Relevant Period, the Defendants (defined below) misrepresented and/or
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`failed to disclose multiple material factors that negatively impacted Apple’s iPhone sales and
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`revenues, including that, inter alia: (a) consumer demand for new iPhone models was negatively
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`impacted by Apple’s sales of heavily discounted battery replacement program for older iPhone
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`models, as customers chose not to upgrade or to delay same; (b) macroeconomic factors, including
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`an escalating trade war with the United States, increased competition from cheaper smartphones,
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`1 The Greater China segment includes China, Hong Kong and Taiwan. The Americas segment
`includes both North and South America. The Europe segment includes European countries, as well
`as India, the Middle East and Africa.
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 3 of 43
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`and a sluggish economy, were likely to negatively affect, and were doing so, Apple’s iPhone sales
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`in China; and (c) that as a result of the foregoing, the Defendants lacked a reasonable basis when
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`issuing positive iPhone sales and revenue guidance for the first quarter of 2019, and when publicly
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`denying the existence and negative impact of the foregoing.
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`4.
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`Apple’s wrongful conduct came to light on January 2, 2019, when the Company
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`disclosed declining iPhone sales and was forced to reveal to investors that it would not meet the first
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`quarter 2019 revenue guidance it had issued only two months earlier, the first instance of Apple
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`having to reduce its revenue expectations in the past 16 years. Apple’s Chief Executive Officer
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`(“CEO”), Tim Cook, conceded that the declining sales were the result of users’ decisions not to
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`upgrade after receiving discount battery replacements, as well as economic issues in China, both
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`issues of which Apple and the Defendants herein repeatedly denied to analysts and investors existed
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`and/or would have a negative impact on sales.
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`5.
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`On this news, the Company’s share price fell approximately 9%, from $157.92 on
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`January 2, 2019 to $142.19 on January 3, 2019, the first trading day after the disclosure, on
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`exceedingly high trading volume of over 91 million shares.
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`6.
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`In addition, based on the wrongful conduct discussed herein, numerous lawsuits were
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`filed against Apple and certain of the Defendants and regulatory and governmental investigations
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`were started in the United States and abroad.
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`JURISDICTION AND VENUE
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`7.
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`This Court has jurisdiction over federal claims/questions asserted in this action
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`pursuant to 28 U.S.C. § 1331, and supplemental jurisdiction over the remaining state law claims
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`under 28 U.S.C. § 1367.
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`8.
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`This Court has jurisdiction over each defendant named herein because each is either
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`a corporation that conducts business in and maintains operations in this District, is an individual
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`residing in this District, and/or is an individual non-resident who has sufficient minimum contacts
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`with this District to render the exercise of jurisdiction by the District courts permissible under
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`traditional notions of fair play and substantial justice.
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 4 of 43
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`9.
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`Venue is proper in this Court in accordance with 28 U.S.C. §1391 because: (i) Apple
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`maintains its principal place of business in this District; (ii) one or more of the Defendants either
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`resides in or maintains offices in this District; (iii) a substantial portion of the transactions and
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`wrongs complained of herein, including Defendants’ primary participation in the wrongful acts
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`detailed herein, occurred in this District; and (iv) Defendants have received substantial
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`compensation in this District by doing business here and engaging in numerous activities that had
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`an effect in this District.
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`10. Moreover, a substantial portion of the transactions and wrongdoings that give rise to
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`the claims asserted herein occurred in the County of Santa Clara, such that this action is properly
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`assigned to the San Jose division of this Court.
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`Plaintiff
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`PARTIES
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`11.
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`Plaintiff is a current owner of Apple stock and has held the stock during the time of
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`Defendants’ continuous wrongful course of conduct alleged herein. Plaintiff will fairly and
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`adequately represent the interests of the shareholders in enforcing the rights of the Company.
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`Nominal Defendant
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`12.
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`Nominal Defendant Apple is a multinational technology company that designs,
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`develops, and sells consumer electronics and software in the U.S. and abroad. Apple is incorporated
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`in California with its principal offices located at One Apple Park Way, Cupertino, C.A. 95014.
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`Apple’s common stock trades on the NASDAQ under the ticker symbol “AAPL.”
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`Director Defendants
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`13.
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`Defendant Timothy D. Cook (“Cook”) is, and was at all relevant times, CEO of the
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`Company and a member of its Board of Directors (the “Board”).
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`14.
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`According to the Company’s latest Form DEF 14A filed with the SEC on January 8,
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`2019 (the “2019 DEF 14A”), in fiscal year 2017, Defendant Cook received $12,825,066 in total
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`compensation from the Company, which included $3,057,692 in salary, $9,327,000 in non-equity
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`incentive plan compensation, and $440,374 in all other compensation. In fiscal year 2018, Cook
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`received $15,682,219 in total compensation from the Company, which included $3,000,000 in
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 5 of 43
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`salary, $12,000,000 in non-equity incentive plan compensation, and $682,219 in all other
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`compensation.
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`15.
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`Defendant Arthur D. Levinson (“Levinson”) is and has been the Company’s
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`Chairman of the Board since November 2011, has been a director since August 2000, and was the
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`Company’s co-lead director from 2005 to November 2011. Defendant Levinson is a member of the
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`Company’s Audit and Finance Committee.
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`16.
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`According to the 2019 DEF 14A, in fiscal year 2018, Defendant Levinson received
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`$567,188 in total compensation from the Company, which included $300,000 in fees earned or paid
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`in cash, $249,961 in stock awards, and $17,227 in all other compensation.
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`17.
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`Defendant James A. Bell (“Bell”) has been a director of the Company since October
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`2015 and is a member of the Audit and Finance Committee.
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`18.
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`According to the 2019 DEF 14A, in fiscal year 2018, Defendant Bell received
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`$362,665 in total compensation from the Company, which included $100,000 in fees earned or paid
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`in cash, $249,961 in stock awards, and $12,704 in all other compensation.
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`19.
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`Defendant Albert Gore, Jr. (“Gore”) has been a director of the Company since
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`March 2003 and is a member of the Nominating and Corporate Governance Committee and its
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`Compensation Committee.
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`20.
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`According to the 2019 DEF 14A, in fiscal year 2018, Defendant Gore received
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`$358,543 in total compensation from the Company, which included $100,000 in fees earned or paid
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`in cash, $249,961 in stock awards, and $8,582 in all other compensation.
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`21.
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`Defendant Andrea Jung (“Jung”) has been a director of the Company since January
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`2008 and is a member of the Nominating and Corporate Governance Committee and the Chair of
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`its Compensation Committee.
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`22.
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`According to the 2019 DEF 14A, in fiscal year 2018, Defendant Jung received
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`$403,106 in total compensation from the Company, which included $130,000 in fees earned or paid
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`in cash, $249,961 in stock awards, and $23,145 in all other compensation.
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`23.
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`Defendant Ronald D. Sugar (“Sugar”) has been a director of the Company since
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`November 2010 and is the Chair of the Audit and Finance Committee.
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 6 of 43
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`24.
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`According to the 2019 DEF 14A, in fiscal year 2018, Defendant Sugar received
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`$409,461 in total compensation from the Company, which included $135,000 in fees earned or paid
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`in cash, $249,961 in stock awards, and $24,500 in all other compensation.
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`Defendant Susan L. Wagner (“Wagner”) has been a director of the Company since
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`July 2014 and is a member of the Audit and Finance Committee.
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`According to the 2019 DEF 14A, in fiscal year 2018, Defendant Wagner received
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`$353,181 in total compensation from the Company, which included $100,000 in fees earned or paid
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`in cash, $249,961 in stock awards, and $3,220 in all other compensation.
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`Defendants Cook, Levinson, Bell, Gore, Jung, Sugar, and Wagner are collectively
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`referred to herein as the “Director Defendants.”
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`Former Director Defendant
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`28.
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`Defendant Robert A. Iger (“Iger”) was a director of the Company from November
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`2011 until September 10, 2019, during the entirety of the Relevant Period. Prior to his departure,
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`Defendant Iger was the Chair of the Nominating and Corporate Governance Committee and a
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`member of its Compensation Committee.
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`29.
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`According to the 2019 DEF 14A, in fiscal year 2018, Defendant Iger received
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`$377,881 in total compensation from the Company, which included $125,000 in fees earned or paid
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`in cash, $249,961 in stock awards, and $2,920 in all other compensation.
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`30.
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`31.
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`Defendant Iger is referred to herein as the “Former Director Defendant.”
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`Except as to issues of demand futility, for ease of reference, the Director Defendants
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`and Former Director Defendant are collectively referred to herein as the “Director Defendants.”
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`Officer Defendants
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`32.
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`Defendant Luca Maestri (“Maestri”) has been the Company’s Senior Vice President
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`and Chief Financial Officer (“CFO”) since May 2014. Defendant Maestri was previously the
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`Company’s Vice President and Corporate Controller from March 2013 to May 2014.
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`33.
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`According to the 2019 DEF 14A, in fiscal year 2017, Maestri received $24,141,615
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`in total compensation from the Company, which included $1,019,231 in salary, $3,109,000 in non-
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`equity incentive plan compensation, and $20,000,113 in stock awards. In fiscal year 2018, Maestri
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 7 of 43
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`received 26,509,692 in total compensation from the Company, which included $1,000,000 in salary,
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`$4,000,000 in non-equity incentive plan compensation, and $21,491,888 in stock awards.
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`35.
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`Defendant Maestri is referred to herein as the “Officer Defendant.”
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`The Director Defendants (including, as discussed above, Defendant Iger) and Officer
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`Defendant are collectively referred to herein as the “Defendants.
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`APPLE’S CORPORATE GOVERNANCE
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`36.
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`As members of Apple’s Board, the Director Defendants were held to the highest
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`standards of honesty and integrity and charged with overseeing the Company’s business practices
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`and policies and assuring its integrity.
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`The conduct of the Director Defendants complained of herein involves a knowing
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`and culpable violation of their obligations as directors and officers of Apple, the absence of good
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`faith on their part, and a reckless disregard for their duties to the Company and its investors that the
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`Director Defendants were aware posed a risk of serious injury to the Company.
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`38.
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`Apple’s Committees include only a Nominating and Corporate Governance
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`Committee, an Audit and Finance Committee, and a Compensation Committee.
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`Apple has no Grievance Committee, Risk Committee, Corporate Compliance
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`Committee, Ethics Committee, or Human Rights Committee, among other omitted Committees.
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`DEFENDANTS’ FIDUCIARY OBLIGATIONS AND LEGAL RESPONSIBILITIES
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`40.
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`The Defendants, because of their positions with the Company (as directors and/or
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`executive officers), possessed the power and authority to control the contents of Apple’s public SEC
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`filings, statements to investors, and presentations to analysts and other market participants.
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`They were provided with copies of the Company’s reports, statements, and press
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`releases alleged herein to be misleading prior to or shortly after their issuance, or knew and/or were
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`responsible for their contents, and therefore had the ability and opportunity to prevent their issuance
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`or cause them to be corrected. Because of their positions with the Company and their access to
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`material non-public information available to them but not to the public, the Defendants knew that
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`the adverse facts specified herein had not been disclosed to and were being concealed from the
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`public and that the positive representations being made were then materially false and misleading.
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`They had an obligation to prevent the dissemination of such information and ensure its accuracy,
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`under the federal securities laws and common law.
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`42.
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`The Director Defendants especially, as members of Apple’s Board, were held to the
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`highest standards of honesty and integrity and charged with overseeing the Company’s business
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`practices and policies and assuring the integrity of its financial and business records.
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`43.
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`By reason of their positions as directors of the Company, and because of their ability
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`to control the business and corporate affairs of Apple, the Director Defendants owed Apple and its
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`investors the fiduciary obligations of trust, loyalty, and good faith. The obligations required the
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`Director Defendants to use their utmost abilities to control and manage Apple in an honest and
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`lawful manner. The Director Defendants were and are required to act in furtherance of the best
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`interests of Apple and its investors, including in the use and preservation of its property and assets
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`(including goodwill).
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`44.
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`In addition, as directors of a publicly held company, the Director Defendants had a
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`duty to promptly disseminate accurate and truthful information with regard to the Company’s
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`operations, finances, and financial condition, as well as present and future business prospects, so
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`that the market price of the Company’s stock would be based on truthful and accurate information.
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`45.
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`To discharge their duties, the Director Defendants were required to exercise
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`reasonable and prudent supervision over the management, policies, practices, and controls of the
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`affairs of the Company, including to:
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`(a)
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`ensure that the Company complied with its legal obligations and
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`requirements, including acting only within the scope of its legal authority and
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`disseminating truthful and accurate statements to the SEC and the investing public;
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`(b)
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`conduct the affairs of the Company in an efficient, businesslike manner so as
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`to make it possible to provide the highest quality performance of its business, to
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`avoid wasting the Company’s assets, and to maximize the value of the Company’s
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`stock;
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`(c)
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`properly and accurately guide investors and analysts as to the true financial
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`condition of the Company at any given time, including making accurate statements
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 9 of 43
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`about the Company’s business prospects, and ensuring that the Company maintained
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`an adequate system of financial controls such that the Company’s financial reporting
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`would be true and accurate at all times;
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`(d)
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`remain informed as to how Apple conducted its operations, and, upon receipt
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`of notice or information of imprudent or unsound conditions or practices, make
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`reasonable inquiries in connection therewith, take steps to correct such conditions or
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`practices, and make such disclosures as necessary to comply with federal and state
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`securities laws;
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`(e)
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`ensure that the Company was operated in a diligent, honest, and prudent
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`manner in compliance with all applicable federal, state and local laws, and rules and
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`regulations; and
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`(f)
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`ensure that all decisions were the product of independent business judgment
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`and not the result of outside influences or entrenchment motives.
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`46.
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`The conduct of the Defendants complained of herein involves a knowing and
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`culpable violation of these obligations, the absence of good faith on their part, and a reckless
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`disregard for their duties and legal obligations to the Company and its shareholders of which the
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`Defendants were, or should have been, aware, and which posed a risk of serious injury to the
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`Company.
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`47.
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`The Defendants violated their obligations and/or duties by personally making and/or
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`causing the Company to issue false and misleading statements regarding the Company’s business
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`prospects and key products. As a result, Apple has expended, and will continue to expend,
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`significant sums of money related to regulatory investigations and private lawsuits in the U.S. and
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`abroad.
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`SUBSTANTIVE ALLEGATIONS
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`48.
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`Apple released its first iPhone model in 2007. Since then, Apple has released more
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`than fifteen new versions of its iPhone and the iPhone has become Apple’s largest source of revenue
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`by product type. In fiscal years 2017 and 2018, iPhone sales accounted for approximately 62% and
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`63% of Apple’s net sales, respectively.
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 10 of 43
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`49.
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`The Chinese market (Greater China) is Apple’s third-largest market segment after
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`the Americas and Europe, accounting for approximately 20% of Apple’s total sales during its fiscal
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`year 2018.
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`50.
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`Recent economic factors have threatened Apple’s ability to maintain iPhone sales
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`growth in China, including the emergence of substantially cheaper Chinese smartphone competitors,
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`a growing trade war with the United States involving reciprocal tariffs on goods, and a significant
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`slowdown of the Chinese economy.
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`51.
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`In addition, in 2017, Apple became involved in a widely publicized scandal where it
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`was caught releasing operating system updates that purposefully (and secretly) slowed down, or
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`“throttled,” the performance of its older iPhone models. This had the likely intended effect of
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`causing consumers to falsely believe that their older models were obsolete and that they needed to
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`purchase newer iPhone models. In the short term, this artificially boosted sales of new iPhones
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`during 2017, a fact that Apple touted to investors without explaining its true cause.
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`52.
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`After being caught sabotaging phones, the Defendants were forced to admit their
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`(and the Company’s) misconduct. Apple blamed the incident on its failed attempt to correct poor
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`battery performance in its older model iPhones by limiting the phones’ power consumption, with
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`the effect of slowing down performance. Researchers and private investigators were not convinced
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`by this excuse. Public outcry, lawsuits, and regulatory investigations in the United States and abroad
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`followed.
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`53.
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`For example, since December 2017, iPhone owners worldwide have filed more than
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`sixty consumer fraud lawsuits against Apple for allegedly throttling their phones and lying about it.
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`Many of these cases have been filed as class actions in the United States and consolidated in the
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`Northern District of California. See In re Apple Inc. Device Performance Litigation, 18-md-02827-
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`EJD (N.D. Cal.).
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`54.
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`Plaintiffs there seek, among other things, appropriate injunctive relief, including an
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`order requiring Apple to modify the iOS to prevent it from intentionally degrading the performance
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`and battery life of the Subject iPhones; prohibiting Apple from throttling future iPhone models,
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 11 of 43
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`particularly without the express consent of affected consumers; and requiring Apple to tell iPhone
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`users that the iOS and iOS updates on the phones throttled the phones’ performance.
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`55.
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`56.
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`These cases are ongoing after a motion to dismiss was denied in part.
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`In October 2018, Italy’s antitrust regulator fined Apple 10 million Euros for hiding
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`the truth regarding its throttling of iPhones.
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`57.
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`Apple’s most recent Form 10-K filed with the SEC on October 31, 2019 states:
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`Various civil litigation matters have been filed in state and federal courts in the U.S.
`and in various international jurisdictions alleging violation of consumer protection
`laws, fraud, computer intrusion and other causes of action related to the Company’s
`performance management feature used in its iPhone operating systems, introduced
`to certain iPhones in iOS updates 10.2.1 and 11.2 [i.e., the throttling issues]. The
`claims seek monetary damages and other non-monetary relief. On April 5, 2018,
`several U.S. federal actions were consolidated through a Multidistrict Litigation
`process into a single action in the U.S. District Court for the Northern District of
`California. In addition to civil litigation, the Company is also responding to
`governmental investigations and requests for information relating to the performance
`management feature.
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`58.
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`In the immediate aftermath of the “throttling” scandal, Apple attempted to repair its
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`damaged reputation with consumers by offering them heavily discounted battery replacements for
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`its older iPhone models, dropping the price from $79 to $29 during 2018. This had the opposite
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`effect as the throttling itself, of cannibalizing new iPhone sales as consumers waited to upgrade or
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`stopped upgrading altogether, a fact that Apple refused to concede or acknowledge to investors.
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`DEFENDANTS’ FALSE AND MISLEADING STATEMENTS
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`59.
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`During the Relevant Period, the Defendants, on behalf of Apple, touted record
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`iPhone sales, while failing to attribute such sales to their unsustainable, non-organic cause: the
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`temporary surge of customers who fell for Apple’s “planned obsolescence” and purchased new
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`iPhones rather than replacement batteries. These sales would soon be cannibalized by Apple’s
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`discounted battery replacement program. The Defendants also touted growing iPhone sales in China,
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`while failing to acknowledge that such sales were threatened by macroeconomic conditions such as
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`the escalating U.S.-China trade war, rise in cheap Chinese smartphones, and general decline in the
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`Chinese economy. Even as analysts and investors asked pointed questions about these potential
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`negative factors on future iPhone sales and attributable revenues, the Defendants denied the
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 12 of 43
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`existence of such factors or their negative impacts on sales and revenues. They also issued sales and
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`revenue guidance that they knew, or should have known, lacked a legitimate basis and that
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`ultimately needed to be significantly restated, costing the Company and its shareholders billions of
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`dollars.
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`60.
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`On August 1, 2017, Apple issued a press release and related data sheet regarding its
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`financial results for its fiscal year 2017 third quarter ended July 1, 2017, which were appended as
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`exhibits to a Form 8-K filed with the SEC that same day. During the third quarter, Apple reported a
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`7% increase in year-over-year revenue. Apple also provided revenue guidance for the upcoming
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`quarter of $49 to $52 billion.
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`61.
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`The press release stated, in pertinent part:
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`The Company posted quarterly revenue of $45.4 billion and quarterly earnings per
`diluted share of $1.67. These results compare to revenue of $42.4 billion and earnings
`per diluted share of $1.42 in the year-ago quarter. International sales accounted for
`61 percent of the quarter’s revenue.
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`“With revenue up 7 percent year-over-year, we’re happy to report our third
`consecutive quarter of accelerating growth and an all-time quarterly record for
`Services revenue,” said Tim Cook, Apple’s CEO. “We hosted an incredibly
`successful Worldwide Developers Conference in June, and we’re very excited about
`the advances in iOS, macOS, watchOS and tvOS coming this fall.”
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`“We reported unit and revenue growth in all our product categories in the June
`quarter, driving 17 percent growth in earnings per share,” said Luca Maestri, Apple’s
`CFO. “We also returned $11.7 billion to investors during the quarter, bringing
`cumulative capital returns under our program to almost $223 billion.”
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`62.
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`The data sheet listed iPhone sales of 41.0 million units during the third quarter 2017,
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`which was up from 40.4 million units sold in the same quarter of the previous year. Revenues from
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`iPhone sales were $24.8 billion, accounting for approximately 55% of the Company’s total quarterly
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`revenues of $45.4 billion. Revenues from total sales in Greater China were $8.0 billion, or
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`approximately 18% of total global revenues (compared with 24% of revenues from European sales
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`and 45% from sales in the Americas).
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`63.
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`During a conference call with analysts held later that day, Defendant Cook discussed
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`the “especially strong demand” for the newest iPhone models and noted that the upgrade rate for
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`fiscal year 2017 was the “highest that we’ve seen.” Defendant Cook attributed the high upgrade rate
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`VERIFIED SHAREHOLDER DERIVATIVE COMPLAINT
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`Case 5:19-cv-08246-VKD Document 1 Filed 12/18/19 Page 13 of 43
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`to “a function of many, many different things,” including the “size of the installed base, the age of
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`the installed base, the product that is new at the time, the regional distribution, [and] the upgrade
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`plans that are in various markets around the world.” Notably, Defendant Cook did not mention
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`Apple’s undisclosed throttling of the performance of older iPhone models as one such factor, leading
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`investors to falsely believe that the strong iPhone demand and high upgrade rates were simply the
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`product of organic and sustainable market factors.
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`64.
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`Defendant Maestri added that, “[a]mong customers planning to buy a smartphone,
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`purchase intention for iPhone was nearly three times the rate of our closest competitor.” As with
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`Defendant Cook, Defendant Maestri made no mention of throttling and its temporary boost in new
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`iPhone sales.
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`65.
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`On November 2, 2017, Apple issued a press release and related data sheet regarding
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`its financial results for its fiscal year 2017 fourth quarter ended September 30, 2017, which were
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`appended as exhibits to a Form 8-K filed with the SEC that same day. During the fourth quarter,
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`Apple reported a 12% increase in year-over-year revenue. Apple also provided revenue guidance
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`for the upcoming quarter of $84 to $87 billion.
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`66.
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`The press release stated, in pertinent part:
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`The Company posted quarterly revenue of $52.6 billion, an increase of 12 percent
`from the year-ago quarter, and quarterly earnings per diluted share of $2.07, up 24
`percent. International sales accounted for 62 percent of the quarter’s revenue.
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`“We’re happy to report a very strong finish to a great fiscal 2017, with record fourth
`quarter revenue, year-over-year growth for all our product categories, and our best
`quarter ever for Services,” said Tim Cook, Apple’s CEO. “With fantastic new
`products including iPhone 8 and iPhone 8 Plus, Apple Watch Series 3, and Apple
`TV 4K joining our product lineup, we’re looking forward to a great holiday season,
`and with the launch of iPhone X getting underway right now, we couldn’t be more
`excited as we begin to deliver our vision for the future with this stunning device.”
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`“Apple’s year-over-year revenue growth rate accelerated for the fourth consecutive
`quarter and drove EPS growth of 24 percent in the September quarter,” said Luca
`Maestri, Apple’s CFO. “We also generated strong operating cash flow of $15.7
`billion and returned $11 billio