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Now letâs take a look at the most interesting legal developments since we last saw you.
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DISCLOSURE
Tesla Verdict Reveals Thin Line Between Optimism And Fraud
Why weâre paying attention⌠Tesla's new legal verdict is an excellent case study on the fine line companies walk when making bold statements about their products and future prospects. On one side of the line, companies make bold claims and express optimism about their future. On the other side, they risk misleading investors by promising more than they can deliver or hiding significant risks. This case helps clarify where that boundary lies.
Elon Musk scored a legal win on Monday after a federal judge in San Francisco dismissed a lawsuit against Tesla.
The case accused both Musk and his company of making misleading statements about the companyâs self-driving technologies.
While the plaintiffs argued that these statements amounted to fraud, the judge struck down their claims on multiple grounds.
We all know that corporate leaders make bold claims about the companies they represent.
But when do these bold claims drift into illegal territory?
A closer look at the arguments from yesterdayâs ruling offers some precious insightâŚ
Ainât no harm in hoping
One major claim put forward by the claimants was that Musk and Tesla made misleading statements about the companyâs full self-driving technology.
Musk, for instance, said âI think we will be feature complete, full self-driving, this year,â in 2020, and promised that self-driving robotaxis were around the corner.
Previously Musk claimed that customers would be able to âgo to sleepâ in their cars by 2020.
These promises, among others, never materialized.
But the judge anchored this part of the case in the âPSLRAâ safe harbor.
The PSLRA (Private Securities Litigation Reform Act) protects âforward looking statementsâ and optimistic predictions from liability.
It means companies can say things like âweâre expecting profits to skyrocket after we enter the pet meditation marketâ and not get sued out of existence if it doesnât come true.
Puffed up claims
Claimants werenât just unhappy about Teslaâs claims of future greatnessâthey lodged complaints about Teslaâs claims of present capabilities.
For example, Musk and Tesla made several statements about the safety of their vehicles.
Specifically, that âTesla cars are âabsurdly safe,ââ autopilot is âsuperhuman,â and that âwe want to get to as close to perfection as possible.â
Investors say these claims were misleading and that they lost money as a result of their impact on Teslaâs stock price.
The judge, however, ruled that most of these statements were ânon-actionable statements of corporate puffery.â
Puffery is when a company makes a vague statement of positivity that investors should not reasonably base their decisions on.
Examples of corporate puffery include:
We sell the tastiest burger in the midwest
This skincare cream will change your life
Our chocolate is so rich, it has its own offshore bank account.
Puffed up claims are not meant to be taken literally and cannot be proven or disproven.
An example of a claim that would be not exempted by puffery would be telling customers that your pumpkin spice kombucha won a taste test competition, when it actually did not.
The road to self-driving is paved with unprovable intentions
âScienterâ is a legal term that refers to the intent or knowledge of wrongdoing.
The plaintiffs also claimed that statements made by Tesla and Musk were made with the intention of deceiveâor, at the very least, were recklessly indifferent to the truth of their statements.
Confidential witnesses asserted that it was âabsolutely knownâ within Tesla that Musk's statements were exaggerations.
But evidence of intent has a high bar.
Ultimately the judge found that the witness statements lacked specificity regarding the knowledge of Teslaâs leadership.
Similarly, the evidence presented did not convincingly show that Musk knew his statements were false or that he was consciously ignoring the truth.
Finally...
One swallow does not make a summer
Public companies have a responsibility to offer investors accurate, complete, and truthful information.
In the United States, this is enshrined in law by Section 11 of the Securities Act of 1933.
More specifically, Section 11 requires companies to disclose any significant trend theyâre aware of that could impact their business.
The plaintiffs contended that Tesla violated Section 11 by failing to adequately disclose known trends and risks related to the safety of its self-driving technology.
How so?
Because there were reports of Teslaâs autopilot being involved in a high number of crashes.
Therefore, they argued that this information reflected a broad pattern of safety issues that Tesla did not disclose.
But the judge ruled that:
A few isolated incidents does not constitute a significant market trend
Tesla has publicly acknowledged the crashes and so this wouldnât count as a failure to disclose anyway
Speed Bumps Ahead
This ruling is a resounding win for Tesla and Elon Musk.
But the road ahead has plenty of potential potholes: the judgeâs dismissal was granted with leave to amend, allowing plaintiffs until October 30, 2024, to file an amended complaint.
Then thereâs the fact that Musk is engaged in a litany of other lawsuits across the country.
For our purposes, this case offers some great insight into the kind of claims that businesses are allowed to make without running afoul of the law.
SNIPPETS
đŚ¸ââď¸ Marvel and DC quietly let go of the "Super Hero" trademark. After decades of jointly guarding the term, the comic book giants have lost their exclusive rights. As we reported in our 6th edition back in May, a small company called âSuper Babiesâ filed a complaint, arguing that "Super Hero" had become a generic phrase and no longer suitable for trademark protection. On September 30th, the U.S. Trademark Trial and Appeal Board ruled in favor of Super Babies after neither Marvel's parent company, Disney, nor DC's parent company, Warner Bros., responded to the request to invalidate the trademark. The ruling places "Super Hero" in the public domain, securing its status as a universal symbol of heroism accessible to all storytellers and without fear of any villainous trademark lawsuits. Kapow! Copyright justice prevails.
đď¸ Miley Cyrus is being sued for allegedly ripping off Bruno Mars. On September 16th, a lawsuit was filed against Cyrus, claiming that her hit single Flowers borrows heavily from Mars' âWhen I Was Your Manâ. However, itâs not Bruno Mars himself whoâs behind the legal action. Instead, Tempo Music Investments, which owns a share of Mars' songâs copyright, has filed the suit, accusing Cyrus of copying not just the overall vibe but specific melodic, harmonic, and lyrical elements. Some might say this case could hit the music industry like a wrecking ball. Most analysis think this will fail given that there is a long tradition of artists taking inspiration from other artists, but if this succeeds If Tempo Music is successful, it could open the door for copyright share owners, rather than the artists themselves, to go after musicians for profit, sidelining the original creators in crucial decisions. Any judge that rules in favour of this case could hit the whole music industry like a wrecking ball.
đž MrBeast and Amazon sued over alleged exploitation in a $5m prize game show. On September 16th, five anonymous contestants filed a lawsuit against MrBeast's production company and Amazon, accusing them of unsafe working conditions and failure to pay wages during the filming of Beast Games. The lawsuit claims contestants endured "unsafe and unlawful employment conditions," including inadequate food, hydration, and medical treatment, with over a dozen participants hospitalized as a result. It also details allegations of physical injuries, misogyny, and sexual harassment. Beyond the personal harms inflicted, the case also accuses MrBeast and Amazon of tax fraud. Nevada granted the production $2 million in tax credits for featuring Nevada residents as contestants. However, the case alleges that the contestants were not actually from Nevada and that MrBeast and Amazon falsified their residential status to obtain the tax benefit. At this rate, it looks like more than one person could walk away with a sizable cash prize.
đ° Johnson & Johnson has filed for bankruptcy for the third time. On September 20th, a subsidiary of J&J, LTL Management, sought bankruptcy protection to address thousands of lawsuits alleging that J&Jâs talc-based products, including baby powder, caused cancer. The company has proposed an $8 billion settlement despite denying any wrongdoing and maintaining that its products are scientifically safe. If the court approves the subsidiaryâs bankruptcy status, all outstanding lawsuits against J&J from across the globe would be combined into the single $8bn settlement. This amounts to about 10% of J&Jâs annual revenue. Approval would also block any future lawsuits related to talc complaints, allowing J&Jâs main business to continue operating without liability. However, convincing the court may prove challenging, especially after the U.S. Supreme Court recently blocked Purdue Pharmaâs similar attempt to use bankruptcy to escape litigation, part of a broader effort to prevent financially robust companies like J&J from exploiting bankruptcy laws for legal protection.
đ Cards Against Humanity sues Elon Musk for trespassing. As one Musk-related lawsuit draws to a close, another opens. The Chicago-based games company, Cards Against Humanity, bought a plot of land on the US-Mexico border in Cameron County, Texas, back in 2017. The company originally made the purchase in order to frustrate President Donald Trumpâs plans to build a border wall. On September 24th, Cards Against Humanity filed a $15 million lawsuit against SpaceX, claiming that Muskâs rocket company has been damaging and trespassing on their land, effectively treating it as their own. SpaceX might be experts at defying gravity, but now their ability to defy land ownership laws will be put to the test!
đŚ Netflix failed to dismiss the defamation lawsuit over its Emmy Award-winning series, Baby Reindeer. A few months ago, Fiona Harvey, recently revealed as the real-life inspiration for the character Martha in Baby Reindeer, sued the streaming giant for allegedly spreading "brutal lies" to over 50 million viewers worldwide. The controversy stems from a key distinction: while creator Richard Gadd described the show as "based on a true story," implying some creative liberties, Netflix marketed it as "a true story," suggesting a fully accurate depiction. The court found Netflix disregarded Gaddâs reservations and demonstrated a âreckless disregardâ for the truth. It turns out that dropping a single word (in this case, âbasedâ) from your marketing can make all the difference between liability and immunity.
MEME
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The answer to todayâs âdid you knowâ isâŚ
True. In Blythe, California, cowboy boots are indeed a very serious matterâyou canât legally wear them unless you own at least two cows.
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