(CN) - Though allegedly misleading, optimistic statements about the financial health of Intuitive Surgical Inc., the maker of robotic surgical devices, are not actionable, the 9th Circuit ruled.
The decision Wednesday upholds a dismissal of a securities complaint by U.S. District Judge Lucy Koh.
The Police Retirement System (PRS) of St. Louis (PRS) had alleged that Intuitive executives inflated share prices from February 2008 through January 2009 by making false statements about the company's growth and financial health.
Intuitive sells hospitals systems and instruments for robotic surgeries, including the da Vinci Prostatectomy and da Vinci Hysterectomy procedures. The systems were first introduced in 1999 and Intuitive's revenue grew continuously through 2007. The company's share price closed at $353 in December 2007.
That share price dropped to $280.50 by the end of the first quarter of 2008 and revenues kept falling until January 2009 when the share price closed at $110.54.
PRS alleged that Intuitive knowingly misrepresented its financial situation in a 2007 annual report filed with the SEC, as well as in four analyst calls in 2008.
Intuitive's executives allegedly had access to adverse undisclosed information about the company's operations, and should therefore have known that the placement of the company's systems was decreasing, shareholders claimed.
They also said statements about increased revenue were misleading because known trends - including the fact that revenues increased because of price increases rather than more sales - were not disclosed. Intuitive had also allegedly been overly optimistic about skirting the economic crisis and did not disclose the true rate at which da Vinci Prostatectomy procedures decelerated.
PRS claimed that these representations "misled investors about the sustainability of system placement growth ... and [r]ecurring revenue growth."
Writing for a three-judge panel of the 9th Circuit, Judge M. Margaret McKeown found that many of the alleged misstatements fell within the safe harbor of the Private Securities Litigation Reform Act, which exempts forward-looking statements that are accompanied by meaningful cautionary statements.
Statements made during the analyst calls, such as "we continue to expect dVP
procedures to grow approximately 40%," and "we are now forecasting our system revenue to grow 45-46% over 2007," were plainly project expectations for future growth, McKeown found.
Cautionary language accompanying those forward-looking statements was sufficient, as it said that actual results may differ from those express or implied, according to the ruling. Those statements also cautioned investors not to place undue reliance on the forward-looking statements, the San Francisco-based court said.
Other statements Intuitive made - including that the opportunity for system placement at hospitals "is still very, very large," and that the company is "reservedly optimistic" about sales - were nonactionable, as they were "mere corporate puffery," the circuit found.
As to the 2007 annual report, the court found no issue with Intuitive's alleged omission of important details, including the decline of system placement due to market saturation and the economic downturn.
"The securities laws do not demand such reporting," McKeown wrote. "Rule 10b-5 prohibits 'only
misleading and untrue statements, not statements that are incomplete.'" (Emphasis in original.)
Intuitive's 2007 report accurately reflected the company growth in that year and would not give a reasonable investor the impression that Intuitive's growth was different than it was in reality, the court found.
"Despite nearly 600 allegations contained in the over 300-page complaint, the company's statements are, in large part, forward-looking statements or garden variety corporate optimism - neither category is actionable under the securities laws," McKeown wrote. "The complaint is also deficient in suggesting that the executives made false statements with knowing or reckless disregard for Intuitive's economic circumstances."