they are now at the time they make that announce that they were substantially below expectations and then they talk about earnings and revenue ministers in specific numbers so this case is not about some downturn in the market a process to withstand the district court found particularities in light of the defect memo that we didn't need to name the number of customers affected especially when you're talking about the operating system that wasn't available to anybody if celebrated are not statements in the context of a transition that affects twenty five percent of your of your revenues that those weren't mere puffery statements at the time so we start off with what the district ten and they're currently doing another one they have to be innovative to survive that's what they say and they have to have new products to do that in the pipeline at this time it had been two and a half years before they had a new product coming out the stock was drifting down they just missed fifty thousand units in their imax sales and key is that they the quarter before had started transitioning their sales their school sales in house now that's a business decision whether that's right or wrong we don't quarrel with them you make a decision to bring it in house those people have been with apple for twenty years and printed agents that's that that's a decision apple makes a management decision when they make that decision and they tell those people and then they know that those people are going to sell everything they can in that corner because that's it for them they're out and they're not going to build the pipeline and those people a bunch of them come almost half of apple's in house sales force is made up of workers from those fifty independent agents so they know what have they made that announcement the stand the sales transition is occurring and now apple's got a problem they've got two new products coming out this time close to drive sales for the back to school and christmas time period that's what phil schiller says from apple on july twenty fifth those are apple words that these new products will drive the sales for the quarter and what happens if the products aren't right we've got twenty nine witnesses talking about the pro manager for material manager of the project as i managers we specifically named people that met with we tell how jobs got into the lab what they knew when they knew it who they told it to and what the constraints were on the  and the district court noticed some of them thak what the district court not was going into the class period the fifty percent reject great that put things off the faulty on off switch the cracks in the cube noted by c w sex line shutdown after after the start of the period from one to two weeks and whether to end the debate whether to ship it all c w can noted that these were a known issue internally now remember who's named as the defendant here only known issue it's listed as a class a drug as the district court found outlined stopping type and reported throughout the company and you have the hot people hands on doing something about it i think that you have so let's step back to see what the district court look at the district court the defense argues that the manufacturing problems with new products were minor and not unusual to district court its original order which adopted as it moved to a second order and then repeat now the district court said no that's the allegation above plus the rubinstein defect memo issued in august which talked about the fusion profession the faulty switch and the dual processor problem and was circulated to production when you're starting something and to get it out the door and defend it's later admitted it was the start that was slow they couldn't make enough juice and we have the materials manager c w thirty seven and she including now that they received it that it talked about the specific key facts about the q gym perfections about the functionality problem of the on off switch and about the dual processor problems with the operating system ok those are different documents and those are different tracking systems that they had this is a specific memo that went out right before they sold and you mentioned you talked about the two perfections as far as the plastic formation the functionality when they when they first sent it out the software that was available there was only long operates just another hack could only use one of the climb and in fact it was worse than that because of that there were knocking each other off and that was a problem with that product and constrain the sales of that product the system that was supposed to be issued with a zero zero s ten the operating system didn't get out for another six to eight months so when the first product first came out it was no faster than a single processor they available and i said it was worse than just a single because the people inside said it was knocking each other off didn't understand that to be your allegation i understood your allegation of either to put out this product that has used two processors but that the other providers guy who according to the newspaper articles that are in the complaint wants to know if there's magnets on the back of the door if you compare this case to oracle larry ellison who is also known as a hands on guy job just twice and they again said hey those people were deeply involved in deciding how to hook some of the revenue things like that jobs just twice hands on he's in the laboratory checking on the machines and if they're going to get out he's the guy that goes forward and talks about the machines nicely and then later in august september that it was accelerating that those were not mere puffery ok how did they know the question is because i've got to meet the so i understand are a strong influence of science who is from canada who said it dropped by twenty percent with the transition when the sales dropped twenty percent with the transition paragraph one forty seven w six they identify weekly sales reports tell what's in units sold and revenue and they tell exactly what's going on at the time and at the time at the start was nothing in the pipeline not unusual thank you fired everybody jobs later admission says hey this was a train wreck when our new people got there when our new people got there there was nothing in the pipeline so he admits later that it happened at the start that at the start of this transition there was nothing there for them to build on and with these good you thought you mentioned you wanted to reserve some time i  please the court i am george riley i represent the defendants apple computer and its founder and c e o steve jobs i'm joined by david eberhard may it please the court this case arises solely from the fact that apple missed it revenue target by about eight to nine percent and announced this on september twenty eighth two thousand there are no allegations of accounting fraud there were no revelations of corporate m there wasn't a product recall there wasn't a single consumer lawsuit about the products that is shit instead of year later the plane is sued and claim that apple somehow knew in advance that lower than expected sales and four separate areas would converge on what the plaintiffs call a perfect storm you know the bad news came out on so covered twenty eight that's correct and what fifteen days earlier was still predicting they were going to be on target but mr jobs that on september thirteenth he was asked a question about the cube and the question was when to stand there spot shortages demand in excess of supply and he says we don't predict profits or losses but with regard to the q if there are shortages in must be because demand is in excess of supply we think we will hit our forecast again with regard to the q and the record is very clear about that you're on what does that mean we're the cube in august the first week of august mr jobs said in july on july nineteenth the product will ship in august and unlike so many cases that have been dismissed on security ground this product shipped when it was announced it shipped in august and according to the record again page three fifty one three seventy seven apple began shipping in quantity three thousand cubes a day and by mid august was ramping up to five thousand today so given the number of shipping days when mr jobs was asked this question apple would have shipped between seventy and eighty thousand cute with the remaining number of days he spoke the second week of september at the rate of five thousand a day they could have easily met the hundred fifty thousand number unfortunately demand for this innovative new product flattened out apple sol hundred seven thousand cubes instead of one hundred fifty but is this court held in lipton the failure to anticipate computer consumer demand for a new and innovative product is not securities fraud when the senate of the united states passed the securities reform act they recognized that it failed product launch is not securities fraud the question is have the individuals the officers of apple make deliberate statements to mislead their shareholders knowing the statements were false knowing that were well let's look at the record on that point and page twenty five the district court in discussing the alleged flaws with the cube  point nothing in the record reflects on steve jobs mental state when he made the statements that he did on july nineteenth the only communication the only communication with mr jobs  alleged with any degree of particularities is with an engineer c w five and she got the five reports steve jobs said let's get these problems fixed let's get it resolved and let's get this product launched before macworld on july nineteenth so what the record suggests is you have a c e o working intensely with his engineers and he is confident confident they can resolve the problems and the product will be a great success as this an honest optimism that the product would would sell well there are five separate areas that support that honest optimism first as mentioned mr jobs was working with an engineering team that had repeatedly delivered successful products he had every grounds for confidence in that team second apple entered into two hundred sixty thousand two hundred sixty million dollars worth of supply component agreements for the cute apple would never have entered in to these long term supply contracts if it knew the product would fail as they allege three when the product premiered it had outstanding reviews every commentator every analyst  cited in the record praises the cute for its beauty and its power five when the product shipped on time according to the analyst at three seventy seven three seventy eight demand was  ultimately apple did not make its target of one hundred fifty thousand but that failure as this court having left and does not constitute securities fraud all of the facts recently construed  september thirteenth so there are a couple weeks in the september the record is unequivocal they were shipping three to five thousand cubes a day at that rate by the second week of september they were on numbers apple shipping begin to ship in the first week of august what have shipped by the second week of september approximately eighty thousand seven hundred eighty thousand cubes they had three more weeks of shipping left in that quarter unfortunately demand flattened out and they only got two hundred seven thousand cute but your honor the chief here is what mr jobs you know on september thirteenth and what possible what possible motive would he had to mislead the market there were no stock sales not a single dependent in this case not a single speaker in this case sold stock in every c which this court has reversed and found sufficient evidence of science are two factors were present number one that was particular facts about what was known on a contemporaneous basis and what the speaker knew at that time that was not just mere negligence whereas in d c m a spell you're just see the obvious but what did they actually know that would indicate that they were deliberately misleading the market and second what motive the standard for statements such as the alleged statement by mr oppenheimer would be deliberate recklessness but with regard to mr jobs the statement he is looking to the future he's saying i think it's a qualified statement i think we will hit our fo t i think we will meet our forecast that requires the high is showing a showing that mr jobs knew that his statement was false and the planets don't meet that in fact they have never alleged a motive not a motive just to do well to drive apple stock price which of course is the motive for completely legitimate behavior but a motive for the interest of mr jobs in the other accused officers from the interest of the shareholders mr jobs did not sell a single share of stock mr oppenheimer and this to andersen did not sell a single share of stock this case is unique there is no motive for these alleged deliberate misstatements in this to frontline service representatives the people who answer the phone and apple and handle customer complaints not product the fact memo that was never alleged in the first complaint later they changed that title doesn't come from any w it comes from the attorneys according to silicon graphics they must lead with great particular to the actual content the recipient and the author of that memo they come nowhere close to that they generally describe that related to flaws in a product and ways of handling complaints well all new and innovative products face those types of challenges and a way of handling complain in no way indicates that after all that mr jobs and mr anderson somehow knew the product wouldn't be successful there's nothing at all alleged in that memorandum to suggest that there was are not identified author is not identified and silicon graphics there were cypriots were the defendants in the speakers that memorandum was insufficient here this memorandum doesn't even begin to reach the threshold of silicon graphics n oracle there were sales of almost one billion dollars in stock by the defendants by the defendants in this case zero sales by mr jobs zero sales by any person who allegedly made a misleading statement distinction number two in oracle there was accounting fraud accounting fraud there is no positive inference that can be drawn from accounting fraud there's no basis for honest optimism about accounting fraud but there was accounting fraud in oracle in this case there is no intimation whatsoever of accounting fraud number three in or accounted for their minutes they missed their revenue target and one quarter were primarily for sales force they all accounted for seventy five percent of the mess all four of those sales occurred early in the quarter contrast apple's fourth quarter ends on september thirtieth and in apple's fourth quarter all the analysts agree in this is that pages three fifty one three fifty seven and three seventy eight september is the key to apple's  and there's nothing in this record that would suggest that in july when the statements were allegedly made that were misleading that those speakers could somehow foresee what would happen later in september nothing in the record whatsoever and for oracle it was a great particularities about the allegations of communications speed of use that were cited in that case actually knew about the alleged accounting fraud the contents of the documents were played with particularly and in fact copies of the documents were made available for the court to review none of that in this case none of it whatsoever so oracle illuminates the insufficiencies in this in this case i'd like to respond briefly to the education allegations this is the one statement that the plaintiffs point to that would have to meet the reckless disregard standard and that's mr oppenheimer statement on july eighteen the sales force reorganization was progressing nicely now that is one day before the class period according to the complaint the alleged fraud relates to statements made during the class period and under the second circuit decision i reorganization began that quarter and apple sales in education increased by fourteen percent over the previous quarter over the same quarter in the previous year and in the words education sales had gone well second mr oppenheimer knew and this is undisputed in the record that higher education sales force reorganization had taken place the year before and that had gone very well so when he spoke on the day before the class period july eighteenth the facts that were available to him would suggest that in that in truth the realization had gone well sales were up it followed the same pattern as in higher education well then what is the turning to the dual processor the plaintiff's theory of the dual processor as the court recognized is that apple charged too much for a product that has a second processor when few software titles were available to make use of the dual processor again their own facts contradict that theory as of course recognize the second process was added for free importantly the most important software title to the high end computer market that uses the dual processor  combination for the consumer number three apple released on september thirteenth misses it page three sixty nine of the record apple released its public version of macro s ten which makes use of the second processor so apple could reasonably conclude just as the district court did that a processor that was added for free that ran the most important application that ran the early version of macro  billion dollars in the previous year and steve jobs a new management team returned to the company and by taking a risk by investing in new and innovative products they delivered twelve quarters  profitability including the class period which saw increased revenues and increased profits and today that very same management team has just delivered the most outstanding quarter in apple's history but not every innovative new product can be a success when congress passed the reform act it intended to encourage forward looking statements about a company's prospects and its product statements much as mr jobs made on august thirteenth much as mr anderson made on the day before the class period on july eighteenth congress afforded protections by requiring that the plaintiffs show a strong inference that the speakers were deliberately misleading the shareholders knowingly false state knowingly false statements nothing in this record separates mr jobs as honest optimism perhaps misplaced but honest percent sequential growth they say although they didn't give guidance as to a p s well they gave the margins it climbed down two percent to twenty six point eight to twenty seven they gave the operate in a sense increased fifteen million and they what was the motive for all of them all to fall this is that they had to get the new products out they were declining they just missed fifty thousand sales in imax they had gone through with the sales force transition which they would have done there's no doubt they were hoping that these products would work and make it it just didn't happen as a seed of you say it stretched out from six months to twelve months trying to make this cute he says there was no consumer suits or any of the stuff they canceled a few within a year they were working on the problems all the time and it's just the opposite what he said demand according to c w thirty one outstrip supply and well into two thousand and one in other words when job spoke and said if you can't find them it's because you know or spelling so many know they and the motive was they had to have new products to drive the sales over their words not mine they spoke those words on july twenty sixth but these products were expected to drive this across the sales and then that's not all that's just i think if we're going to i think we're going to hit our forecast for this quarter i don't think it's just limited the q and i don't think they get that inference at this stage most of the arguments you just said we did this we were trying to do this we hope to do that you know for example when he talked about the cave wall well you know they've done it with a higher education why not now we have specific facts here why that transition was not going good at the time that there was no pipeline when they got there and then we have jobs a mission