F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

I N R E : NVI DI A C O R

P O R A T I O N S E C U R I T I E S L I T I G

A T I O N ,

R O B E R T O C O H E

N ; N E W J E R S E Y C A R P E N T E R S P E

N S I O N A N D A N N U I T Y F U N D S , on behalf of themselves and all others similarly

situated, Plaintiffs-Appellants

,

v

.

NVI D I A C O R

P .; J E N -H S U N H U N A G ; M A R V I N D. B U R

K E T T , Defendants-Appellees

. N o. 11-17708

D.C. No. 3:08-cv-04260- RS

OPI NI ON

A ppeal from the United States District Court for the Northern District of California Richard Seeborg , District J udg e, Presiding

Arg ued and Submitted J anuary 14, 2014—San F rancisco, California

F iled October 2, 2014I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 2

B efore: Richard C. Tallman and Sandra S. I kuta, Circuit J udg e s, and B everly Reid O’Connell, District J udg e. *

Opinion by

J udg e O’Connell

SUMMARY * *

Securities F raud

The panel aff

i r m e d the district court’s dismissal of a securities fraud action ag ainst NVI D I A Corp., a publicly traded semiconductor company , and o ther d e f endants under §§ 10(b) and 20(a) of the Securities Ex chang e Act of 1934 and Securities Ex chang e Commission Rule 10b-5.

The amended complai n t a lleg ed that NVI DI A should h ave informed investors o f product defects earlier and th at

a b sent such a d isclosure, the company ’s intervening
statements reg arding its financial condition were misleading to investors.

The panel held that the pla i n t iffs failed adequately to alleg e scienter by stat ing with particularity f acts g iving r ise
to a strong inferen c e that the defendants acted with the required stat e o f m i nd, as required by the Private Securities L itig ation Reform Act, be c a u se they intentionally misled

* T h e Ho n o rab l e B ev erly Reid O’ Co n n ell, Un ited States District J u dg e f o r th e Cen t

ral District o f

Calif o rn ia, sittin g b y

d esig n atio n

.

** T h is su m m ary co n stitu

t es n o p ar t o f t h e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 3

investors, or wer e a t least deliberately reckless. A g reeing with the Third Circuit, the p anel held that the district court did not err by failing to consider plaintiff s’ alleg ations o f scienter in the contex t o f I tem 303 of Reg ulation S-K, C.F .R. § 229.303, be c a use I tem 303’s disclosure d uty is not actionable under § 10(b) and Rule 1 0b-5. The panel held that

none o f the plaintiffs’ a lleg ations of scienter created a strong inference of scienter individually and that, tog ether, they did
not g ive rise to a strong inference of scienter holistically

. The panel concluded that neither the c orporate scienter doctrine

nor the core operations doctrine supported a strong inference of scienter.

COUNSEL

David B rower ( a r g ued), B rower Piven, New York, New York, for Plaintiffs-Appellants.

J ames Kramer (arg

ued) a nd Mi c h a e l Torpey
, Orrick, Herring ton & Sutcliffe, L L P, San F rancisco, California, for Defendants-Appellees.

OP INION

O’CONNEL L , District J udg e:

This case invol v es alleg ations of securities fraud. Defendant N V I D I A Corporation is a publicly traded semiconductor company

. I n the spring of 2008, it disclosed
to investors information about defects in two of its p roducts. A little over one month later, it further d isclosed that it would be taking a $ 1 5 0 –$200 million charg e to cover costs a risingI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 4

from those product defects. As a result, N V I D I A’s share price dropped 31% and its market capitaliz ation contracted b y $3 billion. Acco r d ing to Plaintiffs, who had purchased NVI DI A’s stock in the preceding eig ht months, the company knew it would be liable for the defective products long before its 2008 disclosures. Th e y c laim that NVI DI A should have informed investors about the d efects as early as N ovember 2007. They furt h e r c ontend that, absent a d isclosure about the p r o duct defects, NVI DI A’s intervening statements reg arding its financial condition were misleadi n g to investors, and consequently in violation o f Se c t i o n 10(b) of the Securities Ex chang e Act o f 1934 a n d corresponding Securities Ex chang e Commission (“SEC”) Rule 10b-5.

The district c ourt b e low dismissed Plaintiffs’ amended complaint w ithout further leave to a m e n d, holding that it failed t o adequately alleg e scienter, a necessary element for

a claim u nder either Section 10(b) or Ru l e 1 0 b

- 5

. W e have jurisdiction under 28 U.S.C. § 1291.

On appe al

, Plaintiffs essentially raise three d istinct
arg uments, all directed to the element of scienter. F irst, they
arg ue that the disclosure duty u n d e r I tem 303 of Reg ulation S–K, 17 C.F .R. § 229.303, is actionable under Section 10(b)

a n d R ule 10b-5. A proper analy sis, they contend, should ascertain whether D efendants a cted w ith scienter in violating I tem 303’s disclosure d

uty

. Second, Plaintiffs assert that the district court failed to c o n side r their alleg ations holistically

. They c ont end that, when c onsidered holistically

, their alleg ations g ive r ise to a strong inference of scienter. Third, Plaintiffs arg ue t h a t the district c ourt e rred in finding that neither the corporate scienter doctrine nor the core operations doctrine supports a strong inference of scienter.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 5

F or the reasons discussed below, we affirm.

I

A.

NVI DI A Corporation is a publicly traded semiconductor
company founded in 1993 b y J en-Hsun Huang
, its current CEO. I ts c or e b u s iness involves the d esig n and sale o f two similar semiconductor chips. One is a g raphics p rocessing unit (“GPU”); the other is a media a n d c o mmunications
processor (“MCP”). I n essence, GPUs a re desig ned to process the vast amount o f data necessary to render imag es to

a computer’s visual display

. MCP s a re similar to GPUs in that they function as a GPU i n a d d ition to various other devices, such as a sy stem memo r y interface, Ethernet communications controller, and a udio sig nal p rocessor. Orig inal equipment manufacturers (“OEMs”), such a s Hewlett-Packard (“HP”) and Dell Compu ter (“Dell”),
pu r chase these chips and incorporate them into the motherboards of computers they a ssemble and sell to

consumers.

I n a ddition to their similar functions, G PUs a n d M C P s also share a similar c o nfig uration, which comprises two main parts: (1) a “die,” or the silicon chip itsel f ; and (2) a “substrate,” or wafer, which is a g reen circuit b o ard that ultimately conn ec t s the die to the motherboard’s electrical components. To manufacture the G PUs and MCPs, the die is mounted onto the substrate. I mportantly

, th e d ie electr o n i c ally connects to the substrate throug h “bumps” o f solder that relay electrical sig nals between the die and the r e st of the computer. T he bumps are a ttached to the subs t r ate using a solder paste. Be t w ee n the die and substrate is anI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 6

“ underfill,” which is a g lue-like material that acts as a n

a d d itional bonding ag e nt to fortify the connection betwe e n the die a nd substrate

. Tog ether, the solder and underfill a re referred to as the “Material Set.”

Given the hig hly c omplex and technical nature o f NVI DI A’s GPU and MCP products, there is an inherent risk that some will fail. As a result, NVI DI A r outinely includes in its SEC f

orms a statement ex plaini n g t h a t “[ its] products
may contain defects or flaws, ” and warning investors that “[ it] may be r equired to reimb urse customers for costs to repair or replace the affected p r o d u c ts.” To cover costs relating to inevitable defects, NVI DI A automatically records

a reduction t o r e v e nue as a cash reserve. As p roduct return and replacement costs a ccrue, NVI DI A w ithdraws cash from that reserve.

B.

According to the complaint, in September 2 0 06, NVI DI A beg an ex periencing p roblems with certain of its G PU a nd MCP products, particularly with those products’ Material Set. Plaintiffs alleg e that some of NVI DI A’s ch i p s e x p erienced cracks in the solder bumps w h e n subjected to e x cessive
pressure during product testing

. A t that time, NVI DI A h ad been u s i n g a “eutectic” solder 1 ( which has a r elatively low lead content) tog ether with eutectic solder pa s t e. I n an attempt to remedy the c r acking p r o b lem, NVI DI A switched

some of the solders used in the chips from a eutectic solder to

1 So ld er is a co m

p o u n d m i x tu re o f lead an d tin

. A p articu lar m ix tu re h as

a “ eu tectic” co m

p o sitio n if i t h as a sp ecif

ic ratio o f lead to tin

. S

ee Do n ald A sk elan d & W en d elin W rig h t, Essen tials o f Mate rials S cien ce & En g in eerin g 3 5 9 –6 3 (2 0 1 3 ).I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 7

a hig h -lead solder, which is more malleable and therefore less susceptible to cracking from the pressure in produc t t e s ting

. I t continued to u s e t h e eutectic solder paste, however. A c cording to Plaintiffs, vary ing thermal properties of t h e new, hig h-lead solder a nd the e utectic solder p a ste contributed to n ew problems with NVI DI A’s chips. Specifically

, b ecause the two materia l s u nderg o thermal

ex p ansion at v ary

ing rates, the hig h -lead solder is susceptible to fatig ue and cracking o v er time.

At some point, these new problems beg an manifesting in laptop computers incorporating NVI D I A’s GPU and MCP products that were made using hi g h-lead solder. After HP (and later D ell) b e gan investig ating these problems, it observed new cracking o f th e solder bumps connecting the die to the sub strate (the “Material Set Problem”). At f irst, NVI DI A attributed the problem to “‘customer-indu c ed damag e o r [ OEM] desig n issues.’” HP hy pothesiz ed that heat
cy cling was the root cause of the problem. 2 Specifically

, HP believed that the solder bumps would weaken over time d ue to repeated thermal ex

pansion caused by

heat cy cling

.

To reduce the stress on the chips’ solder b umps, and thus ameliorate the cracking p roblem, H P and Dell, w ith the h elp of NVI DI A, issued software updates (“B I OS” 3 updates) to their lapto p computers. These B I OS updates a ltered a

2 Heat cy clin g is a f

lu ctu atio n o f a co m

p u ter’ s in tern al tem

p eratu re. A s th e co m p u ter’ s in tern al co m

p o n en t s g en erate h eat f

ro m u sag e, t

h e in tern al
tem p eratu re rise s. W h en th e co m p u t er’ s sen so rs d etect a certain

, p rep ro g ram

m ed tem p eratu re, th e co m

p u t er’ s p ro g ram activ ates in tern al f an s to lo w er th e tem

p eratu re.

3 B IOS stan d s f

o r B asic In p u

t/Ou tp u t Sy s tem

.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 8

computer’s fan alg orithm, causing the internal cooling fans to

run co ntinuously

, thereby eliminating heat cy cling

. Evident ly

, HP believed that by maintaining a fairly constant temperature, the solde r b u mps w ould n ot underg o thermal

ex p ansion as often and thus not be as susceptible to fati g ue and failure.

Ultimately

, after sig nificant testing

, HP c o n c l u d e d that the
root cause o f GPU and MCP failures in its computers was not caused b y c r a c k ing due to heat cy cling

, but by cracking d ue to operation of the chips within a narrow temperature rang e

. Apparently

, the stress on the solder bumps caused by vary ing thermal properties of the hig h-lead solder and eutectic solder paste w as especially acute in thi s temperature rang e. HP shared with NVI DI A its data demonstrating this problematic thermal profile, and, at some point, NVI DI A reproduced the data in its own laboratories.

I n May and J une 2008, NVI DI A issued to its OEM

c u s t o m e r s P r oduct Chang e Notifications ( “ P C N s ” )

, i n d i c a t i n g that it would be transitioning back to eutectic solder.

C.

B e tween N ovember 8
, 2 007, and May 22, 2 008, NVI DI A filed sever a l f

o r m s with the SEC, as required b y law. According to Plaintiffs, those forms c ontained materially false and misleading statements, principally be c a u s e they omitted information reg arding the Material Set Problem.

F or e x ample, in the November 8, 2007 F orm 8-K, Plaintiffs point to N VI D I A’s claim that “[ its] core businesses

are continuing to g row as the GPU bec o m e s increasing ly central to today ’s computing ex perience.” I n NVI D I A ’sI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 9

F ebruary 13, 2008 Fo r m 8-K, it hig hlig h ts the assertion that “F iscal 2 008 was another outstanding and record y ear for us. Strong demand for GP U s in all market seg ments drove our g rowth.” Plaintiffs arg ue t hat these statements and others made in NVI DI A’s March 21, 2008, F orm 1 0 -K and May 8, 2008, F o rm 8 -K are materially false and misleading because NVI DI A f

ailed to disclose reported defects in its products a s well.

D.

On May 22, 2008, NVI DI A disclose d in its quarterly report that it had received claims for reimbursement from o ne of its OE M s f

o r incremental costs due to an “‘alleg ed die/packag ing material set defect.’” T h e report also indicated th at the product w as included in a sig nificant number of the customer’s computer products and had b een shipped to other
customers in sig n ificant quantities. NVI DI A ex p lained that it was “evaluating the p otential scope” of the problem “and

cause of the alleg ed defect and the merits o f the customer’s claim.” I t f

urther indicated that it was “unable to estimate the amount of costs that may

be incurred” at that time.

J ust over one month later, on J uly 2
, 2008, NVI DI A filed

a n S E C F orm 8-K indicating it would b e taking “a $ 150 to $200 million charg e to cover warranty , rep a i r, return, replacement, and other costs ‘arising from a w e ak die/packag ing material set in certain v ersions of [ its] previous MCP and GPU products used in notebook sy stems.’” 4 After

4 Nev erth eless, th e f

o rm also stated th at NVIDIA h ad “ n o t b een ab l e to d e t e r m in e a ro o t cau se f

o r th ese f ailu res, [b u t] testin g su g g ests a w e a k

m aterial s et o f d ie/p ack ag e co m b in ati o n , s y stem th erm al m an ag em en t d esig n s , an d cu sto m er u se p attern s are co n trib u tin g f acto rs.”I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 10

NVI DI A’s J u ly 2, 2008 disclosure, the market reacted according ly

, causing a 31% d ecline in NVI DI A’s share price and a decrease of over $ 3 b illion in its market capitaliz ation.

E.

Plaintiffs invest e d i n N VI DI A’s stock between N ovember 8, 2007 a nd J uly 2, 2 008 ( the “class p eriod”). They a lleg e that, b e gi n ning November 8, 2 0 07, NVI DI A knew of the defect in the G PU and MCP Material Set, this knowledg e was material to investors, and f ai lure to disclose it made other statements in NVI DI A ’s SEC filing s misleading

.

B e l i e v i n g t

h a t Defendants violated federal securities law s , Plaintiffs filed three separate lawsuits, which the district court consolidated into a sing le action. I n the consolidated complaint, Plaintiffs alleg e thre e d istinct but related counts. I n the f irst and second counts, they alleg e t h a t N V I D I A a nd Huang
, respectively

, are liable for violations of both Section 10(b) of the Securities Ex chang e Act of 19 3 4 and corresponding SEC Rule 10b-5. I n the third count, they aver that Huang is further liable for violations of Section 20(a) o f the Securities Ex chang e Act of 1934.

Up o n D efendants’ motion, the district court dismissed Plaintiffs’ first consolidated c lass action complaint with leave
to amen d. Plaintiffs then filed a second consolidated class action complaint. Upon a second motion by Defendants, the district c ourt dismissed that complaint without leave to amend. I n its order of dismissal, the district court specifically held that Plainti f

f s failed to sufficiently plead scienter, an element required for each count.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 11

II

W e revi e w dismissals under F e deral Rule o f Civil Procedure 12(b)(6) de novo. In re Daou Sys., Inc. , 411 F .3d 1006, 1013 (9th Cir. 2005). I n doing so, we accept as true all factual alleg ations and determine whether they are sufficient
to state a claim for relief; we d o not, however, accept as true alleg atio n s that are conclusory

. Ashcroft v. Iqbal

, 556 U.S. 662, 678 (2009). Moreover, “ [ f] a ctual alleg ation s m u s t be
enoug h to r aise a rig ht to relief above the speculative level.” Bell A tl. Corp. v. Twombly

, 550 U .S. 544, 555 (2007). There
must be “more than a sheer possibility that a defendant has acted unlawfully .” Iqbal , 556 U.S. at 678.

I n reviewing the s u ff

i c i ency of a c omplaint, we limit

ou rs e l ves to the complaint itself and its attached ex hibits, documents incorporated by r eference, and matters properly subject to judicial notice. Tellabs, Inc. v. Makor I s s u es & Rights, Ltd.

, 551 U.S. 3 08, 322–23 (2007); Lee v. City of Los Angeles , 250 F .3d 668, 688 (9th Cir. 2001).

III

A.

1.

Sectio n 10(b) of the Securities Ex chang e Act o f 1934 declares it u n lawful to “use or e mploy

, in connection with the purchase or sale of any security

. . . , any manipul a t i v e o r deceptive device or contrivance in contravention of such rules and reg ulations as the [ SEC] may prescribe as neces s a r y

. ” 15 U.S.C. § 78j(b). As t h e Supreme Court has indicated, there is an “implied [ ] private cause of action” inI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 12

Section 10(b). Matrixx Initiatives, Inc. v. Siracusano
, 131 S. Ct. 130 9
, 1317 (2011). Additionally

, “SEC Rule 1 0b-5 implements [ Section 1 0 (b ) ] b y making it unlawful to

. . . ‘make any untrue statement o f a material fact or to omit to state a material fact necessary in order to make the statements made

. . . n ot misleading .’” Id. (quoting 1 7 C.F .R. § 240.10b5). Thus, to prevail on a c laim for violations o f either Section 10(b) or Rule 10b-5, a p lai n t i f f must prove six e lements: “(1) a m a terial misrepresentation or omission by the defendant; ( 2) scienter; ( 3 ) a connection between the misrepr e s e n t at ion or omission and the p urchase or sale of a security ; (4) reliance u

pon the misrepresentation or omission; (5) economic loss ; a nd ( 6) loss causation.” Stoneridge Inv. Partners, LL C v

. Scientific-Atlanta, Inc.
, 552 U .S. 148, 157 (2008).

Section 20(a) of the Securities Ex c hang e Act of 1934 provides f

or liability of a “controlling person.” 1 5 U .S.C. § 78t(a). To establish a cause of action under this provision, a plaintiff must first prove a primary violation of underly

ing federal securities laws, such as Section 10(b) or Rule 10b-5, and then show that the defendant ex ercised actual p ower over the primary violator. Howa r d v

. Everex Sys., Inc.
, 228 F .3d 1057, 1065 (9th Cir. 2000). A cc o r ding ly

, our analy sis focuses o n Plaintiffs’ alleg ation s under Section 10(b) a nd Rule 10b-5.

2.

W h en alleg ing violations of federal securities laws, a plaintiff must satisfy the pleading requirements pronounced i n t he Private Securities L itig a tion Reform Act of 1 9 9 5 ( “ P SL RA”). Zucco Partners, LLC v. Digimarc Cor p

. , 5 5 2 F .3d 981, 990–91 (9th Cir. 2009). I n passing this ac t ,I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 13

Cong r ess “sig nificantly altered pleading requirements in securities fraud c ases [by ]

. . . r equir[ ing ] that a complaint plead with p articularity both falsity and scienter.” Id. at 990 (internal citations an d q u o tation marks omitted). More precisely

, now a c omplaint must “state with particularity facts
g iving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A).

To a ssist courts in determining whether a p lain t iff has satisfied th i s heig h tened pleading standard, the Supreme Court h as provided three points o f instruction: (1) “courts must, as with any [ 12(b)(6)] motion to dismiss

. . . , accept all factual a lleg ations in the complaint a s true”; (2) “courts must consider the complaint in its entirety

, as well as other sources courts ordinarily e x amine when ruling on Rule 1 2(b)(6) motions to dismiss”; and (3) “ i n d e t ermining w hether the pleaded facts g ive rise to a ‘strong ’ inference of scienter, the
court must take into a ccount plausible opposing inferences.” Tellabs

, 551 U.S. at 322–23. I n discussing the third p oint, the Court ex plained that, althoug h “[ t] he inference [ o f scienter] need n ot be irrefutable,

. . . or even t h e ‘most plausible o f competing inferences,’” it “must be more tha n merely ‘reasonable’ or ‘permissible’—it must be cog ent a nd compelling

, thus strong in lig ht o f other [countervailing ]

ex p lanations.” Id. at 324 (citations omitted). Ultimately

, the Court held that “[ a] c o m p l a i n t w ill survive

. . . only if a reasonable person would deem the inference o f scienter
cog ent a nd at l east as compelling as any opposing inference one could draw from the facts alleg ed.” Id.

3.

Having outlined the lens throug h which we must consider Plainti ff s ’ alleg ations of scienter, w e now turn to theI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 14

definition of scient e r itself. I n Ernst & Ernst v

. Hochfelder

, the Supreme Court ex plained in a footnote th at “the term ‘scienter’ refers to a mental state embracing intent to deceive, manipulate, or defraud.” 425 U .S. 185, 193 n.12 (1976). The Court recog niz ed that some Courts of Appeals include within their definition of scienter a form of recklessness, but it did not address whether those c o urts are correct in doing so. Id. As recently as in its decision in Matrixx Initiatives
, the Court stated that it “ha[ s] not [ y et] d ecid e d w hether recklessness

s u f fices to fulfill the scienter requirement.” 131 S. C t

. at 1323.

I n this circuit, we have “ h e ld that recklessness may satisfy the element o f scienter.” H ollinger v. Titan Capital Corp.
, 914 F .2d 1564, 156 8

– 6 9 (9th Cir. 1990) (en banc). W e defined r ecklessness “‘as a hig hly u n r e asonable o mission, involving

. . . an ex treme departure from t h e standards o f ordinary care, and which presents a d an ger of misleading buy ers or sellers that is either known to the defendant or is so obvious that the actor must have been a war e o f i t

. ’ ” Id. at 1569 ( quoting Sun dstrand Corp. v. Sun Chem. Corp.
, 553 F .2d 1033, 1044–45 (7th Cir. 197 7 ) ). 5 W e a dded that “the dang er of misleading buy ers must be actually known or

so obvious that any reasonable man would be leg ally bound

as knowing .” Id. at 1569–70 (inter nal quotation marks omitted). I n In re Silicon Graphics Inc. Securities Litigation
, we opined that the w ording of our previous deci s i o ns d i s c u s s i n g r e c k l e s s n e s s

— i n c l u d i n g o u r d e c i s i o n i n Hollinger —indicates that the standard for recklessness is actually much closer to one of intent: “These cases i n d i c ate that recklessness o n l y satisfies scienter under § 10(b) to the

5 In Ho llin ger , w e ex p ressly “ ad o p t [ed ] th e stan d ard o f reck lessn ess articu l ated b y th e Sev en th Circu it in S u nd stra nd Co rp

. ” 9 1 4 F.2 d at 1 5 6 9

.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 15

ex tent that it reflects some deg ree o f intentional or conscious misconduct.” 183 F .3d 970, 977 (9th C ir. 1999). A c cording ly

, we ex plained that scienter requires “a str o n g in f erence of, at a minimum, ‘ deliberate recklessness.’” Id. (emphasis added). 6 Since then, we have consistently a pplied the “ delib e rate recklessness” terminolog y and standard articulated in Silicon G raphics

. See, e .g. , In re VeriFone Holdings, Inc. Sec. Litig.
, 704 F .3d 694, 702 (9th Cir. 2 012); Zucco Partner

s , 5 5 2 F .3d at 991; In re Daou Sys., Inc.
, 411 F .3d at 1022. 7

W e now address Plaintiffs’ arg uments on appeal.

6 It ap p ears th at th e term “ d elib erate reck l essn ess” w as co in ed b y th e d i s t r i c t co u rt th at w e af

f irm ed i n S ilico n Gra

p h ics

. Ou r o pin io n in th at

c a se w as t

h e f irst tim e w e ev er u sed th e term

. T h e o n ly o th er ap pellat e

co u rt to h av e u sed th e term p rev io u sly d i d so less th an o n e m o n t h b ef ore

w e d id

, an d it cited to th e d i strict co u rt’ s d ecisio n th at w e af

f irm ed

, In r e S ilico n G ra

p h ics, In c. S

ecu rities Litig atio n , 9 7 0 F. Su p p

. 7 4 6 (N.D. Cal. 1 9 9 7 )

. S e e In re Ad

va n ta Co rp

. Sec. Litig

. , 18 0 F.3 d 5 2 5
, 53 0 (3 d Cir. 1 9 9 9 ).

7 In th eir rep l y b rie f, Plain tif f s cite In re Ora cle Co rp

. S ecu rities Litig a tio n , 62 7 F.3 d 3 7 6
, 3 9 0 (9 th Cir. 2 0 1 0 ), an d arg u e th at th e stan d ard f o r d elib erate reck lessn ess do es n o t i n c lu d e an elem en t o f in t en t or

co n scio u s m isco n d u ct. Ora cle

, h o w ev er, co n cern ed th e scien ter stan d ard f o r su m m ary j u dg m en t, a n d w e h ad p rev io u s ly h eld th at “ [b ]ecau s e th e P SL RA d id n o t alter th e su b stan tiv e req u irem en ts f o r scien ter u n der § 1 0 (b ), [] th e stan d ard [f o r estab l ish in g scien ter] o n su m m ary j u dg m en t

o r J MOL rem ain s u n alte r e d b y I n Re S i lico n Gra

p h ics .” H

o wa rd

, 2 2 8 F.3 d at 1 0 64

. Un lik e Ora cle o r Ho wa rd

, th is case co m es t o u s f o llo w in g a m o tio n to d ism i ss. We th eref o re ap p ly th e stan d ard set f orth in In re S ilico n Gra

ph ics

.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 16

B.

Plaintiffs first arg ue that the district court erred by failing
to consider their alleg ations of scienter in the contex t of I tem 303 of Reg ulation S–K, 17 C.F .R. § 229.303. 8 T hey correctly
assert t h a t I tem 303 requires disclosure of c ertain information. B ut then they contend that, if the information is material, f

ailure to disclose it constitutes a material omission for purposes of Section 10(b) and Rule 10b-5. Ul timately

, Plaintiffs arg ue that the district court’s anal y s i s should have focused o n whether NVI DI A acted with scienter in failing to make the I tem 303 disclosure.

W e have never dir e ctly decided whether I tem 303’s disclosure duty is actionable u nder Section 1 0(b) and Rule 10b-5. W e now hold that it is not.

To prevail on a claim u n der Section 10(b) or Rule 10b-5,

a plaintiff must demonstrate that the defendant made a misleading statement or omission of mat e rial fact. Matrixx Initiatives
, 131 S. Ct. at 1318. T h u s , a s tatement mig ht be misleading because it affirmatively m isstates information. Or

a statement mig h t be misleading bec a u s e it is made outside

8 Item 3 0 3 , 1 7 C.F.R. § 2 2 9 .3 03 (a)(3 )(ii), req u ires reg istran ts to :

Des c r i b e an y k

n o w n tren d s o r u n certain ties th at h av e h ad or th at th e reg istran t reaso n ab ly e xp e c t s w ill h av e

a m aterial f

av o rab le o r u n f

av o rab le im

p act o n n et sales

o r rev en u es o r in co m e f

ro m co nt in

u i n g o p eratio n s. If th e reg istran t k

n o w s o f ev en ts th at w ill cau se a m aterial ch an g e in th e relatio n sh ip b etw een co sts an d rev en u es (su ch as k

n o w n f u tu re in creases in co sts o f l a b o r o r

m aterials o r p rice in creases o r in v en to ry ad j u stm en ts), th e ch an g e in th e relatio n sh ip sh all b e d isclo sed

.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 17

the con t ex t of other material information. Yet neither Section 10(b) nor Rule 10b-5 “crea t e [ s ] an a ffirmative duty
to disclose any a

nd all material information. Disclosure is required u nder these p r o v isions only when necessary ‘ to make

. . . statements made, in the [ s i c ] lig ht of the

c i r c u m s t a n ce s u n d e r w h i ch they were m a d e , n o t misleading .’” Id. a t 1321–22 (alteration in orig inal) (quoting 17 C.F .R. § 240.10b-5). I n Basic Inc. v. L e v i n s o n , the Supreme Court not e d t h a t “[ s] ilence, absent a d uty to disclose, is not misleading under Rule 1 0b-5.” 485 U .S. 224, 239 n.17 (1988). The Court d id not ex plain what would g ive rise to a duty

to disclose, but it is this lang uag e in Basic that Plaintiffs cit e i n support of their arg ument. They assert that I tem 303 creates “a duty to disclose,” and failure to disclose it is t h e r e fore misleading for purposes of Section 10(b) a nd Rule 10b-5.

W e have confronted a similar arg ument before. S ee In re VeriFone Sec. Litig. , 11 F .3d 865, 870 (9th Cir. 1993); In re L yo ndell Petrochemical Co. Sec. Litig.
, 984 F .2d 1050, 1053 (9th Cir. 1993); In re Convergen t T e c h s

. Sec. Litig.
, 948 F

. 2 d 507, 516 (9th Cir. 1991). I n each inst a nce, we strong ly sug g e sted that a violation of I tem 303 cannot b e used
t o s h o w a v iolation of Section 10(b) and Rule 10b-5. W e noted that, “[ w ] hile § 2 2 9.303(a)(3)(ii) p rovides that ‘known trends o r u ncertainties’ be disclosed in c ertain SEC filing s,” I nstruction 7 to I tem 303(a) “states that forw a r d-looking information n e ed not be disclosed.” In re VeriFone
, 11 F .3d
at 870. W ithout further discussion, we rejected the plaintiffs’
arg ument. 9

9 Citin g In re VeriF

o n e , w e recen t ly n oted th at f ailu re to co m

p ly w i th Reg u latio n S– K i s in su f

f icien t f o r a claim u n d er Ru le 1 0 b

- 5

. Po lice Ret.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 18

I n Oran v. Stafford

, t he Third Circuit decided this issue

more directly

. 226 F

. 3d 275, 2 8 7–88 (3d Cir. 2 000). W e a re persuad e d b y i ts reasoning

. There, the court ex plained that I tem 303’s disclosure requirement “varies considerably from the g eneral test for securities fraud materiality set out by the S u p r eme Court in Basic I nc. v. Levinson .” Id. at 2 8 8

. I n rel e v a nt part, I tem 303 requires corporate manag ement to “[ d] es c ri be [ in 10-K and 10-Q f orms] any known trends o r uncertainties that have had or that the r eg istrant reasonably

ex p ects will have a material favorable or unfavorable impact

on net sales or r e v en ues or income from continuing operations.” 17 C.F .R. § 229.303(a)(3)(ii). T he SEC shed further lig h t on this requirement in an interpretive release:

W h ere a trend, demand, commitmen t, event o r uncertai n t y i s known, manag ement must make
two assessments:

(1) I s the known trend, demand, c ommitment,
event or u ncerta i nty likely to c ome to fruition? I f manag ement determines that it is
not reasonably likely to occur, n o disclosure is required.

( 2 ) I f manag ement cannot make tha t determination, it mus t evaluate objectively the
consequences of the known t r e n d, demand, commitment, event or u n certainty

, on the assumption that it wil l come to fruition. D i s c l o s u r e i s t h e n r e q u i r e d u n l e s s manag ement determines that a material effect

S ys. o f S t. Lo u i s v. In tu itive S

u rg ica l, In c. , 7 5 9 F.3 d 1 0 5 1, 1 0 6 1 n .4 (9 th Cir. 2 0 1 4 ).I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 19

on the reg istrant’s financial condition o r results of operations i s n ot reasonably likely
to occur.

Manag ement’ s D iscussion a nd Analy sis of F inancial Condition and Results of Operations, Ex chang e Act Release No. 3 4-26831, 54 F ed. Reg

. 22427, 224 3 0 (May 24, 1989). O n the other hand, in Basic
, the Supreme Court sta t e d t h at materiality o f forward-looking information depends “upon a balancing of both the indicated probability that the event will

occur and the anticipated m a gn i t u d e of the e vent in lig ht o f the tot a l ity of the company activity .” 485 U.S. at 238 (internal quotation marks omitted).

As the court in O ran also d etermined, these two standards differ considerably

. 226 F .3d a t 288. Manag ement’s duty to disclose under I tem 303 is much broader t h a n w h a t is required under the standard pronounce d in Basic

. The SEC intimated this p oint as well: “ [ I tem 303] mandates disclosure of specified forward-looking informatio n , and specifies its

own standard for disclosure— i.e.
, r e a s o n a bly likely to have

a material effect.

. . . The prob ab ility /mag n itude test for materiality

approved by the Supreme Court in Basic, Inc., v. Levinson
, 108 S. Ct. 978 (1988), i s i n a pposite to I tem 303 d i sclosure.” Ex chang e Act Release No. 34-26831, 54 F ed. Reg . at 22430 n.27. The SEC’s effort to disting uish B a sic ’s materiality test from I tem 3 0 3 ’ s disclosure r equirement provides further support for the p osition that I tem 303 requires more than Basic —what m u st be d isclosed under I tem 303 is not necessarily required under the standard i n B a sic

. Therefore, “[ b] ecause the materiality standards for Rule 10b5 and [ I tem 303] differ sig nificantly

, the ‘demonstration of a violation of the disclosure requirements of I tem 303 d oes not lead inevitably to the conclusion that such d isclosure wouldI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 20

be required under Rule 10b-5. Such a d uty to disclose must be separately

shown.’” Oran , 226 F .3d at 288.

Plaintiffs’ reliance on L i twin v

. Blackstone Group, L.P.
, 634 F .3d 706 (2d Cir. 20 1 1 )

, a n d Panther Partners Inc. v

. Ikanos Communications, Inc.
, 681 F .3d 114 (2d Cir. 2012), is unavailing

. Those cases involved alleg e d violations o f Sections 11 and 1 2 (a)(2) of the Securities Act of 1933, not Section 1 0 ( b ) or Rule 10b-5. And, as w e acknowledg ed in Steckman v. H

art Brewing, I

n c

. , “Section 10(b) o f the Ex chang e Act . . . differs sig nificantly from Sections 1 1 a nd 12(a)(2) of the Securities Act.” 143 F .3d 1293, 1296 (9th Cir. 1998). L iab i lity u nder Sections 1 1 and 12(a)(2) of the Securities Act may arise from “omitt[ ing ] to state a material fact required to be stated.” See 15 U.S.C. §§ 77k(a), 77l(b). To p ut it differently

, liability arises from “an omission in
contrav e n tion of an a ffirmative leg al disclosure oblig ation.” P a n ther P artners , 681 F .3d at 120. There is no such requirement under Section 1 0(b) or Rule 10b-5. As d iscussed above, for purposes of Section 10(b) and Rule 10b-5, material information need n ot be disclosed unless o m i ssion o f that information would cause other inf o r mation that is disclosed
to be misleading

. Matrixx Ini t i a t i ves , 131 S. Ct. at 1321. F urthermore, a s noted in Panther Partners
, scienter is not an element of either a Section 11 or Section 12 ( a ) ( 2) c laim. 681 F .3d at 120. Such claims a re not subject to the PSL RA’s heig htened pleading standards unless based o n alleg ations o f fraud. Id. According ly

, neither Panther Partners nor Litwin affects our analy sis here.

Also u navailing is Plainti ff s ’ reliance on Simon v

. American Power Conversion Corp.
, 945 F

. Supp. 416 (D.R.I

. 1996). I n that case, then-Chief J udg e L ag u ex opined t hat I tem 30 3 i mposes “an affirmative duty to disclose,” a ndI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 21

found that the defendant’s f ailure to d isclose in that case was actionable. S i m o n , 945 F

. Supp. at 431. Subsequently

, however, J udg e L ag uex clarified his opinion: “As this Court

n oted in S

imon
, the disclosure r

ules are probative of w h at defendants are otherwise oblig ed to disclose but do n o t , themselves, provide an independent d uty of disclosure.” Kafenbaum v. G TECH Holdings Corp.
, 217 F

. Supp. 2 d 238, 249 ( D.R.I

. 2002). He went on to say that “plaintiffs may not rely solely upon I tem 303 to p r ove th a t d e f e n dants failed to disclose material information as a matter of law [ in violation of Rule 10b-5] .” Id. at 250.

I n sum, we h o l d t h a t I tem 303 does not create a duty to disclose for purposes of Section 1 0(b) and Rule 10b-5. Such

a duty to disclose must be separately shown according to the principles set forth by th e S u preme Court in Basic a nd Matrixx Initiatives

.

C.

Nex t, Plaintiffs contend that the district court erred by not considering their alleg ations of scienter holistically

.

I n Tellabs

, the Supreme Court ex plained that, when assessing alleg ations of s c i e n t er, a “court’s job is not to scrut i n i z e e ach a lleg ation in isolation but to assess all the alleg ations holistically . . . . [ T] he reviewing court must ask: W h en the a lleg ations are a ccepted as t r u e and taken collectively

, would a r easonable p erson deem the inference o f scienter a t least as strong a s any opposin g i n ference? ” 551 U.S. at 326 (ci t a t i o ns o mitted). W e apply this same standard b ut in a dual inquiry

. F irst, w e d e t ermine whether
any of the plaintiff’s a lleg ations, standing alone, is sufficient
to create a strong infer e n c e o f scienter. Zucco Partners
,I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 22

552 F .3d a t 992. I f none is sufficient alone, we then consider the alleg ations holistically to determine whether t h e y c reate a strong inference of scienter taken tog ether. Id.

W e have r eviewed Plaintiffs’ alleg ations in their entirety

. W e find that none creates a strong inference of scienter individually

. And, tog ether, they do not g ive rise to a strong inference of scienter holistically

. The most compelling inference t h at we can reasonably draw is that NVI DI A was first investig ating the root cause, and then the scope, of the Material Set Problem; once it determined that its liability

w o u l d ex ceed its normal reserves, NVI DI A disclosed t h e problem to investors. Any inference o f scienter requires more than this. T hus, while the c o mplaint may pl a u s ibly a lleg e knowledg e of the Material Set Problem, it does not plausibly al l e g e t h at NVI DI A and Huang intentionally misled investors,

or acted with d eliberate recklessness, by not disclosing t he problem sooner. W e discuss our reasoning below.

Plaintiffs c o ntend that NVI DI A a cted with scienter in withholding from investors certain information reg arding the Material Set Problem. They alleg e that, between N ovember 2007 and J uly 2008, N VI DI A made v arious statements in its SEC forms reg a

rding its financial performance a n d the quality o f its p roducts. Plaintiffs a rg ue that those statements

were materially false a n d misleading because NVI DI A did
not also disclose that certain of its products w ere failing at an abnormal rate and that NVI D I A u ltimately would be f i n ancially r esponsible for replacement costs. According t o Plaintiffs, NVI DI A f

irst det ermined that it would be financially liable for the chip failures by the middle of 2007; nevertheless, it did n ot disclose this to investors until J uly 2008. F rom these fac t s , P laintiffs infer that NVI DI A intentionally misled investors by waiting to disclose itsI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 23

l i ability for a lmost an entire y ear, until it had prepare d replacement products.

I n evaluating Plaintiffs’ inference of scienter, we bear in min d that NVI DI A includes in its SEC forms a statement

ex p laining that “[ its] products may contain defects or flaws” and warning investors that “[ it] may be r equired to reimburse
customer s f

o r costs to repair or replace the affected products.” Moreover, we are mindful that, becaus e p roduct defects are so common, N VI DI A automatically records a reduction to revenue as a cash reserve to cover costs relating
to t h e i nevitable p roduct failures. B e aring these facts in mind, we must determine whether Plaintiffs’ alleg ations
create a strong inference of scienter that Huang and NVI DI A intentionally misled investors, or were at least deliberately reckless, by n ot disclosing N V I D I A’s liability f o r c hip failures prior to J uly

2008.

1.

P l a i ntiffs alleg e that NVI DI A first b ecame aware o f t h e Material Set Problem sometime in 2006, and then determined the r oot cause of the problem—and therefore that it would be financially responsible for i t

— by the middle of 2 007. Then they contend that the one-y e a r delay between NVI DI A’s root

cause determination in mid-2007 and its discl o s u re of the problem in 2008 was m o tivated by an intent to mislead investors until it h ad prepar ed replacement p roducts. Nevertheless, Plaintiffs’ alleg ations that NVI DI A first determined the root cause of its chip failures by the middle o f 2007 a r e i m p lausible. I n so alleg ing

, Plaintiffs rely most directly on the accounts of Confidential W itness No. 1 (“CW 1”), Confidential W itness No. 7 (“CW 7 ”), and articles written by

Charlie Demerjian.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 24

According to CW 1, “ ‘communications betwee n H P a nd NVI DI A b e gan in 2006, with HP asking questions, a nd asking NVI DI A to conduct [a] failure analy s i s

. ’” W h en NVI DI A initially resisted, HP beg a n to eng ag e it at a hig her,

e x e cu tive, level. B y early 2007, HP had determined t h at NVI DI A’s chips sustained phy sica l damag e throug h normal

u s e, and therefore making NVI D I A responsible. H P develo ped “‘overwhelming data demonstrating root c ause’” and “identified t h e thermal profile” that would cause NVI DI A’s chips to ex perience cracking at the solder bumps. CW 1 asserts that HP shared the data and thermal profile with NVI DI A sometime in early 2007 and NVI DI A reproduced it by the middle of 2007.

The timing of CW 1’s account conflicts with the account of Richard Hunt Hodg e, HP’s Director of Eng ineering a nd Quality for the Notebook D ivision. 1 0 Accordin g t o Hodg e , HP itself did n ot d etermine the thermal profile that would sig nificantly increase the probability of chip failures until the middle of 2008: “Ultimately

, by mid-2008, HP de t e r m ined that operation of t h e N VI DI A p art throug h a narrow temperature rang e

. . . w as the cause of” chip failures due to

s o l d er bump cracking

. I f HP did not determine t h e problematic thermal profile u n til the middl e o f 2 008, any inference o f scienter is sig nificantly reduced, as NVI DI A disclosed the information in J u ly 2008.

10 Becau se Plain tif

f s in co rp o ra t e b y r ef

eren ce Mr. Hu n t ’ s d eclaratio n , rely in g o n p o rtio n s of i t in t h eir co m p lain t, w e m ay p ro p erly co n sid er th e d eclaratio n in its en tirety

. S ee Tella b s , 5 5 1 U.S. at 3 2 2 ; see a lso City o f Ro seville Emp s.’ Ret. S

ys. v. S terlin g Fin

. C

o rp

. , 9 6 3 F. Su

p p

. 2d 1 0 9 2
, 1 1 0 7 (E.D. W ash

. 2 0 13 ) (“ On ce a d o cu m en t is d e e m e d in co rp o rated b y ref eren ce, th e en tire d o cu m en t i s assu m ed to b e tru e f

o r p u rp o s e s o f a

m o tio n to d ism iss

, a n d b o th parties—an d th e Co u rt—are f ree to ref er to

an y o f its co n t en ts.”).I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 25

The notion that HP had determined the p ro b l e m a tic thermal profile in e arly 2007 is implausible w hen considered
t o ge ther with Plaintiffs’ other alleg ations. Plaintiffs alle ge t h at H P and Dell, with the help of NVI DI A, issued BI O S updates in N ovember 2007 1 1 a nd F ebruary 2008, respectively

. T hose B I OS updates altered a computer’s fan alg orithm so that its internal cooling fans w ould r un continuously

, thereby eliminating heat cy c ling and maintaining a fairly c o n s tant temperature inside the computer. Hodg e ex plain s i n h is declaration that the HP B I OS update “keeps [ a GPU or MCP]

ou t s i de of [ the problematic] temperature rang e (usually

ar o u n d 50oC at idle). B ecause it runs constantly

, it obviates
t h e thermal mini-cy cle throug h the problematic narrow temperature rang e.” I f HP had de t e rmined the problematic thermal p rofile in early 2007, as Plaintiffs and CW 1 alleg e , it is implausible that HP woul d h a v e waited until N ovember 2007 to issue a B I OS update that g reatly r ed u c e s the probabilit y o f a chip failure due to solder bump cracking

. 1 2 The implausibility of the timing in CW 1’s account of events further detracts from any

inference of scienter.

11 A cco rd in g to Ho d g e, HP ’ s B IOS u p d ate “ w as released o n o r ab o u t on Decem b er 3 , 2 00 7 .”

12 In d eed

, Ho d g e’ s tim in g o f ev en ts is m u ch m o re p lau sib le th an CW 1 ’ s. He ex p lain s t

h at HP h y

po th esized in N o v em

b er 2 00 7 “ t

h at rep eate d
tem p eratu re m i n i -c y clin g co u l d resu lt in so ld er crack s

. . . an d b eliev ed elim in atin g t h a t tem

p eratu re cy clin g w o u ld co rrect th e i ssu e.” A cco rd i n g ly

, HP d ev elo p ed t h e B I OS u p d ates to m ain tain a co n stan t tem p eratu re w ith in its co m

p u ters. Nev erth eless, as HP co n tin u ed testin g , it d isco v er e d th at tem

p eratu re cy clin g itself w o u ld n o t i n d u ce ch ip f ailu res, bu t o p eratin g t

h e N VIDIA ch i p w ith in th e sp ecif ic pro b lem atic th erm al p ro f

ile w o u ld in d u ce ch ip f

ailu res. Fo rtu ito u sly

, th e B IOS u p d ate

m ain tain ed NVIDIA ’ s ch ip s at a co n sta n t tem p eratu re ou tsid e o f th e p ro b l em atic tem

p eratu re ran g e.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 26

Plaintiffs’ reliance o n C h a r lie Demerjian and CW 7 to corroborate CW 1’s timing o f events does not r estore plausibility to their alleg ations. Demerjian is “a reporter with 25 y ears ex perience working with computers.” He “ covered NVI DI A’s chip defects and spoke to d oz ens of people about the pro b l ems.” Clearly

, Demerjian’s information is secondhand. I n any event, D emerjian merely indicat es that “HP started a ‘root cause analy sis’ and by summer 2007, HP employ e es k

new that NVI DI A’s GPUs were having problems associated with heat cy c ling

. ” This account does not indicate that HP had determined the root cause or problematic thermal profile by summer 2007. According to C W 7
, “Dell saw problems with NVI DI A GPUs in early 2 0 07.” CW 7 indicated that NVI DI A “eventually admitted that it was their chip ca u s i n g the problem, and that it was not a Dell issue.” Nevertheless, CW 7 does not alleg e when NVI DI A admitted responsibility for the problems. Thus, even if Dell h ad notified N VI DI A of p roblems in e arly 2 0 0 7
, CW 7 provides

no basis to infer that N VI DI A also knew it would be liable at that time.

Ev e n accepting as true CW 1’s timing of events, the fact that N VI D I A had reproduced the problematic thermal profile by the middle of 2 007—and thus had determined the root

cause of the chip f

ailures—does n o t create an inference o f scienter. Plaintiffs assert that H P provided N V I D I A with what HP believed demonstrated root cause of, and NVI D I A ’s liability for, t h e chip failures. Their alleg ations do not provide any basis to infer w hat NVI DI A concluded from the profile or o ther data, nor do they plausibly sug g est that NVI DI A must have determined it was at fault a t tha t t i m e. F urthermore, Plaintiffs never alleg e that Huang or a n y o ne

e l s e a t N V I DI A knew at that time (or any time prior to J uly 2008) that NVI DI A’s liability w o uld ex ceed its normalI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 27

reserve set aside for costs associated with product failures. According ly

, these alleg a tions do n o t g ive rise to a strong inference that Huang and NVI DI A acted with i n tent to mislead investors, or recklessly d isreg arded an obvious dang er of misleading investors, by not disclosing information
reg arding the Material Set Problem prior to J uly 2008.

2.

After alleg ing that HP provided NVI DI A with all o f its data demonstrating root cause and the problematic thermal profile, Plaintiffs as s e r t t hat determining the c ause of the problem shou l d h a ve been easy for NVI DI A. They rely on several sources to support this alleg ation.

CW 1, Demerjian, and J ohn Rig g , Plaintiffs’ consultant in this case, assert that “failures o f t h e GPU are easily identifiable.” Confidential W itness N o. 2 ex p l a ins that it “takes about a month” to determine whether a GPU or MCP is g enerating more heat than specified. Hodg e indicates that “it took HP less than two months t o hy pothesiz e that temperature cy cling caused the problematic crack s in the solder bumps.”

B u t e ven if GPU failures are easily identifiable, it does
not necessarily follow that N VI DI A would be responsible for
t h o se failures or should have known that it w ou l d b e responsible. A s NVI DI A initially contended, the failures could have been caused by O E M desig n issues. A nd Plaintiffs’ reliance on Hodg e’s declaration for the contention that N VI D I A should have easily determined that it w as liable for the chip failures is misplaced. Plaintiffs ig nore the timing of Hodg e’s account—HP did not hy pothesiz e temperature mini-cy cling as the root cause until November 2007. Then,I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 28

HP did not beg in to test its hy p othes is until J anuary 2008. After 13 weeks of testing

, HP d etermined that temperature mini-cy cling w as not the root c ause, as its testing d id not induce a sing le chip failure. I t was not until sometime around the middle of 2008 that HP ultimately discovered the specific

cause of chip failures: operation w ithin the problematic thermal profile.

Plaintiffs also rely on two a rticles for the proposition that NVI DI A must have known tha t i t was g oing to be liable

sooner than it admitted. Bo t h a rticles were published a fter NVI DI A’s J u ly 2008 disclosure. One ar t i c le provides AMD’s (one of N VI DI A’ s c ompetitors) opinion on NVI DI A’s chip failures. “ A c c o rding to the article, ‘AMD thinks [ hig h-lead bumps are] more prone to fatig ue and need “c o m p re h e n s i v e r e l i a b i l i t y e n gi n e e ri n g t o b e used successfully .”’” AMD also notes that a h ig h-lead solder a nd

e u tectic solder paste have vary ing thermal e x p ansion coefficients, which places sig nificant stress on the solder bumps. The other article discusses a research report written by K.N. T u, a professor a ffiliated with t he Department o f Materials Scie n ce and Eng ineering at the U niversity o f California, L os Ang eles. I n essence, the report discusses the same issues discussed by

AMD.

These articl es do n ot contribute to an inference o f sciente r. They were written in h indsig ht and do not reflect Huang o r NVI DI A’s knowledg e p r io r to J uly 2008. Simply because scientists were able to ex plain in retro spect the science behind NVI DI A’s chip failures, it does not mean that NVI DI A knew or should have known it would b e li a b l e for those f ailures d uring the class period or that its liability would

ex c e ed its normal reserve.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 29

Plaintiffs also point to a

n email authored by HP’s Richard Hodg e in May

2007, wherein Hodg e indicated that NVI DI A had moved away from eutectic solder in its chips. F rom this email, Plaintiffs conclude that there are “known industry

c o n c erns with

. . . the use of hig h-lead solder.” They a l s o conclude, “Defendants knew and/or deliberately disreg arded that their GPU and MCP problems likely stemmed from this hasty

, under-tested manufacturing chang e initiated in 2006.” Nevertheless, there is no basis for this c o nclusion. Certainly

, Hodg e’s email sug g ests that he had some concern about using noneutectic solder. B ut there is nothing more to i ndicate an indu s t ry -wide concern with noneutectic solder, nor is there
any thing to sug g est that N VI DI A should have known that its

use of noneutectic solde r w as the root cause o f its c hip failures. According ly

, this alleg ation d oes not appreciably add to any inference of scienter.

3.

Nex t, Plaintiffs contend that NVI DI A delay ed disclosure of its chip failures until it had p repar e d r e p l acement chips. They support this c ontention wit h v e r y few f actual alleg ations, however.

Plaintiffs rely on statem e n t s made by CW 1. A fter HP provided NVI DI A with d ata that HP b elieved demonstrated the r oot cause of the chip failures and the problematic thermal profile that would c ause those failures, “‘NVI DI A confirmed
to HP that it w as able to reproduce the problem.’” Yet, according to CW 1, NVI D I A “‘never a dmitted t o ge t ting to root c ause, and they peddle d t h e same story for a s long a s possible, that they w ere still investig ating .’” CW 1 also alleg es that “NVI DI A would do the ‘PhD runaway ’ to appear cooperative w hile try

ing to slow HP d own.” I n essence, CW 1I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 30

asserts that NVI DI A’s Ph.D. employ ees would a sk H P to conduct additional tests merely to buy more time.

As we discussed above, th e t i m i ng of CW 1’s account is implausible, especially in lig ht o f Hodg e’s more-detailed declaration. CW 1 provides no sp ecific ex amples of when N VI D I A attempted to slow down HP by having it conduc t meaning less tests or e x periments, n or does CW 1 ex plain why those tests and ex periments were meaning less. F rom CW 1’s assertions alone, a r e asonable factfinder could n ot infer that NV I D I A was conducting needless testing or attempting to delay disclosure of its product defects. As a matter of law, CW 1’s account to this end d oes n o t a d d to an inference o f scienter.

Plaintiffs also rely on a stat e m ent made b y NVI D I A ’s Vice President of I nvestor Relat i o ns, Michael Hara. I n September 2008, after NVI DI A’s d isclosure, Hara ex p lained
to investors that the failing chips were past or near the end o f their u seful life a

nd that NVI D I A w as “‘ n o t e ven shipping these parts any

more.’” F rom this statem e n t , Plaintiffs infer that “Defendants stalled the disclosure of the m aterial, adverse facts for several months, if not a full y ear, until the failing products were at the end o f their life-cycle and the Company had new products to market.”

W e ag ree that the coincidence o f NVI DI A’s discl osure with the apparent end-of-life of its failing chips could, under

some circumstances, arouse suspicion. B ut this s t a t ement alone does not create an inference that NVI D I A strateg ically delay ed disclosur e o f its chip failures until those chips were past their useful life.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 31

F inally

, Plaintif

f s rely on the fact that NVI DI A participated in preparation of B I OS updates and issued PCNs. As we discussed above, the uncontested evidence shows that in November 2007, NVI D I A helped HP (and later Dell) issue B I OS software updates that altered a computer ’s fan alg orithm. I n May and J u ne 2008, NVI DI A issued PCNs that indicated it would be chang ing back to a eutectic solder in its GPUs and MCPs. Plaint i f f s alleg e that sig nificant
eng ineering is required to transition from one Material Set to another. Fr o m t h ese facts, Plaintiffs conclude that NVI DI A
must have known it was liable for the product defects long before its d isclosure. B ut these facts do n o t mandate such a conclusion. The B I OS updates w ere intended t o e a s e stress caused by heat cy cling

, which, as N V I DI A first contended, could h ave been ca u sed b y OEM desig n issues. E v en if NVI DI A decided to transition back t o e u t e ctic solder long before it issued PCNs in May and J u n e 2 0 0 8, it does not necessarily mean that N VI DI A k new it w a s responsible for the failures. A more plausible inferen ce is that NVI DI A believed that hig h-lead solder was a contr i b u t ing factor a nd switched back to eutectic solder to eliminate it.

4.

After alleg ing that NVI DI A d e lay ed disclosure until it h ad prepared r eplacement chips, Plaintiffs attempt to buttress that alleg ation b y contending that NVI DI A has a history o f delay ing d isclosure of known p ro b l ems. Nevertheless, they
rest their contention on the accounts o f seve r a l c onfidential witnesses whose ex periences do n ot cont r i bute to an inference of scienter. T heir accounts are unspecific and s p eculative. More p roblematic, some witnes s es never worked for NV I D I A. And those who did either stopped working there long before the Material S et P r oblem arose or worked in anI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 32

a r e a unrelated to it, such as e nvironmental eng ineering o r “Staffing Sy stems and Compliance.”

F or ex ample, Confidential W itness No. 11 ( “C W 1 1”) worked for N V I D I A as a senior eng ineering manag er between December 2002 and March 2006, months before the product failures arose. CW 11’s declaration maintains that NVI DI A is “arrog ant, [ and] think[ s it] never do[ es] wrong , ” and “operated with a ‘failure to recog niz e real problems.’” Confidential W itness No. 12 ( “C W 12”) was a sales director for one of NVI DI A’s v endors. CW 12 “ stated th a t NVI DI A

was notorious for blam i n g o ther e ntities for product r elated problems. . . . ‘Some of the time they were right in [ blaming others] and some o f the time they were wrong , but their default was alway s to say , “This is not our problem. T his is
y our problem.”’”

C onfidential W itness No. 13 (“CW 13”) worked at N V I D I A as a

n environmental compliance eng ineer. CW 13 “stated that NVI DI A h a s a h i s tory of f ailing to take responsibility

for Company problems.” CW 13 believes that NVI DI A “ ‘had the following mentality : “Don’t say a ny thing
to muck the waters.”’” “[ Confidential W itness No. 15 (“CW 15”) ]
, a former NVI DI A Staffing Sy stems a nd Compliance Analy st, stated that s/he was told: ‘I don’t care what y o u do, just make u s look g o od.’” CW 15 provides no contex t, however, as to who made the statement o r why the
statement was made. Confidential W itness No. 16 (“CW 16”) worked for a w ebsite that sold NVI DI A p ro d ucts. CW 16 stated, “‘I ’ve seen a lot of h ostile actions from [ NVI DI A ]

. . . ‘NVI DI A tends to be a little “scroog e-ish” when it c omes to scrapping their failure percentag e r ates.

. . . They ’ve h ad a lot

o f f i a s c o s in the past with like the GeF orce 2 Ultra, a lot o f overheating issues.’”I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 33

These statements do n o t gi v e rise to an inference o f scienter individually

. The testimony of Confidential W itness No. 14 ( “CW 14”) provides the most probative evidence indicating that NVI DI A h a d a culture of failing to take responsibility for known problems. CW 14 was a “Director o f I C Quality and Reliability for NVI DI A.” According to CW 14, there was a

n instance where employ ees at NVI DI A knew of a desig n flaw in on e o f i t s p r oducts, but d id not reveal it until after NVI D I A’s customer had d isco v e red a nd contained the problem. CW 14’s testimony is less sig nificant, however

, w h e n c o n s i d ering that his/her period o f employ ment

was at most one y ea r , f

rom 2000 to 2001, long b efore the product defects g iving rise to this lawsuit.

According ly

, these a lleg ations that NVI DI A has a history of delay ing known problems d o n o t give rise to a strong inference of scienter.

5.

As further evidence of scienter, Plaintiffs rely on t h e

ex i s t e nce of other lawsuits filed a g ainst NVI DI A by its insurers. A pparently

, after it disclosed to investors information r e ga r ding its defective products, NVI DI A

s u b m i tted c laims to its insurance c ompanies to cover the losses sustained as a result. F o reseeably

, the insurance companies d id not want to pay NVI DI A ’s claims. Thus, they alleg ed that NVI DI A knew of the defective produ ct s before J anuary 2008 an d h a d failed to provide information that the insurers had requested. These alleg ations do not sig nificantly add to an inference of scienter, as the insurers litig ating claims would attempt to avoid liability

.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 34

Evidently

, one of NVI D I A’s insurers also alleg ed the

ex istence of a c l a s s action lawsuit f iled ag ainst H P in November 2007. The insurer arg ued that NVI DI A knew the lawsuit related to p rob l e m s with NVI DI A’s defective chips and that HP would seek indemnification from N VI D I A

. Nevertheless, Plaintiff

s n e ver ex plain w ith any particularity when or h ow NVI DI A b ecame aware that HP would seek indemn i f i cation from NVI DI A. According ly

, the ex istence of this additional lawsuit does not add to an inf e r ence o f scienter.

6.

Plaintiffs a l s o contend that, when considered with all other alleg ations, the departure of some of NVI D I A ’s

ex e c utives adds to the inference of scienter. W e do not ag ree.

Plaintiffs alleg e that three individuals l e ft NVI D I A a fter it disclosed the defective p roducts. O n May 27
, 2 0 08, NVI DI A’s CF O
, Marvin B urkett, announced his ret irement. S ig nificantly

, B urkett continued as interim CF O u nti l a replacement was hired, and in F ebruary 2009, h e b e c ame a senior a dvisor to NVI DI A. I n J une 2008, NVI DI A’s S e nior Director and Head of I nternal Audit left the c o m p any

. Plaintiffs do not e x plain, however, how this ex e cutive play ed
any role in alleg edly

delay ing the disclosure of the defective products. I n J anuary 2009, NVI DI A replaced David Kirk, its Chief Scientist. Plaintiffs fail to provide any detail as to why Kirk was replaced; notably

, Kirk cont inued to work with NVI DI A as a research fellow.

I n short, Plaintiffs fail to provide any facts to co nnect these departures with the problems at issue in this lawsuit. More detrimental to their alleg ations, h owever, is that two o fI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 35

the three individuals r emained a t NVI DI A i n some ty pe o f advisory role. Therefore, the mos t reasonable inference is that these departures were benig n.

7.

Plaintiffs arg ue that their alleg atio n s g ive rise to an inference of scienter under the corporate s c i e nter doctrine. “‘In most cases, the most straig htforward way to raise [ an inference o f scienter] f

or a corporate defendant will be to plead it for a

n individual d efendant.’” Glazer Capital Mgmt., LP v. Magistri
, 5 49 F .3d 736, 743 ( 9th Cir. 20 0 8 ) (quoting Teams t er s Local 4 4 5 Freight Div. Pension Fund v. Dynex Capital Inc.
, 531 F .3d 1 90, 195 (2d Cir. 200 8 ) )

. Yet, the collective scienter (or corporate scienter) doctrine recog niz e s that it is possible to raise the inference of scienter without doing so f

or a specific individua l

. Id. I n the Ninth Circuit,

we “ha[ v e] not previously adopted a t heory of collective scienter.” Id. at 744. Nevertheless, in Glaze r Capital

, we opined that the doctrine mig h t be appropriate in some cases. Id. “F or instance, a s outlined in the h y pothetical posed [ b y the Seventh Circuit]

, there could be circumstances in which

a company ’s public st atements were so important and so dramatically false tha t t h e y would create a strong inference that at least some corporate officials knew of the falsity upon publication.” Id. ( citing Makor Issues & R ig h t s , Ltd. v

. Tellabs Inc. , 513 F .3d 702, 710 (7th Cir. 2008)).

W e do not b e lieve the facts alleg ed in this case would
g ive r ise to an inference of s ci e n t er under the collective scienter doctrine. Here, Plaintiffs contend th a t s t atements made by NVI DI A in its SEC filing s w ere misleading because NVI DI A did not also d isclose informat ion reg arding the Material Set Problem

. Those statements were not “soI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 36

dramatically false”—as in the ex ample posed by the Seventh Circuit in Makor 1 3 —to create an inference of scienter that at least some corpor a t e officials knew of the falsity upon publication.

Plaintiffs also contend that their complaint raises a strong inference of scienter unde r t h e core o perations doctrine. Under this doctrine, the PSL RA’s pleading requirements may be s a t i sfied, in certain circumstances, b y “a scienter theory that infers that facts critical to a business’s ‘core operations’

or an important t r a n s a ction are known to a company ’s key officers.” S. Ferry LP, No. 2 v. Killinger

, 5 42 F .3d 776, 783–84 (9th Cir. 2008). I n South Ferry
, we ex plained that, in lig ht of the Supreme Court’s decision in Tellabs

, the core operations inferenc e may be c o nsidered when weig hing a complaint’s a lleg ations of scienter holistically

. Id. at 784–85. Nevertheless, we c autioned that, “‘a b s e nt some additional alleg ation of specific information co n vey ed to manag ement and related to the fraud’ or other a ll egations supporting scienter,” the core operations inference w i l l generally fall short o f a strong inference of scienter. I d. W e did, however,

13 In Ma ko r , th e Sev en th

Circu it illu strated its p o in t th at

it is p o ssib le t o d raw a s tro n g i n f e r e nc e o f co rp o rate scien t er w ith o u t b ein g ab le to n am e th e in d iv id u als w h o

co n co cted an d d issem in ated th e f rau d

. Su

p p ose Gen eral Mo to rs an n o u n ced th at it h ad so ld o n e m illio n SUVs i n 2 0 0 6
, an d th e actu al n u m b er w as zero

. T h ere

w o u l d be a stro n g i n f

eren ce o f co rp o rate scien t er, sin ce

so d r a m atic an an n o u n cem en t w o u ld h av e been

a p p r o v e d b y c o r p o r a t e o f f i c i a l s s u f

f i c i e n t l y k n o w l ed g eab le ab ou t th e co m pan y to k

n o w th at th e

an n o u n cem en t

w as f alse.

5 1 3 F.3 d at 7 10

.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 37

leave open the possibility that “in some unusual circumstances, the core operations inference, without more, may r aise the strong inference r e q uired b y the PSL RA.” Id.
at 785. One ex ample of s u c h u n usual circumstances is “where the nature of the relevant fact is of such promine n c e t h a t it would be ‘absurd’ to sug g est that manag ement was without knowledg e of the matter.” Id. at 786.

Here, Plaintiffs n e v e r plausibly alleg e that specific information was convey ed to Huang 1 4 or others in NVI D I A ’s
manag ement team. They a pparently a ttempt to do so b y relying on the account of CW 1, but CW 1 lacks p e r s o n al k n owledg e of these facts. “CW 1 report[ s] that t h e communications re garding the [ chip] problems were conduct e d at a hig h-level [sic] : ‘ These w ere ex ecutive level
g uy s.’” CW 1’s “boss was a s e n i o r technical employ e e, a Director of Quality .” “‘This g uy is not go i n g to be

c o m m u nicating with g uy s that are a t manag er level or eng ineering level.’” F rom this statement, it is evide n t that CW 1 does not actually know whom from NV I DI A his/her boss communicated w ith r eg arding the chip fai l u r e s

. CW 1 surmises that, b ased on his/her boss’s status in HP’s corporate hie r a r c hy

, he was communicating with ex ecutive level personnel from NVI DI A

. According ly

, CW 1 does not appear to have the requi s i t e personal k nowledg e to assert that NVI DI A’s manag ement team received specific information
reg arding the defective products.

14 P lain tif f s d o alleg e th at Hu an g w as h eav ily in v o lv ed in th e d esig n

o f its ch i p s

. T h ey su

p p o rt th is alleg atio n w ith th e acco u n t o f Co n f id en tial W itn ess N o

. 1 7 (“ CW 1 7”). N ev erth eless, CW 1 7 m erely in d icates th at Hu an g “ d i d n ot w an t an u n d u e n u m b er o f [ s o l d e r] b u m

ps” o n th e ch ip s. T h is d escrip tio n o f Hu an g ’ s in v o l v em en t d o es n o t in d icate th at h e w as h eav ily in v olv ed in th e d e s i g n of th e f law ed GP Us an d MCP s o r in th e d ecisio n to u se h ig h

- lead so ld er.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 38

Even assuming CW 1 d i d have personal knowledg e that his/her boss communicated with NVI DI A’s ex ecutive-level personnel, the specific information alleg ed l y convey ed related to chip failur es , n o t the root cause of them o r NVI DI A’s liability

. A s we discussed above, CW 1’s assertion that H P had determined the root c a use in early 2007 i s not plausible.

Ag ain, e ven assuming HP had determined the root cause in early 2007, Plaintiffs do not alleg e any facts to support the notion that any one at NVI DI A a r rived at the same conclusion

as HP r e garding the root cause, or that NVI DI A would be liable. Nor do Plaintiffs provide a basis to infer that any o ne at NVI DI A was aware that its financial liability would ex c eed its normal reserves. Plaintiffs a r g ue that “[ k] n owledg e of the financial impact of the chip defect should be presumed when the nature o f the p roblem concer n e d [ NVI DI A’s] flag ship product and was cause f

or concern to [ NVI DI A’s] two larg e st customers.” W e d o not ag ree. W ithout factual alleg ations showing that at least someone at NVI D I A had knowledg e o f the ex tent of NVI DI A’s liability

, there is no b asis to presume that NVI DI A’s manag ement would have had such knowledg e.

According ly

, neither the collective scienter d o c trine nor the core operations doctrine alone g ives rise to a strong inference of scienter.

* * * *

Having evaluated Plaintiffs’ alleg ations individually

, we find that none creates a strong inference o f s c i enter alone. Evaluating the al l e g a tions tog e ther, we find that they do not create a s t r o n g i n ference of scienter collectively

. The mostI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 39

that a r easonable fa c t f

inder could infer from Plaintiffs’ alleg ations is that N VI DI A was aware that some versions o f its GPUs and MCP s w e r e ex periencing problems sometime in late 2006 or early 2007. At some point, HP determined the thermal profile that increased the probability that NVI D I A ’s chips w ould f

ail due to c r ac k i n g a t the solder bumps. HP shared with NVI DI A the thermal profile and other d a t a that it believed demonstrated NVI DI A ’s liability

. N VI DI A evidently reproduced these d ata and thermal profile y et contested that it was at fault f o r t h e c h ip failures. W hile Plaintiffs infer that NVI D I A was merely delay ing disclosure until it h ad prepared replacement chips, t h i s i s not a cog ent and compelli n g i n ference. NVI DI A indicated in May 2008 (and even in J uly 2008) that it had not y et determined the root

cause of the product failures, a lthoug h it evidently was working on a solution. Plaintiffs p rovide no factual basis to discount those statements. Moreover, product flaws are very

comm o n in the semiconductor industry

, and NVI DI A
reg ularly takes measures to account for this, as reflected in its disclosures. I t warns investors of this possib i l ity and sets aside a reserve to account for costs r e l a t e d to those flaws. Althoug h there is some slig h t sup p o r t for an inference that NVI DI A knew it was responsible for the pro b l e m before its disclosure, and thus acted with in tent to deceive at least
customers if not investors, a mor e c o mpelling inference is that NVI DI A did not d isclose because it was investig ating the

e x tent of the problem, whether it was responsible for it, a n d if so, whether it would ex haust the reserve. According ly

, we hold that th e complaint’s alleg ations do not g ive rise to a strong inference o f scienter when considered holistically

. See Tellabs , 551 U.S. at 324.

On appeal, Plaintiffs arg ue that the S u p reme Court has rejected the “inference that d e fendants were delay ingI N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 40

disclosure while ‘investig ating the scope of the issue.’” I t is
true that, in Matrixx Initiatives
, the Supreme Cour t r e j e cted the assertion that “‘the most cog ent inference reg arding [ the defendant’s] state of m ind is that it delay ed r eleasing information reg arding [ a product defect] in order to prov ide itself an opportunity to carefully review all evidence.’” Matrixx Initiatives
, 131 S. Ct. at 1324 n.15. Yet the Court also “d[ id] not doubt th a t this may be the most cog ent inference in some cases.” Id. I n Matrixx Initiatives
, the defendant was a pharmaceutical company that manufactured and sold Z icam, a

n over-the-counter remedy for the common cold. Id. at 1313–14. A t some point, a doctor beg an g iving public presentations indicating that Z icam was a f lawed product and posed dang erous health r isks to it s u s e r s. Id. at 1316. I n response to these p resentations, the defendant “issued a p ress release tha t sug g ested that studies h ad confirmed” that Z icam w as not flawed

. Id. at 1316, 1324. Nevertheless, the defendant’s press release was f als e , as no such studies ex isted. Id. a t 1324. Accor d i n gly

, the Court held that “the misleading nature of [ th e defendant’s] press release is sufficient to r e n der the inference of scienter at least

as compelling a s t h e inference [ that the defendant was investig ating the evidence] .” I d. at 1324 n.15.

Here, there are no similar facts. T h ere is n o a l l egation that the issue of a

n inherent defect in NVI DI A’s Material Set

was e ver publicly raised prior to NVI DI A’s disclosure, nor is there any alleg ation that NVI DI A knowing ly issu e d a false
press releas e , attempting to discount any public discussion
reg arding its c hips’ defects. A s such

, we reject Plaintiffs’ assertion that Matrixx Initiatives forecloses the inference that NVI DI A delay ed disclosure w hile it investig ated the cause o f the chip defects and the ex tent of its liability

.I N R E : NVI D I A C O R

P

. S E C

. L I T I G

. 41

IV

F or the reasons d iscussed above, we affirm the district court’s judg ment in its entirety

.

AF F IRMED.