Court Opinion

ID: 2969577
Source: CourtListenerOpinion
Date Created: 2015-09-22 15:52:14.075187+00
Date Added: 2024-06-11T11:43:25.291280
License: Public Domain

5(&200(1'(' )25 )8//7(;7 38%/,&$7,21
            3XUVXDQW WR 6L[WK &LUFXLW 5XOH 

   (/(&7521,& &,7$7,21  )(' $SS 3 WK &LU
               )LOH 1DPH DS

81,7('67$7(6&28572)$33($/6
              )257+(6,;7+&,5&8,7
                BBBBBBBBBBBBBBBBB

7+20$6 + +,65,&+               ;
$GPLQLVWUDWRURIWKH(VWDWHRI    
'LDQD=KDQJ                      
                                    1R
          3ODLQWLII$SSHOODQW    
                                   !
                                  
          Y                      
                                  
92/92 &$56 2) 1257+               
$0(5,&$ ,1& 92/92              
1257+ $0(5,&$                     
                                  
&25325$7,21                      
       'HIHQGDQWV$SSHOOHHV 
                                1
     $SSHDOIURPWKH8QLWHG6WDWHV'LVWULFW&RXUW
      IRUWKH1RUWKHUQ'LVWULFWRI2KLRDW$NURQ
  1Rn3DWULFLD$*DXJKDQ'LVWULFWsXGJH
                $UJXHGsXQH
          'HFLGHGDQG)LOHG$XJXVW
 %HIRUH0(55,77*8<DQG&2/(&LUFXLWsXGJHV

                           
     +LVULFKY9ROYR&DUVHWDO                  1R

                     BBBBBBBBBBBBBBBBB
                           &2816(/
$5*8('  sDPHV $ /RZH /2:( (./81' 	
:$.(),(/'&2/3$&OHYHODQG2KLRIRU$SSHOODQW
+XJK s %RGH 5(0,1*(5 	 5(0,1*(5 &2 /3$
&OHYHODQG 2KLR IRU $SSHOOHHV  21 %5,()  sDPHV $
/RZH /2:( (./81' 	 :$.(),(/' &2 /3$
&OHYHODQG 2KLR IRU $SSHOODQW  +XJK s %RGH 7 /HLJK
$QHQVRQ 5(0,1*(5 	 5(0,1*(5 &2 /3$
&OHYHODQG2KLRIRU$SSHOOHHV
  &2/( s GHOLYHUHG WKH RSLQLRQ RI WKH FRXUW LQ ZKLFK
0(55,77 s MRLQHG  *8< s SS  GHOLYHUHG D
VHSDUDWHRSLQLRQFRQFXUULQJLQSDUWDQGGLVVHQWLQJLQSDUW
                     BBBBBBBBBBBBBBBBB
                         23,1,21
                     BBBBBBBBBBBBBBBBB
  5 *8< &2/( s5 &LUFXLW sXGJH  3ODLQWLII 7KRPDV
+LVULFKDGPLQLVWUDWRURIWKHHVWDWHRI'LDQD=KDQJILOHGWKLV
SURGXFWVOLDELOLW\VXLWDJDLQVWGHIHQGDQWV9ROYR&DUVRI1RUWK
$PHULFD,QFDQG9ROYR1RUWK$PHULFD&RUSFROOHFWLYHO\
m9ROYRlDOOHJLQJGHIHFWLQ9ROYRjVDLUEDJV\VWHP=KDQJ
ZDVDIURQWVHDWSDVVHQJHULQD9ROYR*/7m9ROYR
l ZKLFK ZDV LQYROYHG LQ D ORZVSHHG FROOLVLRQ  7KH
9ROYRjVDLUEDJGHSOR\HGVWULNLQJDQGNLOOLQJVL[\HDUROG
=KDQJ3ODLQWLIIDOOHJHGWKDWWKH9ROYRjVDLUEDJV\VWHP
ZDVGHIHFWLYHLQERWKLWVGHVLJQDQGPDQXIDFWXUHDQGLQLWV
ZDUQLQJV DQG LQVWUXFWLRQV  7KH MXU\ UHWXUQHG D YHUGLFW IRU
9ROYRZKLFKSODLQWLIIDSSHDOVFODLPLQJWKDWWKHGLVWULFWFRXUW
HUUHGE\IDLOLQJWRLQVWUXFWWKHMXU\RQERWKWKHIDLOXUHWRZDUQ
GHIHFWVWDQGDUGDQGWKHFRQVXPHUH[SHFWDWLRQGHIHFWVWDQGDUG
IRU SURGXFWV OLDELOLW\ XQGHU 2KLR ODZ  )RU WKH IROORZLQJ
UHDVRQVZH5(9(56(WKHMXGJPHQWRIWKHGLVWULFWFRXUWDQG
5(0$1'IRUDQHZWULDO
       +LVULFKY9ROYR&DUVHWDO                    1R        1R                   +LVULFKY9ROYR&DUVHWDO         

FDVHRIZDLYHUWKDQLVSUHVHQWHGE\WKHUHFRUGEHIRUHXVRQ                                           ,%DFNJURXQG
DSSHDO
                                                                                7KH HYHQWV LQ WKLV FDVH DULVH IURP DQ $SULO  
                                                                             DFFLGHQWLQZKLFKD9ROYRGULYHQE\.H0LQJ/LVWUXFN
                                                                             WKH UHDU HQG RI D  9RONVZDJHQ *ROI  /L ZDV GULYLQJ
                                                                             KRPHZKHQVKHIDLOHGWRVWRSDVWKH9RONVZDJHQLQIURQWRI
                                                                             KHUVORZHGWRPDNHDOHIWWXUQ/LHQJDJHGKHUEUDNHVEXWWKH
                                                                             9ROYR  VWUXFN WKH UHDU HQG RI WKH 9RONVZDJHQ DW ORZ
                                                                             VSHHG FDXVLQJ WKH 9ROYR jV GULYHU DQG IURQWSDVVHQJHU
                                                                             DLUEDJVWRGHSOR\/LjVVL[\HDUROGGDXJKWHU=KDQJZDVLQ
                                                                             WKH IURQWSDVVHQJHU VHDW RI WKH 9ROYR  DQG ZDV QRW
                                                                             ZHDULQJ VHDW EHOW UHVWUDLQWV  $V WKH SDVVHQJHUVHDW DLUEDJ
                                                                             GHSOR\HGWKHDLUEDJDQGWKHDLUEDJjVPRGXOHFRYHUIRUFHIXOO\
                                                                             VWUXFN =KDQJ LQ WKH KHDG DQG XSSHU SRUWLRQ RI KHU ERG\
                                                                             SURSHOOLQJWKHXQUHVWUDLQHGFKLOGLQWRWKHLQWHULRUURRIRIWKH
                                                                             YHKLFOH=KDQJGLHGWZRGD\VDIWHUWKHDFFLGHQWDVDUHVXOWRI
                                                                             KHULQMXULHV$OWKRXJK=KDQJZDVQRWZHDULQJVHDWUHVWUDLQWV
                                                                             WKHSDUWLHVVWLSXODWHWKDWLIWKHDLUEDJKDGQRWGHSOR\HG=KDQJ
                                                                             ZRXOGQRWKDYHVXVWDLQHGKHUIDWDOLQMXULHV
                                                                               3ODLQWLII EURXJKW WKLV GLYHUVLW\ DFWLRQ SXUVXDQW WR 
                                                                             86&VHHNLQJFRPSHQVDWRU\DQGSXQLWLYHGDPDJHV
                                                                             IRU =KDQJjV ZURQJIXO GHDWK IURP 9ROYR IRU WKH GHIHFWLYH
                                                                             GHVLJQPDQXIDFWXUHDQGZDUQLQJVRULQVWUXFWLRQVSXUVXDQWWR
                                                                             2+,2 5(9 &2'( $11$QGHUVRQ
                                                                             3ULRU WR WULDO SODLQWLII LQGLFDWHG WR WKH GHIHQGDQWV DQG WKH
                                                                             FRXUWWKDWWKHGHIHFWLYHZDUQLQJRULQVWUXFWLRQFODLPSXUVXDQW
                                                                             WRZRXOGQRWEHVXEPLWWHGWRWKHMXU\DVVXPLQJ
                                                                             WKDW VXFK HYLGHQFH ZDV QRW GHYHORSHG DW WULDO  3ODLQWLII
                                                                             KRZHYHU GLG QRW DPHQG KLV FRPSODLQW ZKLFK VXIILFLHQWO\
                                                                             SOHDGHGWKHGHIHFWLYHZDUQLQJVFODLP
                                                                               7KH MXU\ WULDO EHJDQ RQ )HEUXDU\    3ODLQWLII
                                                                             SUHVHQWHGHYLGHQFHFRQFHUQLQJWKHGHVLJQDQGWHVWLQJRIWKH
                                                                             9ROYRjVDLUEDJV\VWHP,QDGGLWLRQSODLQWLIIDOVRSURGXFHG
                                                                             HYLGHQFH FRQFHUQLQJ 9ROYRjV NQRZOHGJH RI WKH ULVN WR
                                                                            XQEHOWHGFKLOGUHQDQGVPDOODGXOWVIURPDLUEDJGHSOR\PHQW
     ,Q UHVSRQVH WR P\ GLVVHQW IRRWQRWH IRXU KDV EHHQ DGGHG WR WKH
PDMRULW\ RSLQLRQ ,Q P\ YLHZ WKH IRRWQRWH LV QRQUHVSRQVLYH 7KH LVVXH
LV QRW ZKDW ZDV LQ WKH SUHWULDO RUGHU EXW UDWKHU WKH VSHFLILF DGGLWLRQDO
DFWLRQV WDNHQ E\ SODLQWLIIjV FRXQVHO XQHTXLYRFDOO\ ZDLYLQJ WKH IDLOXUHWR
                                                                                 
ZDUQ FODLP                                                                       'HIHQGDQWV UHPRYHG WKLV DFWLRQ IURP VWDWH FRXUW RQ 0D\  
         +LVULFKY9ROYR&DUVHWDO                    1R       1R                  +LVULFKY9ROYR&DUVHWDO       

$WWKHFORVHRIHYLGHQFHSODLQWLIIUHTXHVWHGDMXU\LQVWUXFWLRQ              BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB
IRUGHIHFWLYHZDUQLQJRULQVWUXFWLRQSXUVXDQWWR2+,2 5(9
&2'( $11   $QGHUVRQ  EDVHG RQ WKH                       &21&855,1*,13$57',66(17,1*,13$57
HYLGHQFHGHYHORSHGDWWULDO7KHWULDOFRXUWGHQLHGSODLQWLIIjV              BBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBBB
UHTXHVWHG LQVWUXFWLRQ ILQGLQJ WKDW WKH HYLGHQFH GLG QRW
VXSSRUW WKH LQVWUXFWLRQ  6SHFLILFDOO\ WKH FRXUW IRXQG WKDW           5$/3+%*8<s5&LUFXLWsXGJHFRQFXUULQJLQSDUWDQG
GHIHQGDQWVKDGUHEXWWHGWKHSUHVXPSWLRQWKDW/LZRXOGKDYH                   GLVVHQWLQJLQSDUW,FRQFXULQDOORIWKHFRXUWjVRSLQLRQH[FHSW
KHHGHGWKHZDUQLQJVRULQVWUXFWLRQV7KHGLVWULFWFRXUWDOVR                SDUW,,,$,ZRXOGKROGWKDWSODLQWLIIZDLYHGKLVIDLOXUHWR
UHMHFWHGSODLQWLIIjVSURSRVHGMXU\LQVWUXFWLRQRQWKHFRQVXPHU              ZDUQFODLPDQGWKDWRQUHWULDOWKLVLVVXHPD\QRWEHVXEPLWWHG
H[SHFWDWLRQWHVWIRUGHWHUPLQLQJDGHVLJQGHIHFWSXUVXDQWWR                WRWKHMXU\
2+,2 5(9 &2'( $11$QGHUVRQ6XSS
7KHFRXUWKHOGWKDWmDLUEDJVLQSDVVHQJHUDXWRPRELOHVDUHQRW                  6KRUWO\ EHIRUH WULDO SODLQWLIIjV FRXQVHO LQIRUPHG GHIHQVH
D VXEMHFW WR ZKLFK FRQVXPHUV FRXOG KDYH UHDVRQDEOH                    FRXQVHO WKDW SODLQWLII ZDV DEDQGRQLQJ KLV IDLOXUHWRZDUQ
H[SHFWDWLRQVl                                                              FODLP7KLVLVDWWHVWHGWRE\WKHIDFWWKDWSODLQWLIIjVWULDOEULHI
                                                                             GLGQRWVHWIRUWKIDLOXUHWRZDUQDVRQHRIKLVWKHRULHV7KDW
   7KHFDVHSURFHHGHGWRWKHMXU\ZLWKWKHLQVWUXFWLRQVOLPLWHG              VXFKLVWKHFDVHLVIXUWKHUGHPRQVWUDWHGE\GHIHQGDQWVjWULDO
WRWKHULVNEHQHILWWHVWIRUSURGXFWGHIHFWRPLWWLQJWKHIDLOXUH           EULHIZKLFKVWDWHG
WRZDUQWHVWDQGFRQVXPHUH[SHFWDWLRQWHVW7KHMXU\UHWXUQHG
DYHUGLFWIRUGHIHQGDQWVRQ0DUFKZKLFKWKHGLVWULFW                  $OWKRXJK 3ODLQWLII KDV SOHG D FODLP XQGHU >25&
FRXUWHQWHUHGRQ0DUFK3ODLQWLIIILOHGDWLPHO\QRWLFH               6HFWLRQ@DVVHUWLQJWKDWWKH9ROYR*/7
RIDSSHDORQ0DUFK                                                   ZDVGHIHFWLYHEHFDXVHLWODFNHGDGHTXDWHZDUQLQJVDQG
                                                                               LQVWUXFWLRQV FRXQVHO IRU 3ODLQWLII KDV DGYLVHG WKH
                       ,,6WDQGDUGRI5HYLHZ                                  XQGHUVLJQHGWKDWKHGRHVQRWLQWHQGIRUWKLVFODLPWREH
                                                                               VXEPLWWHGWRWKHMXU\
   3ODLQWLIIFRQWHQGVWKDWKHLVHQWLWOHGWRDQHZWULDOEHFDXVH
WKHGLVWULFWFRXUWHUUHGE\IDLOLQJWRJLYHSODLQWLIIjVUHTXHVWHG             3HUKDSVRIJUHDWHUVLJQLILFDQFHLVWKHIDFWWKDWWKHSDUWLHV
MXU\LQVWUXFWLRQV)HGHUDOODZJRYHUQVRXUVWDQGDUGRIUHYLHZ               KDGDQDJUHHGXSRQVWDWHPHQWUHDGWRWKHMXU\GXULQJYRLUGLUH
LQGLYHUVLW\FDVHV6HH*DIIRUGY*HQHUDO(OHF&R)G              ZKLFK PDGH QR PHQWLRQ RI D IDLOXUHWRZDUQ WKHRU\  7KH
  WK &LU   7KLV FRXUW mUHYLHZV D GLVWULFW          SDUWLHVLQHIIHFWVWLSXODWHGWRGURSWKHIDLOXUHWRZDUQFODLP
FRXUWjVUHIXVDOWRJLYHUHTXHVWHGMXU\LQVWUXFWLRQVXQGHUDQ                 7KH PDMRULW\ UHIHUHQFHV WKH IDFW WKDW WKH SODLQWLII GLG QRW
DEXVHRIGLVFUHWLRQVWDQGDUGl.LQJY)RUG0RWRU&R                  DPHQGKLVFRPSODLQWKRZHYHUWKDWLVRQO\GRQHLIDWDOOLI
)G   WK &LU   :H GHILQH DQ mDEXVH RI            DFODLPLVEHLQJDGGHG7RGURSDFODLPWKHUHLVQRQHHGWR
                                                                             IRUPDOO\ DPHQG WKH FRPSODLQW LQ ZULWLQJ  'HIHQGDQWV
                                                                             SURFHHGHG GXULQJ WULDO RQ WKH EDVLV RI WKH IDLOXUHWRZDUQ
                                                                            FODLPQRORQJHUEHLQJLQWKHFDVH,WZDVHQWLUHO\DSSURSULDWH
       $  DPHQGPHQW WR WKH 2KLR SURGXFW OLDELOLW\ FRGH HOLPLQDWHG WKH
FRQVXPHUH[SHFWDWLRQ WHVW IRU SURGXFW GHIHFW 7KLV DPHQGPHQW KRZHYHU       IRUWKHGHIHQGDQWVWRGRVR,WLVKDUGWRFRQFHLYHRIDFOHDUHU
LV DSSOLFDEOH RQO\ WR SURGXFWV FUHDWHG DIWHU LWV HIIHFWLYH GDWH RI sDQXDU\
 DQG WKXV LV LQDSSOLFDEOH WR /LjV  9ROYR     $00 2+,2 5(9
&   2'( $11     ,Q DGGLWLRQ WKH  DPHQGPHQWV WR WKH SURGXFW
OLDELOLW\ FRGH KDYH EHHQ KHOG XQFRQVWLWXWLRQDO LQ WRWR E\ WKH 2KLR 6XSUHPH
&RXUW    $00 2KLR $FDGHP\ RI 7ULDO /DZ\HUV Y 6KHZDUG  1(G 
2KLR 
    +LVULFKY9ROYR&DUVHWDO                 1R      1R                     +LVULFKY9ROYR&DUVHWDO            

UHTXHVWHGMXU\LQVWUXFWLRQZH5(9(56(WKHGLVWULFWFRXUWjV          GLVFUHWLRQl DV mD GHILQLWH DQG ILUP FRQYLFWLRQ WKDW WKH WULDO
MXGJPHQWGHQ\LQJWKHFRQVXPHUH[SHFWDWLRQLQVWUXFWLRQDQG            FRXUW FRPPLWWHG D FOHDU HUURU RI MXGJPHQWl  %RZOLQJ Y
5(0$1'IRUDQHZWULDO                                              3IL]HU,QF)GWK&LU$OWKRXJKWULDO
                                                                     FRXUWVKDYHEURDGGLVFUHWLRQLQIUDPLQJMXU\LQVWUXFWLRQVVWDWH
                               9                                    ODZ GHWHUPLQHV WKH VXEVWDQFH RI MXU\ LQVWUXFWLRQV LQ D
                                                                     GLYHUVLW\ DFWLRQ ZKLOH IHGHUDO SURFHGXUDO ODZ JRYHUQV
  )RU WKH IRUHJRLQJ UHDVRQV ZH 5(9(56( WKH GLVWULFW          TXHVWLRQV UHJDUGLQJ WKH SURSULHW\ RI WKH LQVWUXFWLRQV  6HH
FRXUWjV GHQLDO RI SODLQWLIIjV UHTXHVWHG LQVWUXFWLRQV RQ WKH   .LQJ  )G DW  FLWLQJ 3HUVLDQ *DOOHULHV ,QF Y
IDLOXUHWRZDUQ DQG FRQVXPHUH[SHFWDWLRQ WHVW IRU SURGXFW       7UDQVFRQWLQHQWDO,QV&R)GWK&LU
GHIHFWDQG5(0$1'IRUDQHZWULDOLQDFFRUGDQFHZLWKWKLV           7KHIHGHUDOFRXUWVLWWLQJLQGLYHUVLW\DSSOLHVWKHVDPHODZDV
RSLQLRQ                                                             ZRXOGEHDSSOLHGE\WKH2KLRVWDWHFRXUWV6HH(ULH55Y
                                                                     7RPSNLQV86
                                                                        :H UHYLHZ mMXU\ LQVWUXFWLRQV DV D ZKROH LQ RUGHU WR
                                                                     GHWHUPLQHZKHWKHUWKHLQVWUXFWLRQVDGHTXDWHO\LQIRUPWKHMXU\
                                                                     RI UHOHYDQW FRQVLGHUDWLRQV DQG SURYLGH D EDVLV LQ ODZ IRU
                                                                     DLGLQJWKHMXU\WRUHDFKLWVGHFLVLRQl.LQJ)GDW
                                                                     LQWHUQDO TXRWDWLRQV DQG DOWHUDWLRQV RPLWWHG  $ mGLVWULFW
                                                                     FRXUWjVUHIXVDOWRJLYHDMXU\LQVWUXFWLRQFRQVWLWXWHVUHYHUVLEOH
                                                                     HUURULIµWKHRPLWWHGLQVWUXFWLRQVDUHDFRUUHFWVWDWHPHQW
                                                                     RIWKHODZWKHLQVWUXFWLRQLVQRWVXEVWDQWLDOO\FRYHUHGE\
                                                                     RWKHUGHOLYHUHGFKDUJHVWKHIDLOXUHWRJLYHWKHLQVWUXFWLRQ
                                                                     LPSDLUVWKHUHTXHVWLQJSDUW\jVWKHRU\RIWKHFDVHjl:HEVWHU
                                                                     Y(GZDUG'sRQHV	&R/3)GWK&LU
                                                                     TXRWLQJ6XWNLHZLF]Y0RQURH&RXQW\6KHULII)G
                                                                     WK&LUm$MXGJPHQWPD\EHUHYHUVHGRQO\
                                                                     LI WKH LQVWUXFWLRQV YLHZHG DV D ZKROH ZHUH FRQIXVLQJ
                                                                     PLVOHDGLQJRUSUHMXGLFLDOl%HDUGY1RUZHJLDQ&DULEEHDQ
                                                                     /LQHV)GWK&LU

                                                                         
                                                                           :KHQ WKH VWDWHjV KLJKHVW FRXUW KDV QRW GHFLGHG WKH DSSOLFDEOH ODZ
                                                                     WKH IHGHUDO FRXUW PXVW DVFHUWDLQ WKH VWDWH ODZ IURP mDOO UHOHYDQW GDWDl
                                                                     LQFOXGLQJ VWDWH DSSHOODWH FRXUW GHFLVLRQV VXSUHPH FRXUW GLFWD
                                                                     UHVWDWHPHQWV RI ODZ ODZ UHYLHZ FRPPHQWDULHV DQG WKH PDMRULW\ UXOH
                                                                     DPRQJ RWKHU VWDWHV *DUGHQ &LW\ 2VWHRSDWKLF +RVS Y +%( &RUS 
                                                                     )G   WK &LU  +RZHYHU ZKHUH D VWDWH DSSHOODWH FRXUW
                                                                     KDV UHVROYHG DQ LVVXH WR ZKLFK WKH KLJK FRXUW KDV QRW VSRNHQ mZH ZLOO
                                                                     QRUPDOO\ WUHDW >WKRVH@ GHFLVLRQV    DV DXWKRULWDWLYH DEVHQW D VWURQJ
                                                                     VKRZLQJ WKDW WKH VWDWHjV KLJKHVW FRXUW ZRXOG GHFLGH WKH LVVXH GLIIHUHQWO\l
                                                                     *DUUHWW Y $NURQ&OHYHODQG $XWR 5HQWDO ,QF ,Q UH $NURQ&OHYHODQG $XWR
                                                                     5HQWDO ,QF  )G   WK &LU 
     +LVULFKY9ROYR&DUVHWDO                 1R       1R                              +LVULFKY9ROYR&DUVHWDO                      

          ,,,)DLOXUHWR:DUQsXU\,QVWUXFWLRQ                      FRQVXPHUGHYLFHVVXFKDVYHKLFXODUDLUEDJV8QGHU2KLR
                                                                      ODZWKHLVVXHLVQRWZKHWKHUWKHFRQVXPHUFDQGHWHUPLQHWKH
   3ODLQWLII FRQWHQGV WKDW WKH FRXUW LPSURSHUO\ GHQLHG KLV     UHDVRQDEOH H[SHFWDWLRQV IRU WKH WHFKQLFDO RSHUDWLRQ RI WKH
UHTXHVWHGMXU\LQVWUXFWLRQVUHJDUGLQJWKHDGHTXDF\RI9ROYRjV         SURGXFWEXWWKHFRQVXPHUjVUHDVRQDEOHDELOLW\WRH[SHFWWKH
ZDUQLQJVDQGLQVWUXFWLRQV3ODLQWLIIDVVHUWVWKDWEHFDXVH2+,2       SHUIRUPDQFHRIWKHSURGXFW6HH6RXUV)GDW
5(9 &2'( $11   DQG WKH DSSOLFDEOH MXU\                 /HLFKWDPHU1(GDW&ROERFK1(GDW
LQVWUXFWLRQV2+,2 s85< ,16758&7,216              ,QDGGLWLRQWKLVFRXUWjVRSLQLRQLQsRUGDQY3DFFDU,QFIDLOV
SHUPLWDILQGLQJWKDWDSURGXFWLVGHIHFWLYHE\UHDVRQ        WRVXSSRUWGHIHQGDQWVjSRVLWLRQUHJDUGLQJWKHDSSOLFDELOLW\RI
RI LQDGHTXDWH ZDUQLQJ RU LQVWUXFWLRQ WKH FRXUW IDLOHG WR     WKHFRQVXPHUH[SHFWDWLRQWHVW,QsRUGDQWKLVFRXUWIRXQG
IROORZ2KLRVXEVWDQWLYHODZ'HIHQGDQWVFRQWHQGKRZHYHU            WKDWLWZDVQRWHUURUIRUWKHGLVWULFWFRXUWWRUHIXVHWRLQVWUXFW
WKDW SODLQWLII ZLWKGUHZ WKH IDLOXUHWRZDUQ GHIHFW FODLP DW   WKHMXU\RQWKHFRQVXPHUH[SHFWDWLRQWHVWEHFDXVHWKHFODLP
WULDO IDLOHG WR SURYLGH HYLGHQFH WKDW WKH ZDUQLQJV ZHUH      ZDVVXEVXPHGE\WKHULVNEHQHILWLQVWUXFWLRQ6HH)GDW
LQDGHTXDWH DQG IDLOHG WR VKRZ FDXVDWLRQ EHWZHHQ WKH           7KHsRUGDQFRXUWIRXQGWKDWXQGHUWKHIDFWVRIWKDW
LQDGHTXDWHZDUQLQJVRULQVWUXFWLRQVDQGSODLQWLIIjVXVHRIWKH        SDUWLFXODUFDVHWKHSODLQWLIIKDGQRFRQVXPHUH[SHFWDWLRQRI
SURGXFW'HIHQGDQWVjILUVWDUJXPHQWLVWKDWSODLQWLIIZDLYHG         VXUYLYLQJWKHWUDJLFLQMXU\DWLVVXH6HHLG ,QWKHSUHVHQW
WKH IDLOXUHWRZDUQ FODLP ZKLOH WKH UHPDLQLQJ DUJXPHQWV        FDVH SODLQWLIIjV WKHRU\ LV WKDW QRUPDO H[SHFWDWLRQV IRU
HVVHQWLDOO\DVVHUWWKDWSODLQWLIIIDLOHGWRHVWDEOLVKWKHHOHPHQWV    XQEHOWHGSDVVHQJHUVDIHW\LQDORZVSHHGFROOLVLRQZDVQRW
RI D IDLOXUHWRZDUQ FODLP  $FFRUGLQJO\ ZH DGGUHVV WKH      PHWE\GHIHQGDQWVjSURGXFWWKXVWKHIDFWVLQWKHSUHVHQWFDVH
SODLQWLIIjVDOOHJHGZDLYHUDQGWKHUHTXLUHPHQWVIRUDIDLOXUH        DUHGLVWLQJXLVKDEOHIURPWKRVHLQsRUGDQ
WRZDUQFODLPSXUVXDQWWR
                                                                         )ROORZLQJ WKH DSSOLFDEOH SUHFHGHQW DQG 2KLR ODZ RI
                           $:DLYHU                                 FRQVXPHUH[SHFWDWLRQ$WKHGLVWULFWFRXUWDEXVHG
                                                                      LWV GLVFUHWLRQ LQ UHIXVLQJ WR LQVWUXFW RQ WKH FRQVXPHU
  :LWKUHVSHFWWRWKHGHIHQGDQWVjZDLYHUDUJXPHQWZHILQG            H[SHFWDWLRQWHVWZKHUHHYLGHQFHRIXQH[SHFWHGSHUIRUPDQFH
WKDWSODLQWLIIGLGQRWZDLYHRUDEDQGRQWKHSURSHUO\SOHDGHG          ZDVSUHVHQWHGDWWULDO7KHFRQVXPHUH[SHFWDWLRQWHVWLVRQH
IDLOXUHWRZDUQFODLP$OWKRXJKSODLQWLIIGLGQRWLQFOXGHWKH        RIWZRGLVWLQFWWHVWVIRUSURGXFWGHIHFWLQZKLFKHYLGHQFHRI
IDLOXUHWRZDUQLQVWUXFWLRQLQKLVWULDOEULHIRUSURSRVHGMXU\       XQH[SHFWHGSHUIRUPDQFHLVVXIILFLHQWWRLQIHUSURGXFWGHIHFW
LQVWUXFWLRQV KH UHTXHVWHG WKLV LQVWUXFWLRQ DW WKH FORVH RI   %HFDXVHWKHFRXUWDEXVHGLWVGLVFUHWLRQLQIDLOLQJWRJLYHWKH
HYLGHQFH7KHGLVWULFWFRXUWGHFOLQHGWRSURYLGHSODLQWLIIjV
SURSRVHGMXU\LQVWUXFWLRQEXWIRXQGRQWKHUHFRUGWKDW WKH
MXU\LQVWUXFWLRQZDVmWLPHO\UHTXHVWHGlDQGFRQVLGHUHGLWRQ                 
WKHPHULWV'HVSLWHGHIHQGDQWVjDUJXPHQWVRISUHMXGLFHDQG                   6HH HJ :KHHOHU Y &KU\VOHU &RUS 1R &  :/

DEDQGRQPHQWWKHFRXUWGLGQRWILQGWKDWWKHFODLPKDGEHHQ                DW 
 1' ,OO 0DUFK   XQSXEOLVKHG DSSO\LQJ ,OOLQRLV

ZDLYHG LQ UHDFKLQJ WKH PHULWV RI WKH SURSRVHG LQVWUXFWLRQ
                                                                      ODZ WR SURGXFWVOLDELOLW\ FDVH LQYROYLQJ DLUEDJ DQG ILQGLQJ WKH FRQVXPHU

                                                                      H[SHFWDWLRQ WHVW LQDSSOLFDEOH         3UXLWW Y *HQHUDO 0RWRUV &RUS                &DO

0RUHRYHUGHIHQGDQWVFLWHQRDXWKRULW\ZKLFKLQGLFDWHVWKDW           5SWU G   &DO &W $SS  ILQGLQJ WULDO FRXUWjV UHIXVDO WR LQVWUXFW

SODLQWLIIKDVZDLYHGWKLVFODLPE\IDLOLQJWRJLYHQRWLFHLQWKH      MXU\   RQ   FRQVXPHUH[SHFWDWLRQ         WHVW   DSSURSULDWH   EHFDXVH       mWKH   FRQVXPHU

                                                                      H[SHFWDWLRQV WHVW LV UHVHUYHG IRU FDVHV LQ ZKLFK WKH HYHU\GD\ H[SHULHQFH

                                                                      RI   WKH   SURGXFWVj   XVHUV   SHUPLWV    D   FRQFOXVLRQ     WKDW   WKH   SURGXFW
V      GHVLJQ

                                                                      YLRODWHG PLQLPXP VDIHW\ DVVXPSWLRQVl ZKLFK mDUH QRW ZLWKLQ WKH FRPPRQ

                                                                      NQRZOHGJH RI OD\ MXURUVl HPSKDVLV RPLWWHG                %XW VHH HJ %UHVQDKDQ
                                                                      Y &KU\VOHU &RUS           &DO   5SWU   G          &DO   &W   $SS   

                                                                      DSSO\LQJ FRQVXPHUH[SHFWDWLRQV WHVW WR DLUEDJ SURGXFWV OLDELOLW\ FODLP
    +LVULFKY9ROYR&DUVHWDO                 1R       1R                       +LVULFKY9ROYR&DUVHWDO             

H[SHFWDWLRQ RI VDIHW\ KDV GHYHORSHGl  .QLW] Y 0LQVWHU       WULDO EULHI  7KXV ZH ILQG WKDW SODLQWLII GLG QRW ZDLYH KLV
0DFKLQH &R  1(G   2KLR  VHH DOVR       IDLOXUHWRZDUQ MXU\ LQVWUXFWLRQ FODLP DQG WKDW WKH FODLP LV
3UXLWWY*HQHUDO0RWRUV&RUS1(G2KLR             SURSHUO\EHIRUHWKLVFRXUW
&W$SSILQGLQJWKDWWKHGHIHFWPXVWEHZLWKLQ WKH
UHDOPRIWKHFRPPRQFRQVXPHUXQGHUVWDQGLQJLQDSSO\LQJ                               %)DLOXUHWR:DUQ5HTXLUHPHQWV
FRQVXPHUH[SHFWDWLRQ WHVW  7KH .QLW] FRXUW KRZHYHU
FODULILHG WKLV REVHUYDWLRQ QRWLQJ WKDW VXFK LQVWDQFHV DULVH     'HIHQGDQWV FRQWHQG WKDW SODLQWLII IDLOHG WR HVWDEOLVK D
ZKHQ mWKH LQMXUHG SDUW\ LV DQ LQQRFHQW E\VWDQGHU ZKR LV      IDLOXUHWRZDUQ FODLP  7KH 2KLR OHJLVODWXUH KDV FRGLILHG
LJQRUDQWRIWKHSURGXFWlRUZKHQQHZXVHUVKDYHGHYHORSHG             SURGXFWV OLDELOLW\ ODZ ZLWK UHVSHFW WR GHIHFWV GXH WR
QR H[SHFWDWLRQ RI SURGXFW SHUIRUPDQFH  6HH LG DW       LQDGHTXDWHZDUQLQJVRULQVWUXFWLRQV6HH2+,2 5(9 &2'(
1HLWKHUVLWXDWLRQLVSUHVHQWLQWKLVFDVH0RUHRYHUWKH.QLW]       $11  $  ,Q SHUWLQHQW SDUW WKH 2KLR VWDWXWH
FRXUWGLGQRWGHHPWKHFRQVXPHUH[SHFWDWLRQWHVWLQDSSOLFDEOH         SURYLGHVWKDW
LQFDVHVZKHUHWKHLQMXUHGLVLJQRUDQWEXWLQVWHDGQRWHGWKDW
WKH WHVW ZRXOG QRW SURGXFH D GHIHFW EHFDXVH WKH SODLQWLII       >$SURGXFW@LVGHIHFWLYHGXHWRLQDGHTXDWHZDUQLQJ
ZRXOGQRWKDYHDQ\SHUIRUPDQFHH[SHFWDWLRQ6HHLGVHH                   RULQVWUXFWLRQDWWKHWLPHRIPDUNHWLQJLIZKHQLWOHIW
DOVR 3UXLWW  1(G DW  DSSO\LQJ FRQVXPHU                   WKHFRQWURORILWVPDQXIDFWXUHUERWKRIWKHIROORZLQJ
H[SHFWDWLRQWHVWEXWILQGLQJWKDWFRQVXPHUFRXOGQRWH[SHFWD               DSSOLHG
SURGXFWSHUIRUPDQFHZKLFKFRQWHPSODWHGSODLQWLIIjVVSHFLILF
XVHRIWKHSURGXFW                                                           D 7KHPDQXIDFWXUHUNQHZRULQWKHH[HUFLVHRI
                                                                                    UHDVRQDEOHFDUHVKRXOGKDYHNQRZQDERXWD
   )ROORZLQJRXUUHDVRQLQJLQ6RXUVDQGsRUGDQDQG2KLRjV                          ULVNWKDW LVDVVRFLDWHGZLWKWKHSURGXFWDQG
UHDVRQLQJLQ/HLFKWDPHUDQG&ROERFKDFRQVXPHUQHHGRQO\                           WKDW DOOHJHGO\ FDXVHG KDUP IRU ZKLFK WKH
KDYHDQH[SHFWDWLRQLQWKHQRUPDORSHUDWLRQDQGVDIHW\ZLWK
UHVSHFW WR WKHLU DLUEDJ V\VWHP RSHUDWLRQ WR VDWLVI\ WKH
FRQVXPHUH[SHFWDWLRQWHVW$FFRUGLQJO\2KLRjVFRQVXPHU                 
H[SHFWDWLRQWHVWKDVEHHQDSSOLHGWRWKHUROORYHUVWDELOLW\RI             :H GLVDJUHH ZLWK WKH GLVVHQWjV DUJXPHQW WKDW SODLQWLII FOHDUO\ ZDLYHG

DVSRUWXWLOLW\YHKLFOHVHH&OD\)GDWDYHKLFOHjV       RU DEDQGRQHG WKH ZDUQLQJV FODLP         7KH WULDO FRXUW KDV GLVFUHWLRQ LQ
                                                                      FRQVLGHULQJ GHYLDWLRQV IURP WKH SUHWULDO RUGHUV LQ D SDUWLFXODU FDVH     6HH
URRIGHVLJQVHH6RXUV)GDWDYHKLFOHjVUROO        'DQLHOV   Y %RDUG RI (GXF RI 5DYHQQD &LW\ 6FK 'LVW     )G  
RYHU EDU VHH /HLFKWDPHU  1(G DW  DQG WR D       WK &LU  m7KH GHFLVLRQ ZKHWKHU WR PRGLI\ WKH ILQDO SUHWULDO RUGHU
YHKLFOHjVDLUEDJV\VWHPVHH)LVKHU)6XSSGDW        LV ZLWKLQ WKH VRXQG GLVFUHWLRQ RI WKH GLVWULFW FRXUW DQG ZLOO EH VHW DVLGH
8QGHU2KLRODZZHILQGWKHWULDOFRXUWjVILQGLQJVZLWKUHVSHFW       RQO\ LI WKH GLVWULFW FRXUW DEXVHG WKDW GLVFUHWLRQl ,Q WKH SUHVHQW FDVH WKH
                                                                      WULDO FRXUW KHDUG H[WHQVLYH DUJXPHQW RQ WKH YLDELOLW\ RI WKH ZDUQLQJ
WRWKHFRQVXPHUjVNQRZOHGJHRIWKHWHFKQLFDOGHWDLOVRIWKH           LQVWUXFWLRQ LQFOXGLQJ GHIHQGDQWVj ZDLYHU DUJXPHQW 3ODLQWLII DUJXHG WKDW
DLUEDJV\VWHPDUHPLVSODFHG&I)LVKHU)6XSSGDW          KH KDG FOHDUO\ mZDUQHG GHIHQVH FRXQVHO WKDW LI WKH\ WULHG WR VXJJHVW WKDW
6WDWH)DUP)LUH	&DV&R1(GDW               >9ROYR SURYLGHG@ DQ DGHTXDWH ZDUQLQJ    WKH\ ZRXOG EH RSHQLQJ XS DQ
                                                                      DUHD ZKLFK >SODLQWLII@ ZDV RWKHUZLVH SUHSDUHG QRW WR VHHNl 3ODLQWLII VWDWHV
  )LQDOO\ZHDUHXQSHUVXDGHGE\GHIHQGDQWVjFLWDWLRQWRRWKHU        WKDW KH LQIRUPHG WKH WULDO FRXUW DW VLGHEDU DQG GHIHQVH FRXQVHO RQ PRUH
MXULVGLFWLRQjV FDVHV LQ ZKLFK FRXUWV KDYH UHMHFWHG WKH         WKDQ RQH RFFDVLRQ WKDW 9ROYRjV HYLGHQFH FRQFHUQLQJ WKH DGHTXDF\ RI WKH
                                                                      ZDUQLQJV SURYLGHG ZLWK WKH YHKLFOH ZRXOG RSHQ WKH IDLOXUHWRZDUQ WKHRU\
FRQVXPHUH[SHFWDWLRQWHVWDVLQDSSOLFDEOHWRFRPSOLFDWHGQRQ         ZKLFK WKH SODLQWLII WKHQ SXUVXHG LQ FURVVH[DPLQDWLRQ RI 9ROYRjV ZLWQHVV
                                                                      %HFDXVH WKH WULDO FRXUW LQ LWV GLVFUHWLRQ GLG QRW GHHP WKH SURSRVHG
                                                                      LQVWUXFWLRQ RQ SODLQWLIIjV SOHDGHG WKHRU\ ZDLYHG ZH OLNHZLVH GHFOLQH WR
                                                                      ILQG ZDLYHU EDVHG RQ WKH SODLQWLIIjV WULDO EULHI
      +LVULFKY9ROYR&DUVHWDO                 1R     1R                   +LVULFKY9ROYR&DUVHWDO       

             FODLPDQW VHHNV WR UHFRYHU FRPSHQVDWRU\              ,QFY2	.7URMDQ,QF1(G2KLR&W
             GDPDJHV                                                $SS
        E 7KH PDQXIDFWXUHU IDLOHG WR SURYLGH WKH                 7KHWULDOFRXUWHUUHGLQKROGLQJWKDWmDQRUGLQDU\FRQVXPHU
            ZDUQLQJRULQVWUXFWLRQWKDWDPDQXIDFWXUHU                  ZRXOG QRW NQRZ WKH WHFKQLFDO FRQVLGHUDWLRQV WKDW
            H[HUFLVLQJ UHDVRQDEOH FDUH ZRXOG KDYH                LQIOXHQFH WKH GHVLJQ RI WKH DLUEDJ V\VWHP LQ >SODLQWLIIjV@
            SURYLGHGFRQFHUQLQJWKDWULVNLQOLJKWRIWKH           9ROYRl  7KH FRQVXPHUH[SHFWDWLRQ WHVW IRFXVHV RQ WKH
            OLNHOLKRRGWKDWWKHSURGXFWZRXOGFDXVHKDUP             H[SHFWDWLRQRISHUIRUPDQFHQRWWKHWHFKQLFDOFRQVLGHUDWLRQV
            RIWKHW\SHIRUZKLFKWKH FODLPDQWVHHNVWR             RIWKHSURGXFW7KLVFRXUWIROORZLQJ2KLRODZKDVIRXQGWKDW
            UHFRYHUFRPSHQVDWRU\GDPDJHVDQGLQOLJKW                WKHFRQVXPHUQHHGQRWEHDEOHWRFRQWHPSODWHWKHWHFKQLFDO
            RIWKHOLNHO\VHULRXVQHVVRIWKDWKDUP                  FRQVLGHUDWLRQV RI WKH SURGXFWjV GHVLJQ WR ILQG WKH SURGXFW
                                                                     GHIHFWLYHXQGHUWKHFRQVXPHUH[SHFWDWLRQWHVW,Q6RXUVY
2+,2 5(9 &2'( $11 $HPSKDVLVDGGHG2KLR             *HQHUDO0RWRUV&RUSZHUHMHFWHGWKHGHIHQGDQWjVDUJXPHQW
ODZ IRU GHIHFWLYH SURGXFWV IROORZV WKH IRUPXODWLRQ LQ WKH    WKDWWKH2KLRFRQVXPHUH[SHFWDWLRQWHVWZDVLQDSSOLFDEOHWR
5(67$7(0(17 6(&21' 2) 72576  $ FPW M              D YHKLFOH EHFDXVH RI D ODFN RI FRQVXPHU H[SHFWDWLRQ ZLWK
6HH&ULVOLSY7&+/LTXLGDWLQJ&R1(G           UHVSHFWWRDRQHYHKLFOHUROORYHUDFFLGHQWLQZKLFKSODLQWLII
2KLR                                                  DOOHJHGDGHIHFWLQWKHURRIGHVLJQ6HH)G
                                                                     WK&LU7KH6RXUVFRXUWIRXQGWKDWWKHWULDOFRXUW
   8QGHU2KLRODZDSODLQWLIIDVVHUWLQJ DSURGXFWVOLDELOLW\       SURSHUO\LQVWUXFWHGWKHMXU\RQWKHFRQVXPHUH[SHFWDWLRQWHVW
mFODLP>@EDVHGRQIDLOXUHWRSURYLGHDGHTXDWHZDUQLQJVQRW           DQG KHOG WKDW WKH ULVNEHQHILW WHVW GLG QRW mHFOLSVH WKH
RQO\PXVWFRQYLQFHWKHIDFWILQGHUWKDWWKHZDUQLQJSURYLGHG         FRQVXPHUH[SHFWDWLRQ VWDQGDUG UDWKHU LW ZDV LQWHQGHG WR
LVXQUHDVRQDEOHKHQFHLQDGHTXDWHEXWKHDOVRPXVWHVWDEOLVK        VHUYH DV D UHILQHPHQW RI WKDW JHQHUDO SULQFLSOH LQ WKRVH
WKHH[LVWHQFHRISUR[LPDWHFDXVHEHWZHHQWKH>SURGXFW@DQG           VLWXDWLRQVZKHUHH[SHFWDWLRQVZHUHOLNHO\WREHGLVWRUWHGl,G
WKHIDFWRIWKHSODLQWLIIjVLQMXU\l6HOH\Y*'6HDUOH&R     DWVHHDOVR&ROERFKY8QLUR\DO7LUH&R1(G
1(G2KLRDSSO\LQJSURGXFWVOLDELOLW\           2KLR &W $SS  DSSO\LQJ FRQVXPHU
ODZ WR SKDUPDFHXWLFDO GUXJ  m,Q DQDO\]LQJ WKH SUR[LPDWH    H[SHFWDWLRQWHVWWRH[SORVLRQRIYHKLFOHWLUHDQGVWDWLQJWKDW
FDXVHLVVXHDVLWUHODWHVWRIDLOXUHWRZDUQFDVHVlWKH2KLR        WHVW IRFXVHV RQ mZKHWKHU WKH KD]DUG LV XQH[SHFWHGl  ,Q
6XSUHPH&RXUWmGLYLGHGSUR[LPDWHFDXVDWLRQLQWRWZR            /HLFKWDPHU Y $PHULFDQ 0RWRUV &RUS WKH 2KLR 6XSUHPH
VXELVVXHV   ZKHWKHU ODFN RI DGHTXDWH ZDUQLQJV            &RXUWDSSOLHGWKHFRQVXPHUH[SHFWDWLRQWHVWWRWKHSODLQWLIIjV
FRQWULEXWHG WR WKH SODLQWLIIjV >XVH RI WKH SURGXFW@ DQG     FODLPWKDWDUROOEDURIDMHHSZDVGHIHFWLYHZKHQLWIDLOHG
 ZKHWKHU >XVH RI WKH SURGXFW@ FRQVWLWXWH>G@ D SUR[LPDWH   GXULQJ D SLWFKRYHU DFFLGHQW RQ RIIURDG WHUUDLQ  6HH 
FDXVHRIWKHSODLQWLIIjVLQMXU\l,G:LWKUHVSHFWWRZDUQLQJV     1(GDW7KHFRXUWUHDVRQHGWKDWDFRQVXPHUH[SHFWLQJ
DQGSODLQWLIIjVXVHRIWKHSURGXFWWKH2KLR6XSUHPH&RXUW           WR XVH WKH YHKLFOH RQ RIIURDG WHUUDLQ DV DGYHUWLVHG E\ WKH
LQWHUSUHWV WKH 5(67$7(0(17 6(&21' 2) 72576  $               GHIHQGDQW FRXOG HVWDEOLVK DQ H[SHFWDWLRQ LQ WKH SURGXFWjV
FPWMWR                                                         SHUIRUPDQFH6HHLG
    HVWDEOLVK>@ D SUHVXPSWLRQ WKDW DQ DGHTXDWH ZDUQLQJ LI      7KH 2KLR 6XSUHPH &RXUW KDV VWDWHG WKDW WKH FRQVXPHU
    JLYHQZLOOEHUHDGDQGKHHGHG,QVXFKDVLWXDWLRQWKH        H[SHFWDWLRQWHVWPD\IDLOWRUHDFKSURGXFWGHIHFWVZKHQWKH
    SUHVXPSWLRQ HVWDEOLVKHG ZRUNV WR WKH EHQHILW RI WKH       FRQVXPHUmLVLJQRUDQWRIWKHSURGXFWDQGKDVQRH[SHFWDWLRQ
    PDQXIDFWXUHU+RZHYHUZKHUHQRZDUQLQJLVJLYHQRU            RI LWV VDIHW\ RU ZKHUH D QHZ SURGXFW LV LQYROYHG DQG QR
    ZKHUH DQ LQDGHTXDWH ZDUQLQJ LV JLYHQ D UHEXWWDEOH
      +LVULFKY9ROYR&DUVHWDO                      1R      1R                   +LVULFKY9ROYR&DUVHWDO           

$PHULFDQ 0RWRUV &RUS  1(G   2KLR                    SUHVXPSWLRQ DULVHV EHQHILFLDO WR WKH SODLQWLII WKDW WKH
8QGHUWKHFRQVXPHUH[SHFWDWLRQWHVWDSURGXFWPD\                    IDLOXUHWRDGHTXDWHO\ZDUQZDVDSUR[LPDWHFDXVHRIWKH
EH SURYHQ WR EH LQ D GHIHFWLYH FRQGLWLRQ LI   LW LV PRUH     SODLQWLIIjV>XVHRIWKHSURGXFW@7KLVSUHVXPSWLRQDEVHQW
GDQJHURXV WKDQ DQ RUGLQDU\ FRQVXPHU ZRXOG H[SHFW ZKHQ                  WKHSURGXFWLRQRIUHEXWWLQJHYLGHQFHE\WKHGHIHQGDQWLV
XVHGLQDQLQWHQGHGRUUHDVRQDEO\IRUHVHHDEOHPDQQHUWKH                 VXIILFLHQW WR VDWLVI\ WKH ILUVW EUDQFK RI WKH SODLQWLIIjV
FODLPHG GHIHFW ZDV SUHVHQW ZKHQ WKH SURGXFW OHIW WKH                  SUR[LPDWHFDXVHEXUGHQ
PDQXIDFWXUHUDQGWKHFODLPHGGHIHFWSUR[LPDWHO\FDXVHG
WKHFODLPHGLQMXULHV,GDW                                         ,GDWHPSKDVLVDGGHG7KXVDVKHUHZKHQSODLQWLII
                                                                            DOOHJHV QR ZDUQLQJ RU LQDGHTXDWH ZDUQLQJ 2KLR ODZ
  ,QVXPDVDSSOLHGWRPDQXIDFWXULQJGHIHFWFDVHVmHYLGHQFH               HVWDEOLVKHV D SUHVXPSWLRQ EHQHILFLDO WR WKH SODLQWLII DQG
RI XQVDIH XQH[SHFWHG SURGXFW SHUIRUPDQFH LV VXIILFLHQW WR           ZKLFKWKHGHIHQGDQWVPXVWUHEXWWRHVWDEOLVKSUR[LPDWHFDXVH
LQIHUWKHH[LVWHQFHRIDSURGXFWGHIHFWlXQGHUWKHILUVWSURQJ              LQWKHZDUQLQJGHIHFWFRQWH[W
RI WKH FRQVXPHUH[SHFWDWLRQ VWDQGDUG 6WDWH )DUP )LUH 	
&DV  1(G DW  2KLR  VHH DOVR &OD\ Y            3ODLQWLIIjV SURSRVHG LQVWUXFWLRQ HVVHQWLDOO\ VHW IRUWK WKH
)RUG0RWRU&R)GWK&LUFLWLQJ                   UHTXLUHPHQWV XQGHU    6HH  2+,2 s85<
VDPH DQG DSSO\LQJ FRQVXPHUH[SHFWDWLRQ WHVW WR SODLQWLIIjV            ,16758&7,2167KHGLVWULFWFRXUW
FODLP RI SURGXFW GHIHFW LQ VSRUWXWLOLW\ YHKLFOH UROORYHU           GHQLHGWKHLQVWUXFWLRQILQGLQJWKDWQRHYLGHQFHZDVSURGXFHG
DFFLGHQW7KHFRXUWKRZHYHUKDVDOVRVWDWHGWKDWm>D@QRWKHU             WR VKRZ WKDW /L UHOLHG RQ WKH ZDUQLQJV DQG LQVXIILFLHQW
ZD\ RI SKUDVLQJ >WKH FRQVXPHUH[SHFWDWLRQ WHVW@ LV WKDW D           HYLGHQFHZDVSURGXFHGDWWULDOWRVXSSRUWWKHFODLP,QWKH
SURGXFW PD\ EH IRXQG GHIHFWLYH LQ GHVLJQ LI WKH SODLQWLII          SUHVHQW FDVH WKH GHIHQGDQWV GLG QRW SUHVHQW HYLGHQFH WKDW
GHPRQVWUDWHVWKDWWKHSURGXFWIDLOHGWRSHUIRUPDVVDIHO\DVDQ             VKRZHGWKDW/LGLGQRWUHDGWKHZDUQLQJV,QVWHDGWKHFRXUW
RUGLQDU\FRQVXPHUZRXOGH[SHFWZKHQXVHGLQDQLQWHQGHGRU                  UHOLHG RQ WKH IDFW WKDW =KDQJjV PRWKHU /L QHHGHG DQ
UHDVRQDEO\IRUHVHHDEOHPDQQHUl/HLFKWDPHU1(GDW                  LQWHUSUHWHUWRJLYHKHUGLUHFWWHVWLPRQ\WRHVWDEOLVKWKDW/LGLG
 LQWHUQDO TXRWDWLRQV RPLWWHG  0RUHRYHU  mWKH                  QRWUHO\RQWKHZDUQLQJVLQWKHYHKLFOH:HGLVDJUHHZLWKWKH
GHWHUPLQDWLRQRIZKHWKHUDSURGXFWLVPRUHGDQJHURXVWKDQDQ                FRXUWjVMXGJPHQW
RUGLQDU\SHUVRQZRXOGH[SHFWLVJHQHUDOO\DTXHVWLRQRIIDFW
ZKLFKGRHVQRWUHTXLUHH[SHUWWHVWLPRQ\l6HH)LVKHUY)RUG                  ,WLVWUXHWKDW2KLRFRXUWVKDYHIRXQGWKDWZKHQHYLGHQFH
0RWRU&R)6XSSGQ1'2KLR                    VKRZVWKDWSODLQWLIIIDLOHGWRUHDGLQVWUXFWLRQVSUR[LPDWHFDXVH
FLWLQJ3RUWHUY*LEVRQ*UHHWLQJV,QF1R:/                LVUHEXWWHG6HH3KDQY3UHVULWH&RUS1(G
DW
2KLR&W$SS:HOFK6DQG	*UDYHO                    2KLR&W$SSm(YHQLIWKHDGGLWLRQDOZDUQLQJV
                                                                            ZHUH JLYHQ WKH\ ZRXOG QRW KDYH SUHYHQWHG WKH LQMXULHV
                                                                            EHFDXVHQHLWKHU>SODLQWLII@UHDGWKHZDUQLQJl+RZHYHU
                                                                            WKH 3KDQ FRXUW ZDV IDFHG ZLWK GLUHFW HYLGHQFH WKDW WKH
                                                                            SODLQWLIIGLGQRWUHDGWKHLQVWUXFWLRQV8QGHU2KLRODZWKH
      LQWHQGHG RU UHDVRQDEO\ IRUHVHHDEOH   ,I LW ZDV QRW VR XVHG WKHQ     SUHVXPSWLRQH[LVWVDWWKHRXWVHWDQGDFFUXHVWRWKHEHQHILWRI
      WKH FODLPDQW KDV IDLOHG WR SURYH WKH H[LVWHQFH RI D GHIHFW XQGHU      WKHSODLQWLII6HH)UHDVY3UDWHU&RQVWU&RUS1(G
      WKH FRQVXPHU H[SHFWDWLRQ WHVW   ,I WKH SURGXFW ZDV VR XVHG DQG       2KLR6HOH\1(GDW7KXVLWLV
      ZDV PRUH GDQJHURXV WKDQ DQ RUGLQDU\ FRQVXPHU ZRXOG H[SHFW
                                                                            WKH GHIHQGDQWV ZKR PXVW HVWDEOLVK WKDW SUR[LPDWH FDXVH LV
      WKHQ WKH FODLPDQW KDV SURYHG WKH H[LVWHQFH RI D GHIHFW XQGHU WKH
      FRQVXPHU H[SHFWDWLRQ WHVW
                                                                            GHILFLHQWE\UHEXWWLQJWKHSUHVXPSWLRQWKDW/LUHDGDQGKHHGHG
                                                                            WKHLQVWUXFWLRQV
 2   +,2 s85< ,16758&7,21    &
    +LVULFKY9ROYR&DUVHWDO                  1R       1R                              +LVULFKY9ROYR&DUVHWDO                     

   'HIHQGDQWVKDYHIDLOHGWRUHEXWWKHSUHVXPSWLRQ)LUVWWKH        3HUNLQV  1(G DW  FLWDWLRQV DQG TXRWDWLRQV
GHIHQGDQWVFODLPWKDWWKHSUHVXPSWLRQZDVUHEXWWHGEHFDXVH             RPLWWHGHPSKDVLVDGGHG$OWKRXJKWKHUHLVGLVFUHWLRQLQ
WKHUHLVQRHYLGHQFHWKDW/LUHDGWKHLQVWUXFWLRQVRUZDUQLQJV        DSSO\LQJWKHVHVWDQGDUGVWKHFRXUWQRWHGWKDWWKHOHJLVODWXUH
7KH ODFN RI HYLGHQFH WKDW /L UHDG RU GLG QRW UHDG WKH       FRGLILHG DQ DSSURDFK WKDW DOORZV WKH MXU\ WR FRQVLGHU ERWK
LQVWUXFWLRQV KRZHYHU GRHV QRW UHEXW WKH SUHVXPSWLRQ EXW      VWDQGDUGVEDVHGXSRQWKHSODLQWLIIjVWKHRU\RIWKHFDVH&I
UDWKHUHVWDEOLVKHVLWLQ/LjVIDYRU'HIHQGDQWVLJQRUHWKDWWKH\      3HUNLQV1(GDW
PXVWUHEXWWKHSUHVXPSWLRQDQGWKDWSODLQWLIILVQRWUHTXLUHG
WRSUHVHQWHYLGHQFHHVWDEOLVKLQJZKDWLVSUHVXPHGXQOHVVVXFK             3ODLQWLIIjVFKRLFHWRSURFHHGXQGHUWKHWZRGLVWLQFWWHVWVFDQ
UHEXWWDOHYLGHQFHLVSUHVHQWHG0RUHRYHU/LjVUHOLDQFHRQDQ         EH YLHZHG DV EURDGHQLQJ WKH VFRSH RI SURGXFW GHIHFWV
LQWHUSUHWHUGRHVQRWHVWDEOLVKWKDWVKHQHLWKHUUHDGQRUKHHGHG        DFWLRQDEOH XQGHU 2KLRjV SURGXFWV OLDELOLW\ ODZV  7KXV WKH
WKHLQVWUXFWLRQVHVSHFLDOO\VLQFHWKH\ZHUHSURYLGHGLQERWK          2KLR6XSUHPH&RXUWVWDWHGWKDWmµ>W@KHYHU\H[LVWHQFHRID
V\PEROLFDQGZULWWHQIRUP6HFRQGWKHGHIHQGDQWVFODLPWKDW          ULVNEHQHILWDQDO\VLVLQWKH2KLRFDXVHRIDFWLRQIRUGHVLJQ
/LKDGNQRZOHGJHRIWKHSURSHUORFDWLRQWRSODFHWKHFKLOG             GHIHFWKHOSVWKRVHSODLQWLIIVZKRZRXOGRWKHUZLVHORVHLQD
LQVLGHWKHYHKLFOH/LWHVWLILHGWKDWVKHQRUPDOO\SODFHGKHU         FRQVXPHUH[SHFWDWLRQFDVHjl3HUNLQV1(GDW
FKLOG LQ WKH EDFN VHDW  7KH GHIHQGDQWVj VHFRQG UHDVRQ       DOWHUDWLRQV LQ RULJLQDO TXRWLQJ 2
5(,//< 	 &2'< 2+,2
KRZHYHUSURYLGHVHYLGHQFHWKDWUHEXWVWKHLUILUVWFRQWHQWLRQ         352'8&76 /,$%,/,7< 0$18$/6HFWLRQ
WKDW /L QHLWKHU UHDG QRU KHHGHG 9ROYRjV LQVWUXFWLRQV  /LjV   ,QDGGLWLRQZHKDYHSUHYLRXVO\IRXQGWKDWWKHULVNEHQHILWDQG
WHVWLPRQ\ZKLFKLQGLFDWHVWKDWWKHLQVWUXFWLRQVZHUHKHHGHG          FRQVXPHUH[SHFWDWLRQWHVWVDUHQRWIXQJLEOHWKXVDILQGLQJ
LV WKH RQO\ HYLGHQFH WKDW GLUHFWO\ DGGUHVVHV WKH ZDUQLQJV     XQGHURQHWHVWGRHVQRWLPSO\DVLPLODUILQGLQJXQGHUWKHRWKHU
*LYHQ WKDW WKH SUHVXPSWLRQ DFFUXHV WR WKH EHQHILW RI WKH      WHVW6HHsRUGDQY3DFFDU,QF)GQWK
SODLQWLIIWKHGHIHQGDQWVKDYHIDLOHGWRUHEXWWKHSUHVXPSWLRQ        &LUDSSO\LQJ2KLRODZDQGUHMHFWLQJFRQWHQWLRQWKDWD
7KXVWKHGLVWULFWFRXUWHUUHGLQGHFOLQLQJWRJLYHWKHUHTXHVWHG      MXU\ILQGLQJIRUGHIHQGDQWXQGHUWKHULVNEHQHILWWHVWLPSOLHV
LQVWUXFWLRQV RQ WKH EDVLV WKDW GHIHQGDQWV UHEXWWHG WKH          WKDW MXU\ ZRXOG KDYH DOVR IRXQG IRU GHIHQGDQW XQGHU
SUHVXPSWLRQHVWDEOLVKLQJSUR[LPDWHFDXVH                             FRQVXPHUEHQHILWWHVW
  7KH GLVWULFW FRXUW DOVR IRXQG WKDW WKHUH ZDV LQVXIILFLHQW      5HJDUGLQJWKHVXEVWDQFHRIWKHFRQVXPHUH[SHFWDWLRQWHVW
HYLGHQFHIRUDMXU\WRFRQFOXGHWKDWWKHSURYLGHGZDUQLQJV             WKH 2KLR 6XSUHPH &RXUW KDV VWDWHG WKDW WKH WHVW H[DPLQHV
ZHUH LQDGHTXDWH  :LWK UHVSHFW WR WKH VXIILFLHQF\ RI WKH      mZKDWZRXOGEHFRQWHPSODWHGE\WKHRUGLQDU\FRQVXPHUZKR
HYLGHQFHWKHGHIHQGDQWVDVVHUWWKDWWKHZDUQLQJVJLYHQZHUH           SXUFKDVHV LW ZLWK WKH RUGLQDU\ NQRZOHGJH FRPPRQ WR WKH
DGHTXDWHDVDPDWWHURIODZDQGKHQFHWKHSUHVXPSWLRQZDV            FRPPXQLW\ DV WR LWV FKDUDFWHULVWLFVl  /HLFKWDPHU Y
UHEXWWHGEHFDXVHSODLQWLIIQHYHUHVWDEOLVKHGWKDWWKHZDUQLQJV
ZHUHLQDGHTXDWH6HH6HOH\1(GDW
                                                                           
  :H GLVDJUHH ZLWK WKH FRXUWjV FRQFOXVLRQ UHJDUGLQJ WKH
                                                                             7KH 2KLR PRGHO MXU\ LQVWUXFWLRQV H[SODLQV WKH FRQVXPHUH[SHFWDWLRQ

                                                                       WHVW DV IROORZV

VXIILFLHQF\RIWKHHYLGHQFH8QGHU2KLRODZDZDUQLQJLV
DGHTXDWHLILWUHDVRQDEO\GLVFORVHVDOOLQKHUHQWULVNVDQGLIWKH                  $ SURGXFW LV GHIHFWLYH XQGHU WKH FRQVXPHU H[SHFWDWLRQ WHVW

SURGXFWLVVDIHZKHQXVHGDVGLUHFWHG&ULVOLS1(GDW             LI   WKH   SURGXFW   LV    PRUH   GDQJHURXV     WKDQ    DQ   RUGLQDU\   FRQVXPHU

 6HOH\  1(G DW   +RZHYHU m>D@Q                 ZRXOG       H[SHFW    ZKHQ        XVHG   LQ    DQ   LQWHQGHG      RU   UHDVRQDEO\

LQDGHTXDWH ZDUQLQJ PD\ PDNH D SURGXFW DV XQUHDVRQDEO\
                                                                           IRUHVHHDEOH PDQQHU )RUHVHHDEOH XVHV RI D SURGXFW LQFOXGH WKRVH

                                                                           WKDW PLJKW UHDVRQDEO\ EH H[SHFWHG EXW QRW DOO XVHV ZKLFK FRXOG

GDQJHURXVDVQRZDUQLQJDWDOOWKHUHLVQRUHDVRQWRSUHFOXGH             RFFXU <RX VKRXOG GHFLGH ZKHWKHU WKH FODLPDQW
V LQMXU\ RFFXUUHG

                                                                           DV   D   GLUHFW   UHVXOW   RI   XVLQJ   WKH   SURGXFW   LQ   D   PDQQHU   WKDW   ZDV
    +LVULFKY9ROYR&DUVHWDO                  1R      1R                  +LVULFKY9ROYR&DUVHWDO       

DLUEDJV\VWHPLQ>SODLQWLIIjV@9ROYRlWKHFRXUWQHHGQRWJLYH        D SODLQWLII IURP SOHDGLQJ DQG SURYLQJ VWULFW OLDELOLW\ MXVW
D FRQVXPHUH[SHFWDWLRQ WHVW LQVWUXFWLRQ  ,Q DGGLWLRQ LQ D   EHFDXVHVRPHZDUQLQJKRZHYHULQDGHTXDWHDFFRPSDQLHVD
SRVWWULDO RUGHU WKH FRXUW VWDWHG WKDW LW mGHWHUPLQHG WKDW   SURGXFWl&ULVOLS1(GDW,Q6HOH\WKH2KLR
DLUEDJV LQ SDVVHQJHU YHKLFOHV DUH QRW D VXEMHFW WR ZKLFK     6XSUHPH&RXUWH[SODLQHG
FRQVXPHUVFRXOGKDYHUHDVRQDEOHH[SHFWDWLRQVl
                                                                        7KHIDFWILQGHUPD\ILQGDZDUQLQJWREHXQUHDVRQDEOH
  2KLR ODZ SURYLGHV SURGXFWOLDELOLW\ SODLQWLIIV ZLWK WZR         KHQFHLQDGHTXDWHLQLWVIDFWXDOFRQWHQWLWVH[SUHVVLRQRI
WKHRULHV RI SURYLQJ SURGXFWOLDELOLW\   WKH FRQVXPHU         WKHIDFWVRUWKHPHWKRGRUIRUPLQZKLFKLWLVFRQYH\HG
H[SHFWDWLRQ VWDQGDUG DQG  WKH ULVNEHQHILW VWDQGDUG  6HH     7KHDGHTXDF\RIVXFKZDUQLQJVLVPHDVXUHGQRWRQO\E\
3HUNLQV Y :LONLQVRQ 6ZRUG ,QF  1(G           ZKDW LV VWDWHG EXW DOVR E\ WKH PDQQHU LQ ZKLFK LW LV
2KLRFLWLQJ6WDWH)DUP)LUH	&DV&RY&KU\VOHU              VWDWHG  $ UHDVRQDEOH ZDUQLQJ QRW RQO\ FRQYH\V D IDLU
&RUS  1(G   2KLR   7KH 2KLR             LQGLFDWLRQRIWKHQDWXUHRIWKHGDQJHUVLQYROYHGEXWDOVR
OHJLVODWXUH FRGLILHG WKHVH DSSURDFKHV LQ 2+,2 5(9 &2'(             ZDUQV ZLWK WKH GHJUHH RI LQWHQVLW\ GHPDQGHG E\ WKH
$ZKLFKSURYLGHVLQSHUWLQHQWSDUW                       QDWXUH RI WKH ULVN  $ ZDUQLQJ PD\ EH IRXQG WR EH
                                                                        XQUHDVRQDEOHLQWKDWLWZDVXQGXO\GHOD\HGUHOXFWDQWLQ
  $DSURGXFWLVGHIHFWLYHLQGHVLJQRUIRUPXODWLRQLI          WRQHRUODFNLQJLQDVHQVHRIXUJHQF\$MXU\PD\ILQG
  HLWKHURIWKHIROORZLQJDSSOLHV                                      WKDW D ZDUQLQJ LV LQDGHTXDWH DQG XQUHDVRQDEOH HYHQ
                                                                        ZKHUHWKHH[LVWHQFHRImULVNlLHDFDXVDOUHODWLRQVKLS
   :KHQ LW OHIW WKH FRQWURO RI LWV PDQXIDFWXUHU WKH         EHWZHHQXVHRIWKHSURGXFWDQGUHVXOWLQJLQMXU\KDVQRW
      IRUHVHHDEOH ULVNV DVVRFLDWHG ZLWK LWV GHVLJQ RU             EHHQGHILQLWHO\HVWDEOLVKHG
      IRUPXODWLRQ DV GHWHUPLQHG SXUVXDQW WR GLYLVLRQ
      %RIWKLVVHFWLRQH[FHHGHGWKHEHQHILWVDVVRFLDWHG             1(G DW  FLWDWLRQV RPLWWHG HPSKDVLV DGGHG
      ZLWK WKDW GHVLJQ RU IRUPXODWLRQ DV GHWHUPLQHG             $FFRUGLQJO\WKHUHDUHVHYHUDOZD\VoVXFKDVODFNRIXUJHQF\
      SXUVXDQWWRGLYLVLRQ&RIWKLVVHFWLRQ                       RUH[SUHVVLRQRIIDFWVoLQZKLFKDZDUQLQJFDQEHGHILQHGDV
                                                                      LQDGHTXDWH
   ,W LV PRUH GDQJHURXV WKDQ DQ RUGLQDU\ FRQVXPHU
      ZRXOG H[SHFW ZKHQ XVHG LQ DQ LQWHQGHG RU                    ,QWKHSUHVHQWFDVHSODLQWLIIFOHDUO\HVWDEOLVKHGVXIILFLHQW
      UHDVRQDEO\IRUHVHHDEOHPDQQHU                                  HYLGHQFHWRVXSSRUWWKHLQVWUXFWLRQXQGHU$6HH
                                                                      2+,2 5(9 &2'( $11$UHTXLULQJWKDWWKH
:LWKUHVSHFWWRSURGXFWVVXEMHFWWRWKHWZRWHVWVWKH2KLR           mPDQXIDFWXUHUIDLO>@WRSURYLGHWKHZDUQLQJRULQVWUXFWLRQWKDW
6XSUHPH&RXUWKDVVWUHVVHGWKDW                                      D PDQXIDFWXUHU H[HUFLVLQJ UHDVRQDEOH FDUH ZRXOG KDYH
                                                                      SURYLGHGFRQFHUQLQJWKDWULVNLQOLJKWRIWKHOLNHOLKRRGWKDW
  WKHVHVWDQGDUGVDUHQRWPXWXDOO\H[FOXVLYHEXWLQVWHDG             WKHSURGXFWZRXOGFDXVHKDUPRIWKHW\SHlIRUZKLFKUHFRYHU\
  FRQVWLWXWH D VLQJOH WZRSURQJHG WHVW IRU GHWHUPLQLQJ         LVVRXJKW7KHSDUWLHVVWLSXODWHGWKDWWKHDLUEDJGHSOR\PHQW
  ZKHWKHU D SURGXFW LV GHIHFWLYHO\ GHVLJQHG     >$@     FDXVHGWKHKDUP=KDQJjVLQMXU\DQGVXEVHTXHQWGHDWK0RVW
  SURGXFW PD\ EH IRXQG GHIHFWLYH LQ GHVLJQ HYHQ LI LW        LPSRUWDQWO\ RQ FURVVH[DPLQDWLRQ E\ SODLQWLIIjV FRXQVHO
  VDWLVILHV RUGLQDU\ FRQVXPHU H[SHFWDWLRQV LI WKH MXU\          9ROYRjVOHDGGHVLJQHU%HQJW6KXOW]ZKRWHVWLILHGRQEHKDOI
  GHWHUPLQHVWKDWWKHSURGXFWjVGHVLJQHPERGLHVH[FHVVLYH             RIWKHGHIHQGDQWVDGPLWWHGWKDWm9ROYRGLGQjWQHHGWRWHVW
  SUHYHQWDEOHGDQJHU,QRWKHUZRUGVLIWKHMXU\FRQFOXGHV          >DLUEDJV@IRUFKLOGUHQlEHFDXVHm>9ROYR@NQHZLWZRXOGKXUW
  WKDWRQHVWDQGDUGLVQRWPHWWKHMXU\PD\FRQVLGHUWKH             FKLOGUHQDQGDGXOWVLI\RXZHUHVLWWLQJXSQHDULWZKHQLW
  RWKHUVWDQGDUG
    +LVULFKY9ROYR&DUVHWDO                   1R       1R                  +LVULFKY9ROYR&DUVHWDO      

GHSOR\HGl6KXOW]DOVRWHVWLILHGWKDW9ROYRNQHZWKDWVHYHUH           DFWLYLW\WKHFRXUWEDVHGLWVGHFLVLRQRQDQH[SOLFLWILQGLQJWKDW
LQMXULHVFRXOGUHVXOWWRFKLOGUHQDQGWKDWIURQWVHDWSDVVHQJHUV        WKH ZDUQLQJV ZHUH DGHTXDWH  6HH )UHDV Y 3UDWHU &RQVWU
ZHUH RIWHQ XQUHVWUDLQHG  )XUWKHU 6KXOW]jV WHVWLPRQ\             &RUS1(G2KLRVHHDOVR3KDQ
HVWDEOLVKHGWKDWWKLVNQRZQULVNZDVQRWH[SUHVVO\VWDWHGLQ            1(GDW2KLRDSSHOODWHFRXUWGHFLVLRQILQGLQJWKDWWKH
WKH LQVWUXFWLRQ PDQXDO RU YHKLFOH ZDUQLQJV SURYLGHG E\           ZDUQLQJV SURYLGHG ZHUH DGHTXDWH DQG DIILUPLQJ JUDQW RI
9ROYR7KXVWKHHYLGHQFHHVWDEOLVKHGWKDWGHIHQGDQWVNQHZ              VXPPDU\ MXGJPHQW IRU GHIHQGDQW  7KH )UHDV FRXUW
RIDULVNWKDWZDVDVVRFLDWHGZLWKWKHLUSURGXFWVSHFLILFDOO\          KRZHYHU H[SUHVVO\ FDXWLRQHG WKDW ZDUQLQJV VHW IRUWK LQ D
WKHULVNWRWKHVDIHW\RIXQUHVWUDLQHGVPDOODGXOWVDQGFKLOGUHQ        PDQXDODUHQRWVXIILFLHQWSHUVHLQDOOVLWXDWLRQV6HH)UHDV
ZKHQ WKH DLUEDJ GHSOR\V  *LYHQ WKH EUHDGWK RI IDFWXDO         1(GDW
ILQGLQJV WKDW ZRXOG DOORZ D MXU\ WR ILQG WKDW D ZDUQLQJ LV
LQDGHTXDWHSODLQWLIIHVWDEOLVKHGDJHQXLQHLVVXHRIIDFWRQWKH          ,QWKHSUHVHQWFDVHWKHUHKDVEHHQQRGLVWULFWFRXUWILQGLQJ
DGHTXDF\RIWKHZDUQLQJVDFWXDOO\JLYHQ                                WKDWWKHZDUQLQJVZHUHDGHTXDWHDVDPDWWHURIODZ8QGHU
                                                                        2KLRODZZHGHFOLQHWRILQGWKHZDUQLQJVDGHTXDWHDVZHOO
   $OWKRXJK 9ROYR UHSHDWHGO\ HVWDEOLVKHG WKDW WKH YHKLFOH         7KHPHUHSUHVHQFHRIGHIHQGDQWVjZDUQLQJVWKDWLIIROORZHG
FRQWDLQHGDGRRUZDUQLQJVWLFNHURZQHUjVPDQXDOZDUQLQJV              PD\KDYHEHHQDGHTXDWHGRHVQRWHOLPLQDWHWKHIDFWWKDWDMXU\
DQG HYHQ D YLGHRWDSH SURYLGHG WR QHZ 9ROYR  RZQHUV          FRXOGILQGWKHH[LVWLQJZDUQLQJVLQDGHTXDWHEDVHGRQWKHLU
ZKLFKFRQWDLQHGDZDUQLQJFRQFHUQLQJWKHSURSHUSODFHPHQW               IRUPPDQQHURIH[SUHVVLRQRUODFNRIH[LJHQF\6HH6HOH\
RIFKLOGUHQLQWKHYHKLFOHWKHWHVWLPRQ\RI9ROYRjVGHVLJQ              1(G DW  VHH DOVR )UHDV  1(G DW 
ZLWQHVV6KXOW]HVWDEOLVKHGNQRZOHGJHRIDVSHFLILFGDQJHU          FDXWLRQLQJWKDWH[LVWHQFHRIZDUQLQJVLQPDQXDOPD\QRWEH
WKHULVNWRFKLOGUHQDQGVPDOODGXOWVSRVLWLRQHGQHDUWKHDLUEDJ        DGHTXDWH SHU VH ZKHUH WKHUH LV D GXW\ WR SURYLGH IXUWKHU
DVLWGHSOR\HGWKDWZDVQRWH[SUHVVHGLQDZDUQLQJ,QGHHG         ZDUQLQJVWRWKHXVHURIWKHSURGXFW7KXVWKHLVVXHLVQRW
WKHWULDOFRXUWQRWHG9ROYRjVNQRZOHGJHRIH[LVWLQJULVNLQ             PHUHO\WKHH[LVWHQFHRIWKHZDUQLQJVEXWWKHIDFWXDOLVVXHRI
GHQ\LQJGHIHQGDQWVmVXSHUVHGLQJFDXVHlMXU\LQVWUXFWLRQ7KH           WKHLUFRQWHQW
WULDOFRXUWVWDWHGWKDWm>L@WLVFOHDUWKDW9ROYRGHILQLWHO\
IRUHVDZWKHSRVVLELOLW\RILQGLYLGXDOVEHLQJXQEHOWHGLQWKH              %HFDXVHWKHUHLVVXIILFLHQWHYLGHQFHWKDW9ROYRNQHZRID
IURQWVHDWRIWKHFDUVSHFLILFDOO\WKHSDVVHQJHUVLGHlDQGWKDW       VSHFLILFULVNDVVRFLDWHGZLWKWKHQRUPDOXVHRIWKHSURGXFWE\
EDVHG RQ 9ROYRjV NQRZOHGJH WKH FRXUW FRXOG QRW VD\ WKDW        VPDOODGXOWVDQGFKLOGUHQDQGHYLGHQFHWKDWWKLVH[SOLFLWULVN
9ROYR VKRXOG QRW KDYH IRUHVHHQ WKH ULVN DVVRFLDWHG ZLWK         ZDVQRWSDUWRIWKHZDUQLQJVRULQVWUXFWLRQVXQGHU
DLUEDJGHSOR\PHQW7KXVVXIILFLHQWHYLGHQFHZDVDGGXFHGDW            ZHILQGWKDWWKHGLVWULFWFRXUWDEXVHGLWVGLVFUHWLRQE\IDLOLQJ
WULDO WR VXSSRUW WKH LQVWUXFWLRQ RQ IDLOXUHWRZDUQ XQGHU        WRLQVWUXFWWKHMXU\RQWKHIDLOXUHWRZDUQWKHRU\RIOLDELOLW\
                                                              &I:HEVWHU)GDW0RUHRYHUZHGHFOLQHWRGHFLGH
                                                                        WKDWGHIHQGDQWVjZDUQLQJVZHUHDGHTXDWHDVDPDWWHURIODZ
  )LQDOO\ZHILQGWKDW2KLRFDVHODZGRHVQRWVXSSRUWWKH              $FFRUGLQJO\ZH5(9(56(WKHGLVWULFWFRXUWjVMXGJPHQW
GLVWULFWFRXUWjVUHIXVDOWRLQVWUXFWWKHMXU\RQWKHIDLOXUHWR        GHQ\LQJRIWKHIDLOXUHWRZDUQLQVWUXFWLRQDQG5(0$1'IRU
ZDUQODZRIGHIHFWLYHSURGXFWV$OWKRXJKWKH2KLR6XSUHPH              DQHZWULDO
&RXUW KDV DIILUPHG D ORZHU FRXUWjV JUDQW RI VXPPDU\
MXGJPHQWIRUWKHGHIHQGDQWLQDSURGXFWVOLDELOLW\IDLOXUHWR                 ,9&RQVXPHU([SHFWDWLRQsXU\,QVWUXFWLRQ
ZDUQFODLPZKHQLWIRXQGWKDWQRJHQXLQHLVVXHRIPDWHULDO
IDFWH[LVWHGDVWRZKHWKHUWKHZDUQLQJVDQGLQVWUXFWLRQVLQWKH           3ODLQWLII FODLPV HUURU LQ WKH WULDO FRXUWjV KROGLQJ WKDW
PDQXDOZHUHDGHTXDWHWRZDUQRIWKHULVNDVVRFLDWHGZLWKWKH            EHFDXVH mDQ RUGLQDU\ FRQVXPHU    ZRXOG QRW NQRZ WKH
                                                                        WHFKQLFDO FRQVLGHUDWLRQV WKDW LQIOXHQFHV WKH GHVLJQ RI WKH