Class Action Against Cybersecurity Firm/Patent Troll Dismissed

A shareholder’s securities fraud complaint against cybersecurity technology company Finjan Holdings, Inc has been dismissed by the Ninth Circuit. Finjan develops security technologies for mobile devices and invests in IP related to mobile and computer security. Although it is a cybersecurity company, most of its revenue comes from lawsuits and threats of lawsuits over infringement of its IP. According to Squire, Patton, Boggs, “as a non-practicing entity, Finjan has litigated against many cybersecurity technology software providers, achieving several settlements and multi-million dollar verdicts.” The Ninth Circuit’s ruling is a win for Finjan, says the law firm, but one that “continues the Ninth Circuit’s minority view on the ease with which shareholders can initiate securities law claims arising from tender offers.” Finjan was sold to Fortress Investment Group, LLC in 2020. After the sale was announced and shareholder approval of the deal was necessary, Finjan asked Atlas to prepare a fairness assessment of the deal using much lower revenue projections than those Finjan had made a few months earlier. The revised revenue projections were the subject of the putative class action, brought by a former Finjan shareholder. The parties agreed that only “subjective falsity,” i.e. whether Finjan believed the post-sale revised revenue projections, was at issue. The district court found that the allegations did not support the heightened strong inference standard of subjective falsity, and dismissed the claim. On appeal, the Ninth Circuit agreed, and held that one can negligently utter a subjectively false statement and that “negligence does not require proof of a mental state.” It called such statements rare but not impossible. According to Squire, Patton, Boggs, “the Ninth Circuit’s decision shows that even under the lower pleading standard, it still may be difficult for shareholders to show subjective falsity. Pleadings must contain a plethora of factual allegations that make it reasonable to infer the speaker knew that the statements given were false. Though that is a lower bar to clear than strong inference, it is still a high bar indeed.”