For a while last year, things were pretty rough for Stratasys and MakerBot. It all started back in 2014, when MakerBot introduced their new Smart Extruder at CES in January. The premise sounded great – an easily swappable, simple to use extruder that detected when filament was low and alerted the user. The extruder was installed on the newly released 5th Generation Replicators, and things looked good – until users began complaining that the extruders just didn’t work well. They jammed easily, the sensors malfunctioned, and they overall caused headaches – resulting in an 80% return rate.
If that wasn’t bad enough, a MakerBot employee alleged that the company knew about the problems before the product was released – and shipped it anyway. This didn’t sit well with investors, whose ire was already up about the company’s financial performance, and in July 2015 a lawsuit was filed against MakerBot and their parent company, Stratasys. The suit claimed that MakerBot knowingly misled both their customers and shareholders by issuing a faulty product, and demanded that they make reparations to their investors.
MakerBot ultimately fixed the issues with the Smart Extruder when they developed the Smart Extruder+, which was released at the beginning of this year, and overall, things have been looking up for the company. New CEO Jonathan Jaglom, who replaced Bre Pettis and Jenny Lawton in early 2015, vowed to take MakerBot in a new direction, and he did. Despite some layoffs and facility closures, which Jaglom called “painful but necessary,” the company seems to have taken a turn for the better, with stronger customer support, a focus on education, and several product improvements – including to the Smart Extruder.
Now, it looks as though the whole Smart Extruder debacle may finally be put to rest for good, as the United States District Court for the District of Minnesota has dismissed with prejudice the case against MakerBot and Stratasys, stating that the evidence that MakerBot knowingly misled their customers and shareholders wasn’t strong enough.
“In this case, as in so many securities‐fraud cases, the Court has struggled with the question of whether the complaint adequately alleges scienter,” the verdict concludes. “The Court has no difficulty finding that plaintiffs’ allegations create a reasonable inference of scienter. Unfortunately for plaintiffs, however, the PSLRA requires a strong inference of scienter—and, for the reasons described above, the Court finds that plaintiffs’ allegations fall short of creating such an inference. In addition, the Court finds that almost all of the statements regarding the quality of the 5G printers were inactionable puffery. The Court therefore dismisses plaintiffs’ complaint.”
You can read the full dismissal here, courtesy of Adafruit, but to summarize, while MakerBot very well may have committed scienter, or knowledgeable wrongdoing, there’s just not enough solid evidence to prove it. Part of the issue is that companies can play up a product as much as they want, but as anyone who’s ever bought anything knows, every company claims that their product is the best in the world – it doesn’t mean it is. If I could file a lawsuit for every “world-class” product I’ve ever purchased only to have it fall apart immediately, I’d be rich, but alas, “vague, hyperbolic statements,” the court says, aren’t grounds for fraud.
“In fact, just about the only statements regarding the quality and features of the 5G printers that are potentially falsifiable (and thus actionable) are statements that the 5G printers provide ‘unmatched speed’ and are MakerBot’s ‘fastest’ 3D printers…But plaintiffs do not allege any facts demonstrating that the 5G printers are not faster than MakerBot’s other printers or other desktop 3D printers on the market,” the court continues. “Instead, plaintiffs allege that the 5G printers break down a lot because the Smart Extruder frequently clogs with filament. The Court therefore concludes that all of the statements that defendants made about the quality of the printers during the class period are non‐actionable, either because they are puffery or because their falsity is not sufficiently pleaded.”
Furthermore, the court concluded that the MakerBot employees who alleged that the company knew about the problems with the Smart Extruder prior to shipment are too vague in terms of timeframe or extent of knowledge. The fact that the 5th Generation Replicator was a continuously developing product makes it hard to pinpoint who knew what in relation to when the products were shipped, and that excessive optimism about a product isn’t the same as knowingly misleading customers.
Those are just a few of the issues the verdict highlights; I recommend reading the whole thing to see, point by point, how the case was dismantled. You can also read the full court transcript here, courtesy Adafruit. For the most part, it comes down to wording, and while that’s undoubtedly frustrating to the plaintiffs, it’s also understandable. As for MakerBot and Stratasys, it has to be a relief to finally put that whole unfortunate chapter of their history behind them. Discuss further in the MakerBot & Stratasys Case Dismissed forum over at 3DPB.com.
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