Appeals Court Rules That Stratasys’ Hyping of MakerBot 5th Generation Replicator 3D Printer is Still Not Fraud

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Just when you thought it was over…it’s baack. About a year ago, it appeared that the lawsuit filed by shareholders against Stratasys and MakerBot had finally been put to rest, but in the legal world, almost nothing is ever over when it appears to be over.

The not-so-Smart Extruder.

If you’ve somehow forgotten, here’s a quick refresher on the case. In 2014, MakerBot introduced a new Smart Extruder, an easy-to-use, easy-to-change extruder that could detect when filament was low and notify the user. Unfortunately, the Smart Extruder turned out to be not so smart after all, and was plagued with problems such as filament clogs. The issues resulted in declining sales and falling stocks for MakerBot and Stratasys. What’s worse, an anonymous MakerBot employee came forward later that year and alleged that the company was well aware of the extruder’s issues, but put it on the market anyway, claiming exceptional performance.

In 2015, Stratasys shareholders filed a class action lawsuit against MakerBot and parent company Stratasys, claiming that MakerBot knowingly misled customers and investors by promising an outstanding product and delivering a flawed one. A year later, the case was dismissed on the grounds that, to put it briefly, overzealous enthusiasm in advertising doesn’t qualify as false advertising.

The shareholders, however, appealed the decision – but they didn’t get very far. This week, an Eighth Circuit three-judge panel declined to revive the case, upholding the original dismissal and saying that the shareholders still don’t have solid evidence that MakerBot actually lied about anything. It all comes down to wording, really, in determining what is and isn’t false advertising. Stratasys claimed that the 5th Generation Replicator 3D printers, which came with the Smart Extruders, offered “unmatched speed, reliability, quality and connectivity.” Statements such as those, the court maintains, are “mere puffery.”

Basically, if MakerBot claimed that the 5th Generation Replicator was equipped with four extruders and it only had one, that would clearly be false advertising, but just about every company that has ever manufactured anything claims that their product is the best in the world. Most of the time, those claims are taken with a grain of salt. The Eighth Circuit court, echoing the district court’s earlier ruling, calls Stratasys’ claims of unmatched speed, reliability, quality and connectivity “vague and unreliable” – in fact, they’re “so vague and such obvious hyperbole that no reasonable investor would rely upon them.”

Then there’s the allegation that MakerBot and Stratasys knew about the problems with the Smart Extruders before putting them on the market. Here, the shareholders argue, the companies committed scienter, or knowledgeable wrongdoing. Again, the Eighth Circuit court upheld the earlier decision, stating that there’s not enough evidence to prove it.

“Here, the shareholders’ claims fail because their allegations do not adequately tie Stratasys’s knowledge of the product quality issues or their financial repercussions to the timing of the statements,” the court states. “The shareholders’ allegations about Stratasys’s knowledge of the 5G printers’ issues, from confidential witness accounts, do not provide particular details about when Stratasys knew of these issues. The shareholders argue the district court erred in considering their confidential witness accounts when evaluating scienter because those accounts were meant to demonstrate only that the statements were materially false. However, adequately pled scienter must demonstrate that a defendant knew a statement was false at the moment it was made. Without tying the timing of the knowledge to the allegedly misleading statements, the shareholders do not plead facts sufficient to support a strong inference of scienter.”

So that’s that, it would seem. It’s a disappointing ruling for shareholders, but Stratasys and MakerBot appear to have moved on from the debacle long ago. MakerBot released the Smart Extruder+ last January, and got it right the second time around, without the problems that afflicted the original Smart Extruder. None of the defendants named in the lawsuit – David Reis and Erez Simha of Stratasys and Bre Pettis and Jennifer Lawton of MakerBot – are still with those respective companies. So while it’s been a fun Throwback Thursday, it seems it’s finally time to put this particular case to rest for good. If you’re curious, you can read the full ruling here.

Discuss in the Stratasys/MakerBot forum at 3DPB.com.

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