Fitbit Can't Outrun Disclosure Suit Over Faulty Tracker

Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...

By Antoinette Gartrell

Oct. 28 — Fitness device manufacturer Fitbit Inc. failed to persuade a federal judge to dismiss investors' claims it falsely touted the reliability of its heart rate tracking technology ( Robb v. Fitbit, Inc. , 2016 BL 359028, N.D. Cal., No. 3:16-cv-00151, 10/26/16 ).

Investors pointed to specific allegedly misleading statements and adequately pleaded that corporate executives were aware the devices didn't perform as represented, Judge Susan Illston of the U.S. District Court of the Northern District of California said Oct. 26.

PurePulse Technology

According to the class, in October 2014, Fitbit announced its new proprietary PurePulse optical heart rate technology that purported to provide “continuous and automatic” wrist-based heart rate tracking. The company also allegedly touted the technology’s accuracy in subsequent press releases, offering materials, earnings calls and press interviews. Two new products, the Fitbit Charge HR and the Fitbit Surge, would feature the new technology.

Driven by sales of products with PurePulse technology, Fitbit’s revenues reached $1.858 billion in 2015, compared to $745.4 million the previous year.

The class alleged that since heart rate monitoring was the key feature of the company’s products, its accuracy was crucial to the success of the business. In reality, the investors said, the monitoring systems were “dangerously inaccurate” and created a risk of life-threatening overexertion.

Investors were first made aware of the equipment's flaws in January 2016 when a separate lawsuit and accuracy study were made public. Fitbit's stock price collapsed by 45.8 percent in the wake of the disclosures.

Motion Denied

In allowing the suit to go forward, the court said the investors pointed to numerous statements in which Fitbit claimed its devices could track heart rates at a high degree of accuracy. The class relied on multiple and varying sources to allege that the devices couldn’t perform as promised and that is enough to survive a motion to dismiss, Illston said.

The court also found that the complaint established a plausible inference of scienter—culpable intent. It pointed to alleged statements by two Fitbit quality assurance employees indicating that company executives were aware of the inaccuracy of the PurePulse technology.

The class is represented by Pomerantz LLP, New York. Fitbit is represented by Morrison & Foerster LLP, San Francisco.

To contact the reporter on this story: Antoinette Gartrell in Washington at agartrell@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.