On September 22, 2017, United States District Judge Alison J. Nathan of the United States District Court for the Southern District of New York dismissed with prejudice an amended consolidated putative class action complaint asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Eros International Plc (“Eros”) and certain of its current and former executives. In re Eros Int’l Sec. Litig., No. 15-cv-8956-AJN (S.D.N.Y. Sept. 22, 2017). The complaint alleged that defendants deceived investors by touting growth in the number of “registered users” of Eros’s video streaming service, many of whom could not actually use the service, and also by overstating the number of annual releases in its video library. In dismissing the action, the Court found that plaintiffs’ own definition of an otherwise undefined term could not make a statement actionable when other definitions of those terms were equally plausible.

Eros is an Indian film entertainment company that produces, acquires, and distributes Indian-language films in theatrical, television, and digital formats around the world. In August 2012, Eros launched Eros Now, a streaming service akin to Netflix through which users and subscribers could access films and other content on demand. To build a large user base for Eros Now that could later be converted into a fee-paying pool of subscribers, Eros acquired Techzone, an Indian company that mainly sold ringtones for earlier-generation mobile phones, thereby obtaining the right to market Eros Now to Techzone customers. Following the acquisition, Eros announced continuing and significant increases in the number of “registered users,” which plaintiffs claim increased Eros’s stock price to “all-time highs.” Plaintiffs claimed that those announcements were deceiving because many of the new “registered users” were Techzone customers in India who could not actually stream content on Eros Now due to the limited mobile phone technology and available data networks.

The Court found that plaintiffs failed to adequately plead a misrepresentation or omission. Although plaintiffs argued that the term “registered user” as used by Eros referred to those who interact with a website to extract a “functional benefit” and that none of the registered users made “meaningful use” of the streaming service, the Court held that plaintiffs “cannot import the word ‘meaningful’ before ‘use’” without any representation from defendants about the quality of the registrant’s use. Further, the Court found that defendants had cautioned investors about the risks associated with India’s internet technology and that defendants had no duty to warn customers that registered users could not make “meaningful use” of Eros Now. Although “defendants could have defined and reported ‘users’ in an alternate way that took into account the specifics of their use . . . that does not amount to misrepresentation.” (Emphasis in original).

Plaintiffs also alleged defendants made several false or misleading statements regarding Eros’s video library. First, plaintiffs alleged that defendants misrepresented the number of films added to its video library and made available for Eros Now users. Noting that the determination of materiality is typically reserved for the jury, the Court held that the alleged false statements (e.g., plaintiffs alleged that Eros Now released 64 rather than 65 films in fiscal year 2015) were “so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.” Second, the Court rejected plaintiffs’ allegation that defendants misrepresented the years in which films in its library were actually released. The Court found that “it is no more plausible that these statements (about the films’ release date) were interpreted to mean new films than that they were interpreted to mean newly released on the Eros Now platform.” And third, the Court also rejected plaintiffs’ allegation that Eros misrepresented the number of films it had in production because the statements were either forward looking (“What you will see starting this year is a systematic strategy which will continue for the next five years to firstly scale our film slate from 65 to 70 films currently to over 100 to 120 films across the next three to five years”) or because plaintiffs failed to cite with particularity any misrepresentations about the films Eros was presently producing.

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