On October 21, 2020, Judge Labson Freeman of the U.S. District Court for the Northern District of California issued an order dismissing with leave to amend a securities class action complaint filed against Dropbox and its directors and officers. The plaintiffs’ primary theory of liability was that Dropbox’s registration statement failed to disclose that Dropbox’s conversion rate of free users to paying users was decreasing at the time of the company’s IPO, which was causing Dropbox’s revenue growth rate to slow down. The defendants argued that while the registration statement did not provide information regarding user conversion rates, it provided sufficient information to allow investors to understand that Dropbox’s paying user and revenue growth rates had declined prior to the IPO and that user conversion was subsumed within those reported metrics. Judge Freeman adopted virtually all of the defendants’ arguments, including that the plaintiffs’ claims were time barred because the registration statement’s disclosures of revenue and paying users and subsequent earnings disclosures would have placed reasonable investors on notice of their claims more than a year before the complaint was filed. 

The Wilson Sonsini Goodrich & Rosati team that represented Dropbox in the matter includes Nicki Locker and Evan Seite.

For more information, please see Law360’s coverage of the matter.