Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

9. Commitments and Contingencies

Product Litigation

The Company is currently named as a defendant in 55 lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which the TASER device was used (or present) by law enforcement officers in connection with arrests or during training exercises. Companion cases arising from the same incident have been combined into one for reporting purposes.

In addition, 136 other lawsuits have been dismissed or judgment entered in favor of the Company which are not included in this number. An appeal was filed by the plaintiff in the Lee (TN), Thompson (MI), Marquez (AZ), Oliver (FL) and Rosa (CA) cases where judgment was entered in favor of the Company. In July 2011, the Court of Appeals affirmed the judgment in favor of the Company in the Lee (TN) appeal and in August denied the plaintiff’s request for a rehearing. These cases are not included in this number or in the table below.

Also not included in the number of pending lawsuits or in the table below is the Heston lawsuit in which a jury verdict was entered against the Company on June 6, 2008, and judgment was entered against the Company on January 30, 2009 in the amount of $153,150 as compensatory damages, $1,423,127 as attorney fees, and $182,000 as costs. These damages, fees and costs are covered by the Company’s insurance policies. The jury found that Mr. Heston’s own actions were 85% responsible for his death. The jury assigned 15% of the responsibility to TASER for a “negligent failure to warn” that extended or multiple TASER ECD applications could cause muscle contractions that could potentially contribute to acidosis to a degree that could cause cardiac arrest. The jury inappropriately awarded $5,200,000 in punitive damages against TASER, which were subsequently disallowed by the Court on October 24, 2008. The Court denied the balance of the Company’s motion for judgment as a matter of law on all other grounds. The Company has filed a notice of appeal with respect to the judgment and plaintiffs have filed a notice of cross appeal. In May 2011 the U.S. Circuit Court of Appeals for the Ninth Circuit ruled in the Company’s favor on three of four significant damages issues: the elimination of punitive damages was upheld, the award of attorneys’ fees was vacated, and the damage award to the estate of Mr. Heston was vacated. The court upheld the damage award to the parents in the amount of $150,000. The Company is also responsible for $52,700 in costs and interest.

The Turner (NC) lawsuit was tried in July 2011 and resulted in a jury verdict of $10 million against the Company. The Company has filed post-trial motions seeking judgment as a matter of law notwithstanding the verdict and in the alternative, a new trial or alternatively a remittitur of the jury award. The court has not yet entered judgment. The Company recorded a litigation judgment expense of $3.3 million in the second quarter of 2011, which represents management’s best estimate of the Company’s uninsured portion of the judgment after consideration of available insurance coverage.

With respect to each of the pending 55 lawsuits, the following table lists the name of plaintiff, the date the Company was served with process, the jurisdiction in which the case is pending, the type of claim and the status of the matter. While the facts vary from case to case, the product liability claims are typically based on an alleged product defect resulting in injury or death, usually involving a failure to warn, and the plaintiffs are seeking monetary damages. This table also lists those cases that were dismissed, (or where a dismissal is pending) or judgment entered during the most recent fiscal quarter. Cases that were dismissed or judgment entered in prior fiscal quarters are not included in this table. The claims and in some instances, the defense of each of these lawsuits has been submitted to our insurance carriers that maintained insurance coverage during these applicable periods and we continue to maintain product liability insurance coverage with varying limits and deductibles. Our product liability insurance coverage during these periods ranged from $5,000,000 to $10,000,000 in coverage limits and from $10,000 to $1,000,000 in per incident deductibles. For the 2010 insurance policy year, our product liability insurance coverage was $10 million and, as noted above, in the Turner (NC) case the Company received an adverse $10 million jury verdict. After consideration of the remaining available insurance coverage, the Company’s uninsured exposure related to this case is approximately $3.3 million. While the Company will explore every possible legal channel to have this verdict overturned, in the event the verdict stands, the Company’s insurance coverage for the 2010 policy year will be exhausted and, for any other claims relating to the 2010 policy year, the Company will not have insurance coverage for defense costs or any other adverse judgments, should they arise. We are defending each of these lawsuits vigorously and do not expect these lawsuits to individually and in the aggregate, materially affect our business, results of operations or financial condition.

	Month
Plaintiff	Served	Jurisdiction	Claim Type	Status
Glowczenski	Oct-04	US District Court, ED NY	Wrongful Death	Trial rescheduled, date to be determined
Washington	May-05	US District Court, ED CA	Wrongful Death	Discovery Phase
Hollman	Aug-06	US District Court, ED NY	Wrongful Death	Motion Phase
Wendy Wilson, Estate of Ryan Wilson	Aug-07	District Court Boulder County, CO	Wrongful Death	Dismissal pending
Jack Wilson, Estate of Ryan Wilson (Companion to Wendy Wilson)	Nov-07	District Court Boulder County, CO	Wrongful Death	Dismissal pending
Salinas	Aug-08	US District Court, ND CA	Wrongful Death	Motion Phase, trial scheduled Sept 2012
Thomas (Pike)	Oct-08	US District Court, WD Louisiana, Alexandria	Wrongful Death	Motion Phase
Shrum	May-09	Allen County District Court, Iola, KS	Wrongful Death	Trial scheduled November 2012
Athetis	May-09	US District Court, AZ	Wrongful Death	Discovery Phase
Abrahams	Jul-09	CA Superior Court, Yolo County	Wrongful Death	Discovery Phase, trial scheduled September 2012
Humphreys	Oct-09	CA Superior Court, San Joaquin County	Wrongful Death	Discovery Phase
Terriquez	Feb-10	CA Superior Court, Orange County	Wrongful Death	Discovery Phase, trial scheuduled May 2012
Rich	Feb-10	US District Court, NV	Wrongful Death	Motion Phase
McKenzie	Feb-10	US Disctrict Court, ED CA	Wrongful Death	Dismissed
Turner	Feb-10	General Court of Justice, Superior Court Div, Mecklenburg County, NC	Wrongful Death	Jury award for $10 million. Post trial motions filed, judgment not filed
Doan	Apr-10	The Queens Bench Alberta, Red Deer Judicial Dist.	Wrongful Death	Pleading Phase
Piskkura	May-10	US District Court, OH	Wrongful Death	Discovery Phase, trial scheuduled March 2012
Corbin	Jun-10	Houston County Court, MD AL	Wrongful Death	Discovery Phase, trial scheuduled June 2012
DuBoise	Aug-10	US District Court, ED MO	Wrongful Death	Discovery Phase, trial scheduled February 2013
Kelly	Oct-10	District Court for Harris County, TX	Wrongful Death	Discovery Phase, trial scheduled May 2012
Jacobs	Oct-10	District Court for Travis County, TX	Wrongful Death	Discovery Phase, trial scheduled October 2012
Shymko	Dec-10	The Queens Bench, Winnipeg Centre, Manitoba	Wrongful Death	Pleading Phase
Williams	Dec-10	US District Court, MS	Wrongful Death	Discovery Phase, trial scheduled April 2012
English	May-11	US District Court, WD VA	Wrongful Death	Discovery Phase, trial scheduled April 2012
Wilson	May-11	US District Court, ED MO	Wrongful Death	Discovery Phase
Terrell	Jun-11	US District Court, SD TX	Wrongful Death	Discovery Phase
Sylvester	Jun-11	US District Court, ND CA	Wrongful Death	Discovery Phase
La Day	Jun-11	US District Court, ED TX	Wrongful Death	Discovery Phase
Cobb	Aug-11	Guilford County Superior Court, NC	Wrongful Death	Discovery Phase
Nelson	Aug-11	CA Superior Court, Riverside County	Wrongful Death	Discovery Phase
Bachtel	Aug-11	14th Judicial District Circuit Court, Randolph County, MO	Wrongful Death	Discovery Phase
Ridelhuber	Sep-11	US District Court, Greenwood Division, SC	Wrongful Death	Pleading Phase
Cosentino	Oct-11	US District Court, CD CA	Wrongful Death	Pleading Phase
Coto	Oct-11	CA Superior Court, Los Angeles County	Wrongful Death	Pleading Phase
Stewart	Oct-05	Circuit Court for Broward County, FL	Training Injury	Discovery Phase
Husband	Mar-06	British Columbia Supreme Court, Canada	Training Injury	Discovery Phase, trial scheduled March 2012
Grable	Aug-08	FL 6th Judicial Circuit Court, Pinellas County	Training Injury	Discovery Phase
Koon	Dec-08	17th Judicial Circuit Court, Broward County, FL	Training Injury	Discovery Phase
Bickle	Mar-09	18th Judicial District Court, Gallatin County, MT	Training Injury	Dismissal pending
Peppler	Apr-09	Circuit Court 5th Judicial Dist., Sumter City, FL	Training Injury	Motion Phase
Kandt	Jun-09	US District Court, ND NY	Training Injury	Discovery Phase
Maynard	Apr-10	Superior Court, Hartford Judicial District, CT	Training Injury	Discovery Phase
Butler	Jan-11	US District Court, ND TX	Training Injury	Discovery Phase, trial scheduled April 2012
Derbyshire	Nov-09	Ontario Superior Court of Justice	Officer Injury	Discovery Phase
Hollenback	Dec-10	St. Louis County Circuit Court MO	Officer Injury	Discovery Phase, trial scheduled January 2012
Juran	Dec-10	Hennepin County District Court, 4th Judicial District	Officer Injury	Discovery Phase
Strough	Feb-11	US District Court, ED MO	Officer Injury	Discovery Phase, trial scheduled December 2012
Wheat	Jul-09	CA Superior Court, Los Angeles County	Suspect Injury During Arrest	Motion Phase, trial scheduled March 2012
Fahy	Dec-09	Circuit Court of City of St. Louis	Suspect Injury During Arrest	Discovery Phase, trial scheduled August 2012
Thompson	Mar-10	11th Judicial Circuit Court Miami-Dade County, FL	Suspect Injury During Arrest	Discovery Phase
Wilson	Apr-10	US District Court, ND IL, ED	Suspect Injury During Arrest	Dismissed
Patterson	Jun-10	Circuit Court Pontotoc County, MS	Suspect Injury During Arrest	Dismissed
Streeter	Dec-10	US District Court, OR	Suspect Injury During Arrest	Discovery Phase, trial scheduled April 2012
Valkanet	Mar-11	US District Court, ND IL	Suspect Injury During Arrest	Discovery Phase
Sanders	Mar-11	US District Court, ND IL	Suspect Injury During Arrest	Discovery Phase
Payne	Mar-11	Blount County Circuit Court, TN	Suspect Injury During Arrest	Discovery Phase
Jefferson	Apr-11	US District Court, ED TX	Injury During Incarceration	Discovery Phase
Fountain	May-11	US District Court, MD FL	Suspect Injury During Arrest	Discovery Phase, trial scheduled April 2013
Alusa (UT)	May-11	US District Court, CD UT	Suspect Injury During Arrest	Discovery Phase
Diehl (PA)	Jun-11	Court of Common Pleas, Blair County, PA	Suspect Injury During Arrest	Discovery Phase
Gray	Sep-11	US District Court, WD LA	Suspect Injury During Arrest	Pleading Phase

Other Litigation

In October 2007, we filed a lawsuit in Arizona Superior Court for Maricopa County against Steve Ward and Mark Johnson, both former TASER employees, and VIEVU LLC et. al. for breach of duty of loyalty, breach of contract, breach of fiduciary duty, and conversion. This lawsuit does not involve our ECD business and we do not expect this litigation to have a material impact on our financial results. Defendants Ward and VIEVU LLC filed an answer and counterclaim for declaration of non-infringement, tortious interference with contractual relations, tortious interference with business expectancy, and abuse of process. In its lawsuit the Company sought compensatory damages, constructive trust, exemplary damages, injunctive relief, and attorneys’ fees, costs and disbursements. Cross motions for summary judgment were filed and on March 4, 2009, the Court denied Defendants’ motion for summary judgment on the trade secret claim and on April 9, 2009, the Court granted TASER’s motion for summary judgment against Ward on the breach of fiduciary duty and the breach of duty of loyalty claims. We filed a Motion to Extend Discovery Period by and to reconvene the Deposition of Steve Ward, and Defendants have filed Defendant’s Response in Opposition to this motion. In addition, Defendants Steve Ward and VIEVU LLC filed a Motion for Reconsideration or in the alternative to make the Court’s Ruling a Final Judgment and Stay Proceeding Pending Outcome of Appeal. The Court denied the Motion for Reconsideration, but granted the motion to make the Court’s Ruling a Final Judgment and Stayed the Proceeding Pending Outcome of Appeal. An appeal was filed by Defendants Ward and VIEVU LLC to the Arizona State Court of Appeals. The appellate court reversed the Superior Court and remanded the case for trial. On June 14, 2010 TASER filed a petition for review with the Arizona Supreme Court and Ward filed a cross petition for review on June 29, 2010. The Arizona Supreme Court declined review of both petitions and the case was resolved to the mutual satisfaction of the parties and the case was dismissed in August 2011.

In February 2009, we filed a complaint in the United States District Court for the District of Nevada against James F. McNulty, Jr., Robert Gruder, and Stinger Systems, Inc. alleging securities fraud under 15 U.S.C. § 78j, trade libel, unfair competition under the Lanham Act, 15 U.S.C. § 1125, abuse of process, and deceptive trade practices. Our complaint seeks compensatory damages, punitive damages, injunctive relief, attorneys’ fees and costs. Defendants filed motions to dismiss and on March 25, 2010 the Court denied Defendants’ motion on all claims except the securities fraud claim. Defendant McNulty filed a counterclaim on August 2, 2010 alleging that TASER’s XREP product infringes U.S. Patents 5,831,199 and 6,877,434. The counterclaim seeks declaratory and injunctive relief, compensatory, treble and punitive damages, and attorney’s fees. The court issued a ruling in July 2011 dismissing TASER’s claims for civil conspiracy and abuse of process and affirming the magistrate’s order requiring defendants to disclose tax and stock information to TASER and ruling that TASER’s counterclaim for declaratory judgment with respect to the patent claims should not be dismissed. Mr. McNulty has filed a motion for summary judgment, which is pending before the court. No trial date has been set.

In January 2011, we were served with a complaint in the matter of GEOTAG, Inc. v. TASER International, Inc. et. al. that was filed in the United States District Court for the Eastern District of Texas, Marshall Division, which alleges that a dealer geographical locator feature on TASER’s website infringes upon plaintiff’s US Patent No. 5,930,474. The complaint seeks a judgment of infringement, a permanent injunction against infringement, an award for damages, costs, expenses and pre-judgment and post-judgment interest, and an award for enhanced damages and attorneys’ fees. TASER has licensed this locator feature from a third party and has denied liability for infringement. This lawsuit is at the pleading phase and no trial date has been set.

In July 2011, we were served with a complaint in the matter of Integrity Staffing Professionals v. TASER International, Inc., et.al. that was filed in the Superior Court for the County of Ventura, California which alleges that the Company owes Integrity Staffing Professionals a fee for hiring two consultants. The complaint alleges breach of contract, breach of implied covenants, intentional and negligent interference with contractual relationships, civil conspiracy and unfair business practices. The complaint seeks compensatory, general, punitive damages, interest, and attorneys’ fees and costs. This lawsuit was resolved to the mutual satisfaction of the parties and the case was dismissed in September 2011.

In September 2011, the Company filed a motion with the U.S. District Court for the District of Arizona to re-open the lawsuit in which TASER was granted a permanent injunction against Stinger Systems, Inc. which was granted in October 2011. The permanent injunction restrained Stinger and its officers, agents and employees, which would include Robert Gruder who was formerly an officer and employee of Stinger and who is currently CEO of Karbon Arms, Inc., from making, using, offering to sell, or selling in or from the United States, the Stinger S-200 electronic control devices and all other products that are only colorably different from the S-200 ECDs in the context of claims 2 or 40 of TASER’s 6,999,295 patent. This case was re-opened by the Court to consider a motion by TASER for contempt against Karbon Arms and Gruder for violation of TASER’s permanent injunction by making, offering to sell and selling the Karbon Arms MPID electronic control device. A hearing has been scheduled for December 15, 2011, to consider TASER’s motion for contempt.

In August 2011 the Company filed a complaint against Karbon Arms, L.L.C. for infringement of U.S. Patent Nos. 7,800,885 (the “‘885 patent”) and 7,782,592 (the “‘592 patent”) in U.S. District Court for the District of Delaware seeking damages, injunctive relief and an award of attorney’s fees. This lawsuit is in the discovery phase and no trial date has been set.

General

From time to time, the Company is notified that it may be a party to a lawsuit or that a claim is being made against it. It is the Company’s policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on the Company. After carefully assessing the claim, and assuming we determine that we are not at fault, we vigorously defend and pursue any lawsuit filed against or by the Company. Although we do not expect the outcome in any pending individual case to be material, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts provided by insurance coverage and will not have a material adverse effect on our business, operating results or financial condition. In addition, the Company has one lawsuit where the costs of legal defense incurred are in excess of its liability insurance deductibles. As of September 30, 2011, the Company has been fully reimbursed by its insurance company for these legal costs. The Company may settle a lawsuit in situations where a settlement can be obtained for nuisance value and for an amount that is expected to be less than the cost of defending a lawsuit. The number of product liability lawsuits dismissed includes a small number of police officer training injury lawsuits that were settled by the Company and dismissed in cases where the settlement economics to the Company were significantly less than the cost of litigation. In addition, it is the Company’s policy to not settle suspect injury or death cases, although the Company’s insurance company may settle such lawsuits over the Company’s objection where the case is over the Company’s liability insurance deductibles. Due to the confidentiality of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, the Company does not identify or comment on which specific lawsuits have been settled or the amount of any settlement.