Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

8. Commitments and Contingencies

a. Lease Obligations

The Company has entered into operating leases for various office space, storage facilities and equipment. Rent expense under all operating leases, including both cancelable and non-cancelable leases, was $1.8 million, $1.6 million and $1.0 million for the years ended December 31, 2011, 2010, and 2009, respectively. Future minimum lease payments under non-cancelable operating leases are as follows (years ended December 31):

		September 30,
2012	$	535,809
2013		286,744
2014		102,031
2015		30,826
2016		—
Thereafter		—
Total	$	955,410

b. Purchase Commitments

On October 25, 2010, the Company entered into a contract with Automation Tooling Systems, Inc. (ATS) for the cartridge assembly line consignment parts. ATS will charge a fee of $9,300 per month for 25 months, which is a fee for access to the consignment inventory of spare parts located on the Company’s premises. The Company also routinely enters into cancelable purchase orders with many of its key vendors; however, based on the strategic relationships with many of these vendors, the Company’s ability to cancel these purchase orders and maintain a favorable relationship would be limited. As of December 31, 2011, the Company has $7.2 million of open purchase orders.

c. Litigation

Product Litigation

The Company is currently named as a defendant in 42 lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which the TASER ECD 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, 153 other lawsuits have been dismissed or judgment entered in favor of the Company at the trial court level.

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 charge 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 42 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 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 remaining available insurance coverage, the Company’s uninsured exposure related to this case is approximately $3.8 million. The Company has recorded a reserve of $3.3 million which it believes is adequate to cover the expected outcome of the case post all applicable appeals. 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.

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
Salinas		Aug-08	US District Court, ND CA	Wrongful Death	Trial scheduled September 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	Maricopa County Superior Court, AZ	Wrongful Death	Discovery Phase
Abrahams		July-09	CA Superior Court, Yolo County	Wrongful Death	Dismissed
Humphreys		Oct-09	CA Superior Court, San Joaquin County	Wrongful Death	Discovery Phase
Terriquez		Feb-10	Superior Court of CA, Orange County	Wrongful Death	Dismissed
Rich		Feb-10	US District Court, NV	Wrongful Death	Motion Phase
Turner		Feb-10	US District Court, WD NC	Wrongful Death	Jury verdict for $10 million. Post trial motions filed and pending, judgment not filed.
Doan		Apr-10	Queens Bench Alberta, Red Deer Judicial Dist.	Wrongful Death	Discovery Phase
Piskkura		May-10	US District Court, OH	Wrongful Death	Discovery Phase, trial scheduled August 2012
Corbin		Jun-10	Houston County Court, MD AL	Wrongful Death	Dismissed
DuBoise		Aug-10	US District Court, ED MO	Wrongful Death	Dismissed
Kelley		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 January 2013
English		May-11	US District Court, WD, VA	Wrongful Death	Dismissed
Wilson		May-11	US District Court, ED, MO	Wrongful Death	Discovery Phase, trial scheduled May 2013
Terrell		Jun-11	US District Court, SD, TX	Wrongful Death	Dismissed
Sylvester		Jun-11	US District Court, ND, CA	Wrongful Death	Discovery Phase, trial scheduled April 2013
La Day		Jun-11	US District Court, ED TX	Wrongful Death	Discovery Phase, trial scheduled October 2012
Cobbs		Aug-11	Guilford County Superior Court, NC	Wrongful Death	Dismissed
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, trial scheduled March 2013
Ridelhuber		Sep-11	US District Court, Greenwood Division, SC	Wrongful Death	Discovery Phase
Cosentino		Oct-11	US District Court, CD, CA	Wrongful Death	Dismissed
Coto		Oct-11	CA Superior Court, Los Angeles County	Wrongful Death	Discovery Phase
Russell		Dec-11	Albemarle County Circuit Court, VA	Wrongful Death	Discovery Phase
Kelly		Jan-12	Elkhart County Circuit Court, IN	Wrongful Death	Dismissed
Ramsey		Jan-12	Broward County Circuit Court, 17th Judicial Circuit, FL	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	Dismissed
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	Dismissed
Peppler		Apr-09	Circuit Court 5th Judicial Dist., Sumter City, FL	Training Injury	Discovery Phase
Kandt		Jun-09	US District Court, ND NY	Training Injury	Motion Phase
Maynard		Apr-10	Superior Court, Hartford Judicial District, CT	Training Injury	Dismissed
Butler		Jan-11	US District Court, ND TX	Training Injury	Discovery Phase, trial scheduled August 2012

Plaintiff	Served		Jurisdiction	Claim Type	Status
Derbyshire		Nov-09	Ontario Superior Court of Justice	Officer Injury	Discovery Phase
Hollenback		Dec-10	St. Louis County Circuit Court MO	Officer Injury	Dismissed
Juran		Dec-11	Hennepin County District Court, MN, 4th Judicial District	Officer Injury	Discovery Phase
Stough		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	Dismissed
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	Suspect Injury During Arrest	Dismissed
Streeter		Dec-10	US District Court, OR	Suspect Injury During Arrest	Dismissed
Valkanet		Mar-11	US District Court, ND IL	Suspect Injury During Arrest	Dismissed
Sanders		Mar-11	US District Court, ND IL	Suspect Injury During Arrest	Dismissed
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		May-11	US District Court, CD UT	Suspect Injury During Arrest	Dismissed
Diehl		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	Discovery Phase
Duensing		Feb-12	US District Court, NV	Suspect Injury During Arrest	Pleading Phase

In addition, several litigation matters on which TASER prevailed at the trial court level are now currently on appeal:

	September 30,	September 30,	September 30,
Plaintiff	Jurisdiction	Claim Type	Status
Marquez (AZ)	US Court of Appeals for the Ninth Circuit	Wrongful Death	Oral Argument Scheduled for April 2012
Rosa (CA)	US Court of Appeals for the Ninth Circuit	Wrongful Death	Oral Argument Scheduled for April 2012
Oliver	US Court of Appeals for the Eleventh Circuit	Wrongful Death	Plaintiff’s Appeal Denied in January 2012

Other Litigation

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 attorneys’ 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 motion 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, 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 prejudgment 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 discovery phase and no trial date has been set.

In September 2011 the Company filed motion with the US 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 president of Karbon Arms, LLC, from making, using, offering to sell, or selling in or from the United States, the Stinger S-200 electronic control devices (ECDs) 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 TASER’s motion 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 ECD. TASER’s motion was denied after a hearing on December 15, 2011.

In July 2011 the Company filed a complaint against Karbon Arms, LLC for infringement of U.S. Patent Nos. 7,800,885 (the “‘885 patent”) and 7,782,592 (the “‘592 patent”) in US District Court in Delaware seeking damages, injunctive relief and an award of attorneys’ fees. Karbon Arms filed a counterclaim on July 18, 2011 alleging invalidity and non-infringement of four of TASER’s patents, tortuous interference with prospective contractual relations and for false advertising under the Lanham Act. This lawsuit is at the discovery phase and a trial date has been set for January 2014.

In December 2011 the Company was served with a complaint in the matter of Law Enforcement Associates, Inc. v. TASER International, Inc. that was filed in the United States District Court for the Eastern District of North Carolina, Eastern Division which alleges that the Company’s X2 and X3 products infringe United States Patent No. 7,692,915 and that the Company breached a contract to purchase certain of Law Enforcement Associates, Inc.’s patents. The complaint seeks a judgment of infringement, a permanent injunction against infringement, an award for damages for infringement and breach of contract, an award for treble damages for patent infringement and attorney’s fees. This lawsuit is at the discovery phase and no trial date has been set.

In February 2012 the Company was served with a complaint in the matter of AA & Saba Consultants, Inc. v. TASER International, Inc. that was filed in the Superior Court for the County of Maricopa, AZ which alleges that the Company breached a contract by unilaterally terminating a distributor agreement between the Company and plaintiff without good cause. The complaint seeks an award for damages, costs, expenses and attorney’s fees. This lawsuit is at 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 several lawsuits where the costs of legal defense incurred are in excess of its liability insurance self-insured retentions and are covered by its insurance policy then in effect. As of December 31, 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 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.

d. Employment Agreements

The Company has employment agreements with its Chairman, Chief Executive Officer, President and General Counsel, Chief Financial Officer, and Chief Marketing Officer and Executive Vice President of Sales, and the Technical Fellow of Research and Development. The Company may terminate the agreements with or without cause. Should the Company terminate the agreements without cause, or upon a change of control of the Company or death of the employee, the employees are entitled to additional compensation. Under these circumstances, these officers and employees may receive the amounts remaining under their contracts upon termination, which would total $1.0 million in the aggregate at December 31, 2011.