Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

9. Commitments and contingencies

Product Litigation

The Company is currently named as a defendant in 36 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, 163 other lawsuits have been dismissed or judgments entered in favor of the Company and are not included in this number. Appeals were filed by the plaintiffs in the Marquez (AZ), Pikes (LA), and Rosa (CA) cases where judgment was entered in favor of the Company. Plaintiff’s appeal in the Rosa (CA) case was decided by the U.S. Ninth Circuit Court of Appeals in July 2012 and the Company’s summary judgment was affirmed. Oral arguments were heard in the Marquez (AZ) appeal in April 2012, and the Court’s decision in this case has not yet been issued. These cases are not included in the number of pending lawsuits.

The Turner (NC) lawsuit was tried in July 2011 and resulted in a jury verdict of $10 million against the Company. The Company 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. During March 2012, the Federal District Court for the Western District of North Carolina granted the Company’s motion for remittitur and ordered the reduction of the original jury award from $10.0 million to approximately $4.4 million after offsets. On April 20, 2012, the court issued an order which adjusted the award to $5.5 million. On May 4, 2012, the court issued another order which entered judgment in the amount of $5.5 million plus costs and post-judgment interest. Based on this action by the court, the Company reversed a portion of the previously accrued litigation judgment expense during the six months ended June 30, 2012, which resulted in a benefit of $2.2 million, leaving a reserve of $1.1 million as of June 30, 2012. The Company has filed an appeal with the U.S. Fourth Circuit Court of Appeals. This case is not included in the number of pending lawsuits.

With respect to each of the pending 35 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 2007 to 2008 insurance policy years, 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 reduction of the award as noted above and the remaining available insurance coverage, the Company’s uninsured exposure related to this case is approximately $1.1 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 2007 to 2008 insurance policy years will be exhausted. For any other claims relating to the 2007 to 2008 insurance 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.

Plaintiff	Month 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	Motion Phase, trial scheduled Oct 2012
Thomas (Pike)		Oct-08	US District Court, WD Louisiana, Alexandria	Wrongful Death	Dismissed, appeal filed
Shrum		May-09	Allen County District Court, Iola, KS	Wrongful Death	Dismissed
Athetis		May-09	US District Court, AZ	Wrongful Death	Motion Phase
Humphreys		Oct-09	CA Superior Court, San Joaquin County	Wrongful Death	Discovery Phase
Rich		Feb-10	US District Court, NV	Wrongful Death	Pretrial phase
Turner		Feb-10	General Court of Justice, Superior Court Div, Mecklenburg County, NC	Wrongful Death	Jury award for $10 million, remittur accepted for $5.5 million, judgment entered for $5.5 million plus costs and post judgment interest, appeal filed.
Doan		Apr-10	The Queens Bench Alberta, Red Deer Judicial Dist.	Wrongful Death	Pleading Phase
Piskura		May-10	US District Court, OH	Wrongful Death	Motion phase, trial scheuduled Nov 2012
Kelley		Oct-10	District Court for Harris County, TX	Wrongful Death	Motion Phase, trial scheduled Sep 2012
Jacobs		Oct-10	District Court for Travis County, TX	Wrongful Death	Discovery Phase, trial scheduled Oct 2012
Shymko		Dec-10	The Queens Bench, Winnipeg Centre, Manitoba	Wrongful Death	Pleading Phase
Williams		Dec-10	US District Court, MS	Wrongful Death	Motion Phase, trial scheduled Jan 2013
Wilson		May-11	US District Court, ED MO	Wrongful Death	Discovery Phase, trial scheduled May 2013
Sylvester		Jun-11	US District Court, ND CA	Wrongful Death	Discovery Phase, trial scheduled Apr 2013
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	Dismissed
Coto		Oct-11	CA Superior Court, Los Angeles County	Wrongful Death	Discovery Phase, trial scheduled March 2013
Russell		Dec-12	U.S. District Court, VA	Wrongful Death	Discovery Phase, trial scheduled Jan 2013
Ramsey		Jan-12	Broward County Circuit Court, 17th Judicial Circuit, FL	Wrongful Death	Discovery Phase
Mitchell		Apr-12	US District Court, ED MI	Wrongful Death	Discovery Phase, trial date rescheduled to date uncertain
Firman		Apr-12	Ontario, Canada Superior Court of Justice	Wrongful Death	Pleading Phase
Ricks		May-12	US District Court, WD LA	Wrongful Death	Pleading Phase
Allen		Jun-12	US District Court, SD TX	Wrongful Death	Pleading Phase
Neill		Jun-12	US District Court, ED PA	Wrongful Death	Pleading Phase
Stewart		Oct-05	Circuit Court for Broward County, FL	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
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	Dismissed
Butler		Jan-11	US District Court, ND TX	Training Injury	Discovery Phase, trial scheduled Oct 2012
Derbyshire		Nov-09	Ontario, Canada Superior Court of Justice	Officer Injury	Discovery Phase
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 Nov 2013
Fahy		Dec-09	Circuit Court of City of St. Louis	Suspect Injury During Arrest	Discovery Phase, trial scheduled Dec 2012
Thompson		Mar-10	11th Judicial Circuit Court Miami-Dade County, FL	Suspect Injury During Arrest	Discovery Phase
Jefferson		Apr-11	US District Court, ED TX	Injury During Incarceration	Dismissed
Fountain		May-11	US District Court, MD FL	Suspect Injury During Arrest	Dismissed
Diehl (PA)		Jun-11	Court of Common Pleas, Blair County, PA	Suspect Injury During Arrest	Dismissed
Duensing (NV)		Feb-12	US District Court, NV	Suspect Injury During Arrest	Discovery Phase
Manjares (WA)		Jul-12	US District Court, ED WA	Suspect Injury During Arrest	Pleading Phase

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 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, 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 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 attorney’s 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 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 one lawsuit where the costs of legal defense incurred are in excess of its liability insurance deductibles. As of June 30, 2012, 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.