Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

9. Commitments and contingencies

Product Litigation

The Company is currently named as a defendant in 33 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, 169 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 Butler (TX), Kandt (NY), Marquez (AZ), Pikes (LA), Rosa (CA), Jacobs (TX) and Williams (MS) 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. Plaintiffs’ appeal in the Marquez (AZ) case was decided by the U.S. Ninth Circuit Court of Appeals in September 2012 and amended in October 2012; and the Company’s summary judgment was affirmed. Plaintiff’s appeal in the Williams (MS) case was dismissed by the U.S. Fifth Circuit Court of Appeals in November 2012. Plaintiff’s notice of appeal in the Pikes (LA) case was denied as deficient. The Butler (TX) and Kandt (NY) appeals are currently in the briefing phases. The notice of appeal was just filed in the Jacobs (TX) case and a briefing schedule has not yet been entered. 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 $10.0 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 nine months ended September 30, 2012, which resulted in a benefit of $2.2 million, leaving a reserve of $1.1 million as of September 30, 2012. The Company has filed an appeal with the U.S. Fourth Circuit Court of Appeals and has filed its opening brief. This case is not included in the number of pending lawsuits.

We maintain product liability insurance coverage with varying limits and deductibles. Our product liability insurance coverage, during the periods that have active cases, ranged from $5.0 million to $12.0 million in coverage limits, with $0.1 million to $1.0 million per incident in deductibles. For the 2008 insurance policy year, our product liability insurance coverage was $10.0 million and as noted above, in the Turner (NC) case, the Company received an adverse $10.0 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 2008 insurance policy year will be exhausted. For any other claims relating to the 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. Remaining insurance coverage is based on information received from the Company’s insurance provider. Information relative to the Company’s insurance coverage can be referenced in the following table:

Policy Year	Policy Start Date		Policy End Date		Insurance Coverage (millions)		Deductible Amount (millions)		Defense Costs Covered		Remaining Insurance Coverage (millions)		Active Cases and Cases on Appeal
2004		12/01/03		12/01/04	$	2.0	$	0.1		N	$	2.0	Glowczenski
2005		12/01/04		12/01/05		10.0		0.3		Y		7.0	Washington
2006		12/01/05		12/01/06		10.0		0.3		Y		4.0	Stough, Hollman
2007		12/01/06		12/01/07		10.0		0.3		Y		8.0	n/a
2008		12/01/07		12/15/08		10.0		0.5		Y		5.5	Salinas, Grable, Koon, Peppler, Rich, Turner
2009		12/15/08		12/15/09		10.0		1.0		N		10.0	Athetis, Kandt, Humphreys, Derbyshire
2010		12/15/09		12/15/10		10.0		1.0		N		10.0	Thompson, Jacobs, Kelley, Shymko, Doan, Piskura, Juran, Fahy
2011		12/15/10		12/15/11		10.0		1.0		N		10.0	Butler, Wilson, Sylvester, Nelson, Bachtel, Coto, Russell, Payne
Jan - Jun 2012		12/15/11		06/25/12		7.0		1.0		N		7.0	Ramsey, Duensing, Mitchell, Firman, Ricks
Jul - Dec 2012		06/25/12		12/15/12		12.0		1.0		N		12.0	Neill, Norman, Wingard

Because the Turner case has not been fully adjudicated, the amount of the remaining insurance coverage for the 2008 policy year is shown based on what has actually been paid out on cases in that policy year. However, if we are not successful in our appeal, the policy will be fully exhausted and as a result, we will no longer have any insurance coverage remaining for the other cases relating to that policy year.

The following table for pending product liability lawsuits in which the Company is currently named as a defendant, 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, have been submitted to our insurance carriers that maintained insurance coverage during these applicable periods.

	Month
Plaintiff	Served	Jurisdiction	Claim Type	Status
Glowczenski	Oct-04	US District Court, ED NY	Wrongful Death	Motion Phase
Washington	May-05	US District Court, ED CA	Wrongful Death	Discovery Phase; Trial scheduled Feb 2013
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 Jun 2013
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
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 Apr 2013
Kelley	Oct-10	District Court for Harris County, TX	Wrongful Death	Directed verdict granted for TASER
Jacobs	Oct-10	District Court for Travis County, TX	Wrongful Death	Summary Judgment granted for TASER, appeal filed
Shymko	Dec-10	The Queens Bench, Winnipeg Centre, Manitoba	Wrongful Death	Pleading Phase
Williams	Dec-10	US District Court, MS	Wrongful Death	Summary judgment granted for TASER
Wilson	May-11	US District Court, ED MO	Wrongful Death	Stayed
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 Mar 2013
Coto	Oct-11	CA Superior Court, Los Angeles County	Wrongful Death	Discovery Phase, trial scheduled Mar 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
City of Warren MI	Apr-12	US District Court, ED MI	Third Party Complaint	Discovery Phase
Firman	Apr-12	Ontario, Canada Superior Court of Justice	Wrongful Death	Pleading Phase
Ricks	May-12	US District Court, WD LA	Wrongful Death	Discovery Phase
Allen	Jun-12	US District Court, SD TX	Wrongful Death	Dismissed
Neill	Jun-12	US District Court, ED PA	Wrongful Death	Discovery Phase
Norman (MO)	Aug-12	US District Court, WD MO	Wrongful Death	Discovery Phase
Wingard	Oct-12	US District Court, WD PA	Wrongful Death	Pleading Phase
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, appeal filed
Butler	Jan-11	US District Court, ND TX	Training Injury	Judgment in favor of TASER, Appeal filed
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
Stough	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
Payne	Mar-11	Blount County Circuit Court, TN	Suspect Injury During Arrest	Discovery Phase
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	Pleading Phase
Manjares (WA)	Jul-12	US District Court, ED WA	Suspect Injury During Arrest	Motion to dismiss granted for TASER

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. This litigation was resolved to the mutual satisfaction of all parties and was dismissed in August 2012.

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 and 7,782,592 in US District Court for the District of 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. TASER thereafter filed counter-counterclaims for infringement of U.S. Patent Nos. 7,602,597 and 6,999,295. 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, Arizona 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 attorneys’ fees. TASER filed a counterclaim for breach of contract and fraud. This lawsuit is at the discovery phase and a trial date has been set for October 2013.

In September 2012, the Company was served with a complaint in the matter of Chiko Katiki v. TASER International, Inc. that was filed in the Superior Court of the State of California, County of Sonoma which alleges that the TASER ECDs are firearms under California law and that TASER sold consumer model ECDs in California in violation of state laws. Plaintiff seeks class action status, an injunction, declaratory relief, and an award for damages, punitive damages, costs, expenses, and attorneys’ fees. The lawsuit is in the pleading 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, 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.