TASER International (NASDAQ:AAXN) has a problem, and its name is Digital Ally.
Unprofitable, valued at less than $30 million, and with annual sales just a small sliver of the $242 million worth of product TASER moves in a year, Digital Ally wouldn't seem to amount to much, but it's been a thorn in TASER's side for years.
Earlier this year, that thorn lengthened when Digital Ally announced a new development in its long-running legal battle with TASER. Briefly, Digital Ally noted that the U.S. Patent and Trademark Office (PTO) had confirmed the validity of its September 2013 application for an "auto-activation" patent, dubbed "US 8781292 B1." In that patent, Digital Ally claimed it had invented a system for wirelessly syncing video and audio between a storage device a video recorder. Once a recorder within its range of detection began transmitting data, the storage device would automatically lock on to that data stream and begin storing it -- and wirelessly activate any other recording devices in the vicinity to begin recording and transmitting data for storage, as well.
TASER challenged the validity of Digital Ally's patent, arguing that it had invented the technology first, but in January, Digital Ally convinced the PTO that its patent was valid -- and sued TASER for monetary damages for infringing on the patent.
Now, TASER is firing back.
Cry havoc, and unleash the litigators
In a lengthy and detailed press release issued Dec. 1, TASER laid out its latest arguments for why its auto-activation technology deserves a patent and Digital Ally's does not -- and why Digital Ally should be paying TASER damages, and not vice versa. Generally speaking, TASER's arguments aim to undermine Digital Ally's claim that its invention of auto-activation technology was a new original.
In support of this argument, TASER notes that at a tech conference in April 2009 -- four years before Digital Ally applied for a patent on the idea of auto-activation -- TASER discussed technology it was developing to allow a TASER stungun, police cruiser siren, or other device to instruct a nearby recording device to begin capturing video data. Says TASER, this same tech was:
- Described in a training program TASER created for instructors teaching officers to use its stun guns in July 2009.
- Broadcast during a July webcast of a TASER User Conference.
- Described on TASER's own website in March 2010.
Each of these events, you'll note, pre-dates Digital Ally's applying for a patent on what sounds like very similar technology in 2013.
What it means to investors
TASER General Counsel Doug Klint argues that the above facts prove that when Digital Ally says "it invented the technology to wirelessly activate cameras," it does so "repeatedly and falsely." And to back up its claim, TASER says it's once again challenging the validity of Digital Ally's patents before the PTO.
Will TASER succeed in the challenge? The PTO has already reversed itself once in this debate. Perhaps that means the PTO will be open to changing its mind yet again, based on this new evidence TASER is presenting. On the other hand, if the PTO flip-flops too many more times, this could start to get embarrassing. The agency might decide to reject TASER's claims just to prove that it can make a decision and stick with it.
Meanwhile, TASER itself just introduced a new "Signal Performance Power Magazine" product that promises to "automatically inform Axon Body 2, Axon Flex, Axon Flex 2, and Axon Fleet compatible cameras that a TASER Smart Weapon within signal range is armed, the trigger is pulled, or its arc switch is activated," so that "cameras can sense the Smart Weapon status change and start recording."
It would be a real shame if the PTO up and decides that TASER can't sell it.
Rich Smith does not own shares of, nor is he short, any company named above. You can find him on Motley Fool CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 340 out of more than 75,000 rated members.
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