Axon Investor Update Regarding Digital Ally Litigation, Summary Judgment Motions, and Irrelevant IPR Proceedings

February 26, 2019

Despite Digital Ally’s repeated misstatements in its recurring press releases, this case is not about auto-activation. Auto-activation of cameras is not new and was not invented by Digital Ally. Indeed, TASER publicly disclosed the use of a police car light bar to wirelessly activate body worn cameras as early as 2008—a full five years before Digital filed its ‘452 patent application. Instead, the patented technology at issue allows law enforcement agencies to identify and assemble video evidence from multiple in-car and body-worn cameras related to the same event. Axon separately developed patent-pending technology called “Slate” to accomplish the same end, but by completely different and non-infringing means. Axon’s system does not use information from the accused Axon Signal Unit (“ASU”) to link videos. Instead, Axon uses Slate beacons sent between cameras wholly independent from the ASU to identify videos of the same event. Importantly, Slate is not an accused product in the litigation.

On January 31, 2019, Axon moved for summary judgment that (1) it does not infringe Digital Ally’s ‘452 patent, the sole remaining patent in the case, and (2) there is no “willful infringement” (and thus no mechanism for triple damages) because Digital sued Axon on the same day the ‘452 patent issued and Axon has maintained reasonable non-infringement and invalidity positions throughout the litigation. In fact, only 1 of Digital's original 8 claims against Axon remains for judicial resolution. All of Digital’s antitrust and unfair competition claims were dismissed by the district court, which was affirmed on appeal. Digital also was forced to dismiss its infringement claims concerning a second ‘292 patent, and granted Axon a covenant not to sue under that patent on existing Axon products. Even on the remaining '452 patent, Digital has abandoned all but one of its infringement theories and dropped all claims of lost profits based on Axon’s sales of the accused products. Thus, the court file tells a completely different story than Digital’s media campaign.

Axon also moved for summary judgment that Digital Ally is not entitled to alleged and overstated “convoyed sales” damages for non-accused, undisputedly non-infringing products, including Axon’s award-winning digital evidence management cloud-based software solution “Evidence.com” developed, launched and commercially successful long before Digital filed for its ‘452 patent. Indeed, the vast majority of Digital’s alleged damages relate to unaccused products and services such as Evidence.com, warranty services, and even bundles that include TASER Smart Weapons, regardless of whether the sale also included ASUs. Because actual revenue from the accused Signal products is quite small, Digital Ally has inexplicably attempted to expand the royalty base to include every product sold by Axon’s business division. This is the only way Digital can lay claim to the extreme damage figures it routinely feeds the media and its investors. The law, however, does not support patent damages for unpatented products and services unrelated to accused ASU sales.

Finally, Axon continues to maintain the invalidity of the ‘452 patent and will present that evidence at trial, should one be necessary. Despite Digital Ally’s false public statements to the contrary, the USPTO did not find the ‘452 patent valid in connection with Axon’s IPR challenges, only one of which involved Digital’s remaining litigation claims. The recent denial of Axon's petition for reconsideration of that IPR decision changes nothing. Indeed, the key prior art Axon relies on in the litigation as invalidating has never been considered by the patent office, either during prosecution of the ‘452 patent or during the IPR proceedings.

Axon’s non-infringement arguments on summary judgment, if successful, are case dispositive. Should the court find a question of fact for trial on infringement, Axon’s damages arguments of no willful infringement and no convoyed sales, if successful, would greatly reduce any trial risk. Summary judgment rulings are not expected until late Fall. The court has not yet set a trial date.