Axon v. Federal Trade Commission Media & Investor Briefing Page
Company Statement On Suing FTC
“No one should ever face the prospect of a government that can demand to seize your most precious assets without the ability to defend yourself in a fair and impartial court of law. If the FTC believes it has a strong case against us, it should prove it in federal court before a neutral judge. Our action today seeks to ensure that will happen.”
— Rick Smith, CEO and founder of Axon
- Axon’s press release (HTML)
- Axon CEO Rick Smith’s blog post published on Medium.com
- Wall Street Journal Op-Ed on WSJ.com
U.S. Supreme Court - No. 21-86
On January 24, 2022 the Supreme Court granted Axon’s petition for writ of certiorari on the following important jurisdictional issue:
1. Whether Congress impliedly stripped federal district courts of jurisdiction over constitutional challenges to the Federal Trade Commission’s structure, procedures, and existence by granting the courts of appeals jurisdiction to “affirm, enforce, modify, or set aside” the Commission’s cease-and-desist orders.
“The Court’s action today is a critical first step for all businesses seeking to vindicate their constitutional rights and hold government regulators accountable. Without access to federal courts, upfront, there simply is no remedy on the backend of unconstitutional administrative proceedings. We look forward to the Court’s resolution of this important jurisdictional issue.” – Pam Petersen, Axon’s VP of Litigation
The high Court did not take up the second issue presented as follows: “Whether, on the merits, the structure of the Federal Trade Commission, including the dual-layer for-cause removal protections afforded its administrative law judges, is consistent with the Constitution.” This development is not surprising procedurally because the merits question was not fully vetted in the underlying case due to the adverse jurisdictional rulings. However, delay in resolving Axon’s separation-of-powers challenge to the FTC administrative law judge’s constitutional authority is unfortunate. As a similar 2018 decision in Lucia v. SEC demonstrates, it is extremely difficult for private parties to outlast a multiple-round litigation process to get serious constitutional questions back to the Supreme Court.
The Underlying Federal District Court Constitutional Challenge - AZ Case No. 2:20-cv-00014-DWL
Summary of Claims. Axon’s Complaint raised three distinct challenges to the FTC’s structure and processes:
1. The constitutionality of the uncodified, black box “clearance” process by which the FTC and the DOJ divvy up merger investigations—thereby arbitrarily subjecting similarly situated companies to vastly different rights, standards, and consequences—in violation of Fifth Amendment due process and equal protection guarantees;
2. The constitutionality of the FTC’s structure—combining investigative, prosecutorial, adjudicative, and appellate functions—together with its undisputed 25-year win streak in its own administrative forum, in violation of Fifth Amendment due process; and
3. The authority of the FTC’s Administrative Law Judge to preside over the administrative case in the first instance based on impermissible dual-layer for-cause removal protections, in violation of Article II of the U.S. Constitution.
Status: The case was dismissed on jurisdictional grounds in April 2020, requiring Axon to endure the very forum it contends is unconstitutional before having its claims—acknowledged by the district court as “substantial and topical”—decided by an Article III court. Axon appealed.
Ninth Circuit Court of Appeals – Case No. 20-15662
Summary of Issues on Appeal. Whether the district court erred as a matter of law in holding the FTC Act stripped its jurisdiction where Axon’s substantive constitutional claims do not depend on the antitrust merits in the FTC administrative proceedings, do not challenge any FTC order, do not require agency interpretation of any statute or rule it is charged with enforcing, and do not seek any remedy under the FTC Act. Each of Axon’s constitutional claims presents an issue of first impression in this Circuit.
Status. The Ninth Circuit granted expedited briefing and heard oral argument in July 2020. In October 2020, the Ninth Circuit stayed the FTC’s administrative proceedings pending its ruling. On January 28, 2021, a 3-judge panel issued a split decision affirming the district court. On March 15, 2021, Axon filed a petition for rehearing en banc, which was supported by multiple amicus briefs filed by the Atlantic Legal Foundation, the Washington Legal Foundation, the Americans for Prosperity Foundation, the US Chamber of Commerce, and New Civil Liberties Alliance. The petition argued that the panel’s majority opinion conflicts with both Supreme Court and Ninth Circuit precedent. The Court denied the petition on April 15, 2021 but then granted Axon’s motion to stay the appellate mandate pending the filing of a certiorari petition with the U.S. Supreme Court. The FTC’s administrative case will remain stayed throughout the course of the Supreme Court proceedings.
FTC Administrative Case Against Axon – Case No. D9389
Status: The administrative case was stayed by a series of orders due to the Covid-19 pandemic. The stay lifted in July 2020. Fact and expert discovery are complete. On October 2, 2020, the Ninth Circuit stayed the administrative hearing that was set to begin October 13, 2020 pending decision on Axon’s federal court appeal. On April 21, 2021, the Ninth Circuit further stayed the FTC proceedings pending resolution of Axon’s petition for certiorari to the U.S. Supreme Court.
Public versions of the parties’ pleadings and motions, as well the Commission and Administrative Law Judge orders may be found at: https://www.ftc.gov/enforcement/cases-proceedings/1810162/axonvievu-matter
Q: Why is Axon suing the FTC?
• Axon is seeking to protect its Constitutional rights to due process and equal protection under the law and vindicate its acquisition of Vievu, a small, failing body-worn camera company. Axon is also seeking to expose the unfair and unconstitutional procedures and structures employed by the FTC to extract unjustified remedies.
• Axon believes that the federal district court lawsuit is its most prudent course of action, taken on behalf of its customers, employees and shareholders.
• The full text of Axon’s complaint, filed in the District of Arizona on January 3, 2020, is linked above.
Q: When did Axon acquire Vievu and what was the purchase price?
• On May 3, 2018, Axon acquired the Vievu camera subsidiary from The Safariland Group in a $7 million upfront cash and stock transaction.The purchase price of Vievu consisted of $4.6 million in cash and $2.4 million in common stock issued to Safariland at closing. Deal terms also included approximately $6 million in additional common stock, contingent upon achieving certain milestones over two years, which have been partially met, and an ancillary minimum holster purchase commitment with Safariland.
Q: Did Axon view Vievu as a viable competitor when it acquired them?
• Axon’s acquisition of Vievu falls within the “failing firm” safe harbor. Vievu was unable to meet its financial obligations in the near term, and was effectively insolvent.
• At the time Axon acquired it, Vievu was losing nearly $1 million per month, had more than $19 million in debt owed to Safariland entities, another $8 million in off-balance-sheet purchase commitments, and the cash equivalent of less than three days of operating expenses.
• Vievu had not won a new major city customer since 2016. Also, Vievu’s failure to invest in a dashboard camera solution put it at significant competitive disadvantage.
• Vievu was also struggling to compete because its technology suffered from security flaws and had not kept pace with cutting edge features its customers wanted and competitors offered.
• Vievu’s customers have benefited from Axon’s acquisition and subsequent investments that prevented service disruptions. Post-acquisition, Axon spent millions of dollars to address Vievu customer needs and to keep its service operational.
Q: Does Axon face competition in body cameras?
• The public safety video and digital evidence management space remains crowded and highly competitive. Axon competes with several large companies, including Motorola, which recently acquired WatchGuard for $271 million, and has revenue more than 15 times that of Axon.
• Since May 2018, among law enforcement agencies with more than 100 officers, other competitors have won at least 85 competitive camera bids. The wide field of competitive providers include Motorola/WatchGuard, Panasonic, Coban, L3/Mobile Vision, BodyWorn by Utility, Getac, Intrensic/GoPro, Safety Vision and Visual Labs.
Q: What is Axon’s strategy for winning deals?
• Axon fights for and must earn every contract win. To do so we strive to stay on the forefront of the innovation curve and to deliver best-in-class solutions to customers. We have invested more than $200 million in research and development in our Software and Sensors segment over 10 years, much of which was an investment in cloud software capabilities to make body camera programs accessible and feasible for large American cities.
Q: Will Axon continue to support Vievu customers?
• Axon has honored and will continue to honor existing Vievu contracts.
Q: What prompted Axon to file its lawsuit against the FTC?
• The FTC left Axon with no choice. Axon decided to file the lawsuit after it became clear that the FTC is seeking to deprive Axon of its intellectual property without due process, setting an unprecedented ultimatum that should send a chilling message to the nation’s technology-based industries.
• On December 23, 2019, two days before Christmas, the FTC told Axon its only hope for avoiding litigation was to surrender a “blank check” divestiture. The FTC told Axon it would unilaterally dictate the terms of settlement from a “menu” of all Axon’s customers and contracts (not just those won post-acquisition), Axon’s intellectual property and technology, Axon employees, and any ancillary services and support functions the FTC deemed necessary. Remarkably, the FTC described its vision of “re-creating” Vievu into a virtual “clone” of Axon armed with Axon’s own intellectual property – something that Vievu never was nor could be without impermissible government regulation of—and unwarranted interference in—a highly-competitive marketplace.
• The FTC is confident it can strong-arm Axon into settling because, unlike the Department of Justice, which must pursue its merger challenges in federal court, the FTC has the option of initiating proceedings within the agency itself. The FTC serves as prosecutor, judge, and jury in its own administrative process. Former FTC Commissioner Joshua Wright said in 2015 that over a 20-year period, “in 100 percent of cases where the administrative law judge ruled in favor of the FTC staff, the Commission affirmed liability; and in 100 percent of the cases in which the administrative law judge . . . found no liability, the Commission reversed. This is a strong sign of an unhealthy and biased institutional process.”
• Axon outlines more details about the unfairness of the FTC process in the full text of its complaint.
Q: Does this change Axon’s long-term vision for the company?
• Axon remains committed to its long-term vision and outlook.
• Vievu software licenses represent only 3% of Axon’s annual recurring revenue of $203 million.
• Beyond body cameras, our growth trajectory features expansion into records management systems and computer aided dispatch systems, as well as growing our in-car camera solutions, and international customer expansion. We are also expanding into law enforcement-adjacent markets, including selling to the US Federal Government, to prisons and corrections customers, and into the fire and EMS markets.
• We look forward to a bright future of cutting edge innovation on behalf of our customers in support of their mission to keep communities safe, and in support of Axon’s mission to protect life.
Q: What was Axon’s consideration for its shareholders in these developments?
• Axon is seeking relief and a fair hearing through the US court system, which Axon's executive management and Board of Directors believe is the most prudent action to take on behalf of shareholders. Axon will always defend its intellectual property.
• Axon intends to continue to execute on the vision that has been communicated with shareholders. For every Axon customer and most Axon employees, operations are business as usual.