Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Axon sued for monopoly after VieVu acquisition, (Aug 25, 2023)

By Donielle Tigay Stutland, J.D.

The suit alleges that weapons maker Axon Enterprise, Inc. has engaged in monopolistic behavior for tasers and body camera equipment following the acquisition of a competitor and through the use of supply contracts.

A township in New Jersey has filed a complaint against weapons maker Axon Enterprise, Inc. (“Axon”), alleging the manufacturer of tasers and body cameras has engaged in monopolistic behaviors which has led to higher prices for buyers, including police departments. The proposed class action suit, filed in the federal district court in New Jersey, alleges that Axon violated the Sherman Act and the Clayton Act by engaging in a scheme to obtain maintain its monopolies in two highly lucrative law enforcement and self-defense markets: long-range conducted energy weapons (“CEWs”), which are commonly known by Axon’s brand name, Tasers; and body-worn camera (“BWC”) systems, which allow police departments to record, store, and use video evidence collected while police officers are on duty. Through Axon’s acquisition of competitor VieVu from Safariland, as well as through its use of long-range supply contracts, the complaint alleges that Axon has prevented new entrants from challenging Axon for market share and has resulted in higher prices than there would have been in competitive markets (Township of Howell v. Axon Enterprise, Inc., Case No. 3:23-cv-07182-RK-RLS).

Background. Axon, which was previously known as Taser International, developed its first modern long-range conducted energy weapons (“CEWs”) in 2003, the Taser X26. CEWs are commonly known by Axon’s brand name, Taser. Unlike other CEWs such as stun guns, which deliver an electric shock to their target by making direct contact, the Taser X26 fires a barbed probe at its target, allowing the shock to be delivered at long range (up to 35 feet away). The Taser X26 “captured the market” by allowing police officers to easily and effectively disarm suspects from a safe distance, instead of forcing officers to make physical contact and risk hand-to-hand combat with a suspect when delivering the shock.3 5. Axon has developed subsequent generations of long-range CEWs, all of which use the “Taser” brand name and operate similarly to the Taser X26. In 2016, Axon developed the Taser Pulse, a long-range CEW for civilian self-defense use.

Axon also started to include cameras on its Tasers, and by 2008, it developed a standalone BWC system, which allowed officers to record, store, and use video footage. BWC systems are comprised of hardware: body-worn cameras (“BWCs” or “body cameras”). On May 3, 2018, Axon acquired VieVu, its largest competitor in the BWC system market, from Safariland. In connection with the transaction Axon signed a 12-year non-compete, market allocation, and no-poach agreements with Safariland to prevent Safariland from challenging its monopolies in either market. In return, Axon granted Safariland a preferred supply contract for Taser holsters.

The Federal Trade Commission filed an administrative complaint on January 3, 2020 against Axon and Safariland to challenge Axon’s acquisition of VieVu, as well as the related agreements between Axon and Safariland. Safariland settled with the FTC, however, the agency’s action with Axon remains pending.

Allegations. The township’s complaint alleges that Axon has been engaged in a scheme to unlawfully obtain and maintain its monopolies in two highly lucrative law enforcement and self-defense markets: long-range CEWs; and BWC systems, which allow police departments to record, store, and use video evidence collected while police officers are on duty.

The complaint alleges that Axon engaged in monopolies over the long-range CEWs and BWC systems through the acquisition of its largest competitor in the BWC system market, VieVu, from Safariland and signing 12-year non-compete, market allocation, and no-poach agreements with Safariland to prevent Safariland from challenging its monopolies in either market. The complaint also argues that Axon “enticed” Safariland to agree to the acquisition by granting Safariland a preferred supply contract for Taser holsters. Further, the townships allege that Axon continues to unlawfully maintain its monopoly power in both the long-range CEW market and the BWC system market through bundling and excessively long supply contracts, which often stretch up to 12 years. It is alleged that Axon’s tactics have prevented new entrants from challenging Axon for market share and have led to higher prices than there would have been in competitive markets.

Relevant Market. The complaint alleges three relevant product markets: 1) long-range CEWs; 2) BWC systems; and 3) long-range CEW holsters. With respect to long-range CEWs, the complaint notes that Axon is “effectively the sole player in the market, with 95% market share.” Further, the complaint avers that “Axon’s high operating margins and overwhelming market share dominance show that the long-range CEW market is highly concentrated, with Axon exercising significant monopoly power.” The townships assert that Axon’s monopoly is durable, as it has created primary barriers to entry, including its patents, contract length, relationships with law enforcement, and training costs.

Looking at the BWC systems market, the FTC had highlighted in its complaint that Axon was the market leader for BWC systems, with VieVu as the next largest competitor. The FTC complaint indicates that in 2018, “Axon’s acquisition of VieVu increased total market concentration by more than 200 HHI points and created a post-merger HHI exceeding 2,500 points.” Further, the complaint alleges that Axon’s monopoly power over BWC systems is durable because it benefits from significant barriers to entry. The primary barriers to entry are high capital investment, contract length, switching costs, and integration.

The final relevant market addressed is long-range CEW holsters, which are an essential component to long-range CEWs. Given the contract between Axon and Safariland, the complaint alleges Safariland has been given the status as the preferred holster supplier of Axon’s long-range CEWs. “In effect, the parties agreed through this Holster Agreement for Safariland to be the preferred holster supplier for all long-range CEWs.”

Harms to Competition. The complaint alleges that Axon and Safariland’s conduct harmed competition in the United States for long-range CEWs, BWC systems, and long-range CEW components by creating higher prices for purchasers than there would have been in a competitive market. Taser prices have remained at supracompetitive levels and increased from 2018 to 2023. For example, Charlotte, North Carolina paid $2.1 million/year for a supply of Tasers and body cameras from 2015–2021, including a 2017 contract for 1,743 Tasers. In 2022, the city signed a five-year contract with Axon for $21.6 million, which included annualized costs of $1.5 million alone to replace its current stock of Tasers and supply components like cartridges. Prices for BWC systems have increased from 2018 to 2023 and are supracompetitive. The complaint alleges that such “heavy price increases indicate that prices for long-range CEWs and BWC systems have been artificially elevated above competitive levels.”

Additionally, it is alleged that putative class members, such as police departments and municipalities have paid higher prices for long-range CEW components like holsters “during the life of the Holster Agreement than they would have paid in the absence of Axon and Safariland’s market-allocation conspiracy.”

The case is No. 3:23-cv-07182-RK-RLS.

Attorneys: Kellie Lerner (Robins Kaplan LLP) for Township of Howell Monmouth County New Jersey.

Companies: Axon Enterprise, Inc.; Safariland, LLC

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