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Axon Pre-empts Federal Anti-Trust Complaint With Lawsuit

The Federal Trade Commission argues that Axon’s acquisition of VieVu reduces competition and could raise prices for body cameras, while Axon argues the FTC’s structure and administrative processes are unconstitutional.

Axon headquarters
Axon Enterprise Inc., the largest seller of police body cameras in the United States, is suing the Federal Trade Commission in response to the agency’s challenge of Axon’s acquisition of a competitor, VieVu, in May 2018.

In effect, the FTC wants to undo the merger and reduce Axon’s grip on the market for technology that has become essential to law enforcement agencies nationwide. Axon, on the other hand, contends that the market remains competitive and the FTC’s demands are excessive, going so far as to say the agency’s structure and administrative processes are unconstitutional.

On Jan. 3, the FTC filed an administrative complaint arguing that Axon and VieVu’s competition for customers in metropolitan police departments resulted in lower prices and more innovation. Therefore, the FTC concluded, a merger of the two was not in the public’s interest. The FTC also took issue with terms of the merger that barred Safariland, VieVu’s former parent company, from competing with Axon in the future.

In an email, FTC spokeswoman Betsy Lordan would not comment on the complaint beyond specifying which statutes Axon was supposed to have violated. She said one of them was Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The FTC Act defines “unfair” as being likely to cause substantial injury to consumers, not reasonably avoidable by customers, and not outweighed by countervailing benefits to consumers or to competition. The other statutory basis for the FTC’s complaint was Section 7 of the Clayton Act, which prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.”

Poppycock, Axon says.

In a complaint for declaratory and injunctive relief filed Jan. 3 with the U.S. District Court of Arizona, hours before the FTC filed its formal complaint, Axon accused the FTC of trying to “strong-arm” the company into an unfair settlement. According to the complaint, the FTC sent Axon a letter in June 2018, a month after the acquisition of VieVu, announcing an investigation into the deal. On Dec. 23, 2019, after 18 months of investigation, the FTC threatened to sue Axon in an internal administrative hearing overseen by FTC officials. To settle the matter, Axon countered with an offer to divest all the assets it had acquired from VieVu, including all improvements made to VieVu’s products, and give $5 million in working capital to the eventual buyer.

The FTC responded by demanding that Axon also give the buyer a license to Axon’s technology and intellectual property, and the company found that a bridge too far. Knowing the FTC’s filing was imminent, Axon preempted it with a federal lawsuit accusing the FTC of trying to create a new competitor in stronger financial standing than VieVu when Axon bought it, and of trying to push the case through an unfair legal proceeding. The company argued that the FTC violates due process by trying cases in administrative hearings, with its own commissioners and judges, instead of in federal court.

Axon’s lawsuit asked the federal court to declare the FTC’s structure and administrative procedures unconstitutional, to declare Axon’s merger with VieVu lawful, to stop the FTC’s enforcement action and make it pay the company’s legal fees.

"We went to federal court first because we wanted due process with a neutral judge," said Rick Smith, Axon's CEO, in a statement emailed to Government Technology. "Now the FTC wants to drag us into its administrative court system where the FTC gets to be the prosecutor, judge, jury and court of appeal, and where they win virtually 100 percent of the time. We will ask a federal judge not to allow them to violate our due process and equal protection rights in this unconstitutional manner.”

Describing the current market for body-camera providers, Axon estimated its market capitalization at $4.3 billion, while Motorola’s — having acquired Watchguard in July 2019 — stands at $27.6 billion. Besides Motorola/Watchguard, Axon’s lawsuit mentioned Panasonic, Coban, Mobile Vision and BodyWorn by Utility as other competitors, as well as Intrensic/GoPro, Getac and Visual Labs.

A source close to the case said two parallel trials might lie ahead: one in federal court, and another through the FTC’s internal administrative process.

According to the FTC’s complaint, an FTC administrative law judge will hear arguments on May 20 at an evidentiary hearing in Washington, D.C.

Editor's note: This story was updated with a statement from Axon's CEO, and corrected to clarify the timeline of the legal filings.

Andrew Westrope is managing editor of the Center for Digital Education. Before that, he was a staff writer for Government Technology, and previously was a reporter and editor at community newspapers. He has a bachelor’s degree in physiology from Michigan State University and lives in Northern California.