In January, Digital Ally sued Taser International for infringing on a body camera patent. Patent fights aren't always the most gripping conflicts, but this one's starting to look like it could influence an entire industry.
The patent in question involves a feature that activates a police officer's body camera when it detects something noteworthy happening. For example, the camera starts to record when an officer's cruiser door opens, or when the cruiser's siren is switched on, or when a weapon is removed from a holster. Such a feature virtually eliminates the chance that an officer will forget (or "forget") to video record a tense interaction. It's an important feature. And most police chiefs want it standard on their officers' body cameras.
"[I]f you know something is stolen and you bought it, you basically bought stolen goods."
Digital Ally claims that it owns the patent on that feature, and that all the other companies selling similar features are guilty of patent infringement. (Digital Ally also sued WatchGuard.) But in the company's earnings call last month, Digital Ally CEO Stan Ross took that claim a step further. Ross suggested that police departments could also be guilty of patent infringement. If Taser successfully sells Axon body cameras to the New York Police Department as CNBC reported it’s trying to do, the City of New York could be liable for damages. So could large police departments in Chicago, Baltimore, and Minneapolis, among other cities, where Taser has already sold body cameras. At least that’s Ross’ argument.
"[I]f you know something is stolen and you bought it, you basically bought stolen goods and you're just as guilty as the guy that stole it," Ross said. "So if you're sitting here and buying a product that is being challenged for patent infringement and you know this challenge is out there, then you actually are putting yourself in that liability chain as well."
It's a provocative thought. But is it correct? Is it possible that the City of New York could be guilty of buying "stolen goods" if it purchases Taser's body cameras?
In a word: no.
States and municipal governments have sovereign immunity from patent infringement claims, R. Polk Wagner, an intellectual property law researcher and professor at the University of Pennsylvania, told me. There's US Supreme Court caselaw to back that up. So the City of New York wouldn't be at risk of having to pay Digital Ally anything.
Things could get interesting if Digital Ally decided to go after police chiefs
But things could get interesting, Wagner said, if Digital Ally decided to go after police chiefs. While municipal governments are immune from patent infringement liabilities, individuals representing those governments are not. It's true that they can't be held liable for damages (New York City Police Commissioner Bill Bratton can't be forced to pay damages for selecting Taser as the NYPD’s body camera provider), but a court can force them not to use those body cameras.
"A federal judge could issue an injunction against the specific police officials in New York City telling them not to use that particular system," Wagner told me, "in which case they would presumably have to buy some other system."
In other words, a federal judge could tell Bratton that the tens of millions of dollars he spent on body cameras was a complete waste, and that he'd have to start all over again if he wanted to outfit his cops with video devices.
Nothing's decided yet, of course. New York hasn’t decided on a body camera provider yet. A judge in the US District Court of Kansas hasn't yet found that Taser has violated anyone's patent. And Taser has filed motions to dismiss Digital Ally's case outright. But that's not stopping at least one analyst from speculating about the potential implications here.
"Whatever company gets a good foothold now is going to have a pretty good position down the road."
"I think [Taser CEO] Rick Smith is a very smart CEO," wrote Aegis Capital analyst Brian Rockowitz in an email. "[W]ith potential damages of a patent infringement amounting to nearly $100mm (which could be a windfall for Digital Ally since their market cap is below $25mm), I would imagine [Smith] would be exploring his options especially since the rumor broke ... that Northrop Grumman may be considering an acquisition of Taser."
Which is of course exactly what Digital Ally hopes people will speculate. Wagner said Digital Ally's strategy here is fairly common and shrewd, especially in the context of where the body camera market sits right now.
"You have a very quickly emerging market where you imagine that whatever company gets a good foothold now is going to have a pretty good position down the road," he said. "There are potentially large consequences for whatever happens now."