Motion of Respondent Axon Enterprises to Stay The

PUBLIC UNITED STATES OF AMERICA BEFORE THE FEDERAL TRADE COMMISSION 01 10 2020 COMMISSIONERS: Joseph J. Simons, Chairman 597242 Noah Joshua Phillips Rohit Chopra Rebecca Kelly Slaughter Christine S. Wilson In the Matter of Axon Enterprise, Inc., Docket No. D9389 a corporation, and PUBLIC DOCUMENT Safariland, LLC, a corporation. MOTION OF RESPONDENT AXON ENTERPRISE, INC., TO STAY THE ADMINISTRATIVE PROCEEDING In accordance with Commission Rules 3.22 and 3.41(f), Respondent Axon Enterprise, Inc. (“Axon”) respectfully requests a stay of this administrative proceeding until entry of a final judgment on Axon’s complaint seeking declaratory and injunctive relief in the United States District Court for the District of Arizona, Axon Enter. Inc. v. FTC, No. 2:20-cv-14-DMF (Jan. 3, 2020) (the “District Court Action”). Good cause exists for a stay because the District Court Action will determine whether the Commission’s structure and its administrative proceedings are constitutionally valid. A stay will ensure that resources are not wasted and that Axon is not forced to participate in a proceeding while the District Court is deciding its constitutionality. A stay also will not cause any prejudice because the antitrust claims at issue here are also presented in the District Court Action. In the alternative, Axon requests a stay of this proceeding at least until entry of an order in the District Court Action on Axon’s motion for a preliminary injunction, filed January 9, 2020. BACKGROUND On May 3, 2018, Axon announced its acquisition of Vievu LLC—a failing company— from Safariland LLC. More than a year and a half later, the Commission took the position that PUBLIC the acquisition violated federal antitrust law, and it demanded that Axon agree to a “blank check” divestiture. Axon filed the District Court Action on the morning of January 3, 2020. See Ex. B. Axon is asking the District Court for a declaratory judgment that its acquisition of Vievu was lawful. In addition, Axon is seeking a declaration that the Commission’s structure violates the constitutional separation of powers because (1) its Commissioners cannot be removed by the President at will and (2) its Administrative Law Judges can be removed only for cause and only by officials who themselves cannot be removed at will. Axon is also seeking a declaration that the Commission’s administrative enforcement proceedings violate constitutional due process because they are fundamentally unfair, and because they violate the equal protection rights of parties who are arbitrarily forced to defend themselves in Federal Trade Commission proceedings rather than an Article III court. The complaint requests that the Commission be enjoined from pursuing an administrative enforcement action against Axon. Later on the same day that Axon filed the District Court Action, the Commission filed an administrative complaint challenging Axon’s acquisition of Vievu. The Commission scheduled an administrative hearing to begin on May 19, 2020. On January 9, 2020, Axon asked the District Court to preliminarily enjoin this proceeding pending the District Court’s final decision on Axon’s constitutional claims. See Ex. C. ARGUMENT Under Rule 3.41(f), “the Commission for good cause” may direct that “[t]he pendency of a collateral federal court action that relates to the administrative adjudication shall [] stay the proceeding.” Good cause exists where, for example, a stay will prevent “litigants and third parties [from] bear[ing] expenditures that later prove unnecessary.” In the Matter of Sanford Health, Docket No. 9376, 2017 WL 5845596, at *1 (F.T.C. Nov. 21, 2017); see also Phoebe Putney Health Sys., Inc., Docket No. D-9348, 152 F.T.C. 1035, 2011 WL 11798466, at *1 (July 15, 2011) (“staying these proceedings will avoid a waste of resources and will not prejudice - 2 - PUBLIC either side”). The Commission therefore has granted stays where a federal court’s preliminary injunction decision could lead to the disposition of a transaction or a key issue in the case. See, e.g., Sanford, 2017 WL 5845596, at *1; Phoebe Putney, 2011 WL 11798466, at *1. There is abundant “good cause” for granting a stay here—indeed, far better cause than in other cases where stays have been granted. The District Court will decide the constitutionality of the Commission’s structure and of its Part 3 proceedings. These are not merely key issues in the administrative proceeding; they directly establish that the proceeding itself is invalid. This is not, then, a case in which a federal court’s decision merely might trigger abandonment of a transaction, thereby indirectly making the administrative proceeding unnecessary. The District Court’s decision here could—and likely will—directly terminate this proceeding by enjoining the Commission from pursuing it. A stay, in addition to avoiding the waste of substantial resources in a Part 3 proceeding,* would avoid forcing Axon to participate in a proceeding that violates the Constitution. And it would be especially improper to force Axon’s participation in such a proceeding even while the District Court is in the process of deciding the constitutional issues. All of this provides much more than good cause for a stay. A stay also would not prejudice the Commission, even in the unlikely event that this proceeding ultimately is not enjoined. The same claim that would be litigated in the Part 3 proceeding—the Commission’s claim that Axon’s acquisition of Vievu violated the antitrust laws—is before the District Court as well. That is because Axon’s complaint in the District Court Action, which was filed before the Commission’s administrative complaint, also seeks a declaratory judgment that there was no violation. A declaratory judgment on the antitrust claims will have preclusive effect. See, e.g., Cont’l Cas. Co. v. Indian Head Indus., Inc., 941 F.3d 828, 835–36 & n.1 (6th Cir. 2019). And, pursuant to Section 13(b) of the Federal Trade Commission * Axon has already spent more than $1.6 million in legal and expert fees and costs in complying with the Commission’s investigatory demands, including responding to voluminous document requests and interrogatories, and producing its executives for testimony. See Declaration of Pamela B. Petersen ¶¶ 4-5, Ex. 1 to Mot. for Prelim. Inj. (attached hereto as Ex. C). - 3 - PUBLIC Act, the FTC had the authority to bring the same antitrust claims in federal district court rather than in this proceeding. 15 U.S.C. § 53(b); see F.T.C. v. Lundbeck, Inc., No. CIV. 08-6379 JNE/JJG, 2010 WL 3810015 (D. Minn. Aug. 31, 2010), aff’d, 650 F.3d 1236 (8th Cir. 2011). The Commission cannot validly claim any harm from a stay while litigation on the same antitrust claims proceeds in the District Court, where all agree that the process and the adjudicator are constitutionally valid. Indeed, given that the Commission will not be prejudiced by a fair proceeding before an Article III judge, a lack of deference to the District Court Action would be an additional—and significant—indication of agency bias. At a minimum the Commission should be sensitive to the serious tension between administrative enforcement actions and the constitutional requirements of due process and separation of powers. It also should recognize the equal protection implications of the fact that parties investigated by the Department of Justice, rather than by the Commission, automatically receive the protections afforded to parties appearing in federal court (including, most notably, an Article III judge as factfinder and also, for example, the protections of the Federal Rules of Evidence and the Federal Rules of Civil Procedure). Moreover, the problems inherent in administrative enforcement grow exponentially where, as here, the agency has a long—and certain—history of finding violations by the private parties that the agency has accused of wrongdoing. And the problems grow further where, as here, the agency almost always avails itself of a process with one-sided results, and almost never opts for an indisputably fair and impartial proceeding in district court—even though the DOJ always must go to district court. These issues would rise to an entirely different level if the Commission, faced with the unusual circumstance of pending constitutional challenges in the District Court Action, not only issued an administrative complaint but also refused to stay the proceeding in deference to the federal court. The message would be clear: The Commission is willing to risk wasting resources and taxpayer dollars, and willing to subject Axon to a process even while its constitutional challenges to that process are being decided in federal court, all so that the Commission can try - 4 - PUBLIC to avoid a fair and impartial hearing on its antitrust claims in a pending federal court action and instead take advantage of an administrative proceeding (not available to the DOJ) in which the Commission itself is the adjudicator and always holds parties liable. The vivid appearance of partiality in any such course of action provides even further good cause to take the opposite course and grant a stay. At the very least, there is good cause to stay this proceeding pending the District Court’s decision on Axon’s motion for a preliminary injunction in the District Court Action. Unlike a preliminary injunction proceeding brought by the Commission to enjoin a transaction under Section 13(b), Axon’s motion in the District Court Action turns on pure questions of law, and Axon will seek an expedited schedule for its motion. Again, a stay would prevent a waste of resources in this action, and it would prevent Axon from being forced to participate in an unconstitutional proceeding. Most importantly, denial of a short stay would intrude on the District Court’s authority to determine Axon’s entitlement to a preliminary injunction, and it would improperly pressure the District Court to decide that motion immediately in order to preclude irreparable harm while the motion is pending.

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