Smith & Wesson cuts ties with NationWide

FREEPORT, N.Y.—Major gun manufacturer Smith & Wesson has terminated its licensing agreement with NationWide Digital Monitoring Co. effective today, March 31.

NationWide, based here, told Security Systems News that it instead plans to create a new name and identity for its Smith & Wesson Security Services dealer program. Howard Avin, VP of sales and marketing for Nationwide, said the new program would be called Security Doctors and won't involve partnering with another vendor like Smith & Wesson, so will be less costly and won't involve the risk of the vendor ending the relationship abruptly, as Avin contends Smith & Wesson did.

The reason for the sudden end to the nearly three-year partnership—which had allowed NationWide to sell Smith & Wesson-branded security products—remained unclear on March 31. What is clear is that it has baffled and dismayed the 70 dealers in NationWide's dealer program, who have been told this week that they have until April 30 at the latest to strip away the Smith & Wesson name from their security products such as advertising, trucks, uniforms, doorknob hangers and lawn signs, in all of which they have invested hundreds of thousands of dollars.

Avin told SSN on March 31 that Smith & Wesson had a change in management in its licensing department, and the company exercised an option in its contract with NationWide to opt out of the agreement, giving only about 45 days' notice.

“We've been negotiating with them for about four months to try to come to a new agreement and to no avail,” Avin said.

Liz Sharp, VP investor relations for Smith & Wesson Holding Corp., on March 30 confirmed to SSN that the trademark license agreement is at an end.

“We took the action to protect the value of our brand name following the failure of the agreement with Nationwide to perform as we had expected that it would,” she said.

She declined to answer further questions on how Smith & Wesson was dissatisfied with the agreement.

NationWide, whose corporate name is NationWide Central Station Monitoring Corp., and Aaron Wahrsager, president of the company, are named in a lawsuit filed in February in federal court in New York alleging breach of contract in connection with a $17.5 million loan that Bank of America made to New York Merchants Protective Co., Inc. of which Wayne Wahrsager, Aaron's father, is president. On Jan. 5 of this year, Bank of America filed a breach of contract suit against New York Merchants Protective Co., Inc., at which time a judge appointed a receiver for the company.

Subsequently, the receiver for that company, lawyer Ronald Friedman, filed another lawsuit in February against New York Merchants Protective Co., Inc. Among  defendants listed in that suit are family members Wayne, Aaron and Eric Wahrsager, and Nationwide Central Station Monitoring Corp.

The lawsuit alleges the defendants had transferred “a significant portion” of the assets of New York Merchants Protective Co. Inc. to NationWide “for no consideration in an effort to prevent Bank of America, its secured creditor, from recovering upon its $17,500,000 unpaid loan to NYMP.”

The lawsuit further claims the defendants “intentionally sabotaged, and continue to sabotage to this day, the remaining business of NYMP” to thwart Bank of America and the receiver from collecting any judgment.

Avin directed questions about the court cases to the Wahrsagers. Aaron Wahrsager told SSN that he denies "the ridiculous allegations" in the lawsuit.

 Both he and Avin said the lawsuits are not related to the Smith & Wesson licensing issue. “That has nothing to do with this,” Avin said.

Sharp said she was not aware of the lawsuits. She declined to comment further.

The original agreement between Smith & Wesson and NationWide, announced May 1, 2008, made headlines because it marked Smith & Wesson's first entry into the security space. The Smith & Wesson NYMP Dealer Services program NationWide subsequently developed was very popular.

But Aaron Wahrsager sent a letter dated March 21 this year to NYMP Dealer Services members to inform them of the end of the Smith & Wesson licensing agreement.

Ed Berry, operations manager for Smith & Wesson Security Services E.D.S. in Clermont, Fla., and Bill Riley, operations manager for Technical Systems LLC in Gilbert, Ariz., a Smith & Wesson Security Services authorized dealer, both told SSN that they actually received their letters on March 29.

“They gave me three days to start winding down,” Berry said. Technical Systems was one of the first dealers in the nation to sign up with the dealer program, and E.D.S. was the first dealer in Florida to become a member. Avin said the program has 70 dealers. Aaron Wahrsager told SSN that Nationwide had to wait for Smith & Wesson to approve the letter but sent it out immediately after Smith & Wesson signed off on it.

The letter begins “Dear Dealer” and says, “we wanted to tell you personally” that “our license to use the Smith & Wesson name has been terminated.”

The letter goes on to say that officially as of today—March 31—the Smith & Wesson name cannot be used on any security products and that domain names and other trademarks must be assigned to Smith & Wesson Corp. The letter also states that dealers have a month's transition period—until April 30—to strip away the branding that many dealers have invested many thousands of dollars in over the past couple years.

“That kind of basically says there that we have one month,” said Riley, who said he has spent about $240,000 over the last three years investing in the Smith & Wesson brand.

Berry said, “I personally have invested over $300,000 in the name so I don't want to see it go away.”

The letter gives no reasons for the end of the licensing agreement, and dealers told SSN on March 30 that they were frustrated because of the lack of information.

“That's the most bothersome thing as dealers,” Berry told SSN. “We don't know the real reason. If we did know the real reason we may be able to come back to S&W with something but we don't know, so we can't come back at them with anything at all.”

He held out hope that Smith & Wesson might continue the dealer program with another security partner.

When asked about that possibility, Smith & Wesson's Sharp replied: “We're reviewing our strategy in the security market now. Certainly I couldn't give you anything definitive now, but we are reviewing our strategy.”

However, Sharp also underlined that the dealer “relationship is really between NationWide or the NYMP dealer program,” not with Smith & Wesson.

Avin stressed that NationWide is sympathetic to dealers' plight. He noted that the company also “invested a couple million dollars” in the partnership, but added, 'that doesn't mean I don't feel for them.”

However, he said, the decision was Smith & Wesson's, not NationWide's. “This was not at all our choice,” he said. “We would have loved to have given dealers six month's notice but when the final decision came down for us, we didn't get six months.”

He said NationWide plans to inform dealers “probably within 30 days” about the new Security Doctors name and identity for the dealer program, once it is set up. He said the new program would be less costly because there will be no royalties to Smith & Wesson involved, and said there would be no chance of a vendor-partner suddenly pulling out because there won't be one.

“It's better to control your own destiny than have it done for you,” Avin said.

Riley said his company is being courted by other dealer programs, and that it's considering joining another one. “I'm disgusted with the way these guys are doing business,” he said. He said he's heard from other dealers who are talking to lawyers about possible legal action.

SSN continues to report on this story.