Home Internet Gaming in the U.S. Likely to Spur Patent Litigation

Internet Gaming in the U.S. Likely to Spur Patent Litigation

It’s no secret that Internet gaming is the biggest news in the U.S. casino industry these days. But in the nascent days of this marketplace in states such as New Jersey, companies should be aware of the potential intellectual property issues associated with these efforts. The question for companies entering the Internet gaming space in the United States is whether there are likely to be legal repercussions of taking traditional casino games online and to mobile devices. This articles asserts that patent litigation in particular may spike because of 1) patents on Internet gaming, 2) patent assertion entities (aka patent “trolls”) with software patents that may apply and 3) social gaming companies who may look to monetize their R&D.

Patents Covering Internet Gaming Will Likely Be Enforced
Before legalization, there were few lawsuits involving U.S. patents that may relate to methods and systems for gaming over the Internet. Now that revenue is being derived, such patents may become ripe for enforcement. A search of the U.S. Patent Office’s database reveals approximately 150 patents containing some combination of the words “Internet,” “online” and “gambling” or “gaming.” There is a history of patent holders suing companies that offered Internet gaming from outside the United States, so it stands to reason that litigation will increase now that Internet gaming is being offered inside the United States.

For example, a company named Home Gambling Network (HGN) sued a number of non-U.S. Internet gaming companies in 2005 for patent infringement. HGN President Mel Molnick claimed that he had invented a method for Internet gaming. Molnick’s patent, U.S. Patent No. 5,800,268, is titled “Method of Participating in Live Casino Game From a Remote Location.” The patent claims a method for a player to establish a link with a casino from an “interactive station,” which the patent said could be a computer. Molnick sued many websites that offered Internet gaming outside the United States because he suspected that these websites were offering Internet gaming services in the United States. The case never progressed past the initial stages because the defendants filed, and won, motions at the district court level claiming that their services were offered outside of the United States and thus not subject to U.S. patent laws. The case is currently on appeal to the Federal Circuit Court of Appeals (the federal appellate court for patent cases) on a number of issues related to whether the court prematurely decided that the gaming activities took place outside of the United States.

Another company that claims to have a patent on an aspect of Internet gaming is Lottotron, which has sued many Internet gaming companies based on U.S. Patent No. 5,921,865 titled “Computerized Lottery Wagering System.” Lottotron sued dozens of companies, claiming that it had invented a way to make wagers online. While Lottotron settled with many of these defendants, Interactive Systems Inc. (ISI) won a jury trial where the jury found that ISI’s online casino games were different from the “wagering formats” of the ’865 patent.

These examples do not even go into the new efforts by gaming companies and casinos to enter the new internet gaming market and any types of technology and patents that may result from these efforts. Much like the smart phone wars now engulfing that industry, it may be that companies rush to patent any new types of internet gaming offerings by their company and then attempt to monopolize the marketplace. Such efforts are likely years away, however.

But the existence of cases like these show that there are people and companies who claim to have patented certain aspects of Internet gaming, and there is the potential for new litigation since companies and governments will now derive revenue from Internet gaming in the United States. The estimates that the market may be in the billions will certainly cause patent holders to carefully scrutinize any current patents for applications to the new industry.

Patent Assertion Entities Pay Attention to Gaming Industry Software
Another issue is the likelihood of increased attention from patent assertion entities (PAEs), which are companies that buy patents in order to assert them against companies that offer products or services. While the gaming industry has not been targeted as much as the consumer electronics industries by the PAEs, non-practicing entities have not hesitated to file suits against gaming companies in the past. MGT Capital Investments Inc., is one example, and it stated in its 2013 10-K that it plans “to commence additional legal proceedings against companies in the gaming industry to enforce our intellectual property rights.” Many other non-practicing entities have filed against gaming companies, including Email Link Corp. and Webvention. In fact, the 2014 International Consumer Electronics Show (CES) included a panel discussion on patent trolls. Interestingly, the president of the Nevada Resort Association, Virginia Valentine, stated at this panel that such litigation distracts gaming companies from their core business of gaming.

But now that gaming is being combined so expressly with technology through Internet gaming, patent litigation involving PAEs is inevitable. A main reason for this likelihood is that PAEs often accumulate software patents that are most applicable across industries. Since Internet gaming offers a new way to deliver a gaming experience, there may be many services that PAEs may assert, such as advertising these services, signing up for these services, online payments or other non-gaming specific software that PAEs may claim are already patented.

Social Gaming Companies Are Already Focused on This Market
Lastly, beyond the threat posed by already existing patents, social gaming companies that have produced games for Facebook or other social media may also apply their patent portfolios to Internet gaming. For example, Zynga already owns many patents that may be applied to online gaming. Zynga’s patents, according to EnvisionIP, relate to casino gaming and associated technologies ranging from gaming devices linked to a slot machine server to team play within a slot club and making pay-outs based on predefined pay-out rules. Many of Zynga’s patents in this space were purchased from its acquisition of Walker Digital, whose business model was monetizing patents, so it would not be surprising if some of these patents were enforced in the same manner against new entrants to the marketplace. Zynga has applied for an online poker license in Nevada, so it could also be that these patents may be used defensively by Zynga in offering its online gaming services. This is but one example of many companies that may be moving into the Internet gaming space with already existing patent portfolios.

The opening of this new market poses many challenges, but companies should be aware that the ever-increasing cost of patent litigation is likely to be a significant facet. Whether potentially creating revenue for those who have a patent portfolio or due to litigation threats, companies should not ignore that this is a popular space for patent litigation and an easy transition for many patent litigation participants.

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