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WMS Gaming, Inc. v. IGT

United States District Court, N.D. Illinois, Eastern Division

March 25, 2014

WMS Gaming, Inc., Plaintiff,
v.
IGT, Defendant

For WMS Gaming, Inc., Plaintiff: Monica L. Thompson, LEAD ATTORNEY, DLA Piper U.S. LLP IL, Chicago, IL; Brett Ingerman, PRO HAC VICE, Dla Piper, Baltimore, MD; James E. Dahl, Dahl & Bonadies, Chicago, IL; Katrina A Hausfeld, DLA Piper LLP (U.S.), Chicago, IL.

For IGT, Defendant: Adam K Mortara, LEAD ATTORNEY, Benjamin John Whiting, John C. Fitzpatrick, Vincent Sidney Joseph Buccola, Bartlit Beck Herman Palenchar & Scott LLP, Chicago, IL.

Page 975

OPINION AND ORDER

SARA L. ELLIS, United States District Judge.

Before the Court is Defendant IGT's motion to stay these proceedings pending arbitration. IGT asserts that a key issue underlying the suit is subject to a mandatory arbitration clause in the operative contract, and therefore the suit should not move forward until an arbitration panel resolves the arbitrable issue. Plaintiff WMS Gaming counters that a stay is unnecessary because none of its claims hinges on an arbitrable issue. WMS further contends that the complaint seeks merely to ensure that IGT performs on the parties' license agreement and therefore that WMS is entitled to the requested relief under the contract's requirement that the parties continue to perform during arbitration. The Court finds that in ruling on the suit, the Court is likely to have to decide the arbitrable issue. In order to respect the parties' agreement to arbitrate and to avoid a ruling inconsistent from that imposed by the arbitration panel, the Court grants IGT's motion to stay these proceedings pending arbitration [10].[1]

BACKGROUND

WMS and IGT are leading manufacturers of slot machines. Modern slot machines do not use coins, but instead utilize " ticket-in, ticket-out" (" TITO" ) technology. TITO technology allows a gamer to insert a ticket containing a barcode into a slot machine at the start of play and to remove the ticket at the end of play. The ticket records the gamer's winnings or losses. TITO technology makes slot machines more attractive to consumers and to the casinos that purchase the machines from WMS or IGT. The intellectual property behind TITO technology is covered by a pool of patents to which IGT--but not WMS--is authorized to grant licenses. The license comes in the form of a TITO tag, which the licensee or sub-licensee attaches to the side of the slot machine before delivering the machine to a third party.

In 2006, WMS and IGT entered a license agreement under which IGT agreed to sell TITO tags to WMS. Each tag costs $1,200 if used domestically or $360 if used internationally. After receiving the tag, the license agreement requires WMS to " promptly affix" the tags to " Royalty Bearing Products." Compl. Ex. B at § 3.4. IGT states that because TITO tags are difficult to trace, it treats the tags like cash by storing them in a vault and closely monitoring when and how many tags are shipped to sublicensees like WMS.

The license agreement contains an arbitration clause, which provides:

If the Disputed Product Issue cannot be resolved in the discussions provided for

Page 976

in Section 11.1, then is shall be resolved through arbitration. Arbitration shall be conducted under the then current rules and procedures of the American Arbitration Association (AAA), except to the extent the provisions of this Agreement provide otherwise.

Id. at § 11.2. A " Disputed Product Issue" arises when WMS " fails to pay a Licensee Fee for a Gaming Machine where a Licensee Fee is otherwise required . . . on the grounds that a Gaming Machine is not a Royalty Bearing Product." Id. at § 2.2.

For the last few years, the parties have been unable to account for some TITO tags. IGT asserts that WMS has failed to account for approximately 20,000 tags. Seeking to identify the missing tags, IGT exercised its audit right under the license agreement in the fall of 2011, hiring KPMG as auditors. Even after the audit, however, the parties continue to dispute how many tags are ...


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