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Shuffle Tech International LLC v. Scientific Games Corp.

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

September 1, 2017

SHUFFLE TECH INTERNATIONAL LLC, ACES UP GAMING, INC., and POYDRAS-TALRICK HOLDINGS LLC, Plaintiffs,
v.
SCIENTIFIC GAMES CORPORATION, BALLY TECHNOLOGIES, INC., and BALLY GAMING, INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          MATTHEW F. KENNELLY, UNITED STATES DISTRICT JUDGE

         Shuffle Tech International LLC, Aces Up Gaming, Inc. and Poydras-Talrick Holdings LLC have filed suit against Scientific Games Corporation, Bally Technologies, Inc., and Bally Gaming, Inc., alleging that their patents are invalid and that they nevertheless knowingly attempted to enforce them in violation of federal antitrust statutes, the Lanham Act, and Illinois law. In a previous ruling, the Court granted defendants' motion to dismiss all but one count of plaintiffs' complaint, a claim in which plaintiffs asserted that defendants have used enforcement of their patents to suppress competition in the market for automated playing card shufflers in violation of section 2 of the Sherman Act and section 4 of the Clayton Act. Defendants have moved for summary judgment on this remaining claim. For the reasons stated below, the Court denies defendants' motion.

         Background

         A. The parties and the relevant patents

         Shuffle Tech International LLC is an Illinois limited liability company that develops and manufactures automatic playing card shuffling machines for use by private consumers and casinos. In April 2012, Shuffle Tech demonstrated its card shuffler patents and technology to DigiDeal Corporation, a gaming equipment manufacturer. The parties then entered into a licensing agreement along with Poydras, a "special purpose vehicle" created by investors to fund the development and production of Shuffle Tech's product, the DigiShuffle. Pls.' Resp. to Defs.' Statement of Undisputed Material Facts (SUMF) ¶ 16(b). In the agreement, Shuffle Tech granted Poydras a license to its patents on the product, and Poydras subsequently granted a sub-license to DigiDeal. The agreement required DigiDeal to engineer, produce, market, and sell the shuffler in exchange for royalty payments to Poydras and Shuffle Tech. Shuffle Tech agreed to defend DigiDeal against any patent infringement claims involving the licensed technology and to indemnify DigiDeal for any resulting attorneys' fees. Defs.' SUMF, Ex. 2 at 10. In September 2013, DigiDeal retained Aces Up to conduct the marketing and sales of the DigiShuffle in exchange for commissions.

         In 1983, John Breeding started SHFL Entertainment, Inc., a company whose purpose was to manufacture automatic playing card shufflers for use in casinos. By 2012, SHFL had released multiple different models of automatic card shufflers and obtained approximately 253 patents related to shuffler technology. In 2013, Bally Technologies acquired SHFL, and in 2015 Scientific Games acquired Bally Technologies. Scientific Games is therefore the present owner of SHFL and its patents. Bally Gaming is a subsidiary of Bally Technologies and therefore now operates under Scientific Games. It is responsible for manufacturing equipment and games for casinos in the United States. In keeping with the parties' briefs, the Court will refer to defendants in this case collectively as SHFL.

         The parties' dispute arises out of two of SHFL's patents: the '982 patent and the '935 patent. In April 2002, SHFL filed the application for the '982 patent based on a new model of an automatic shuffler known as the Deckmate 1. According to SHFL, the Deckmate 1 is an advance over other automatic shufflers based on the technology it uses to receive cards and return them to the dealer. The Deckmate 1 is installed under the gaming table, with its upper surface flush with the surface of the table. It also uses an elevator to move the cards from beneath the table where they are randomized to the top of the table for use. The elevator has a cover that moves automatically to return the cards to the dealer.[1] See Pls.' Resp. to Defs.' SUMF, Ex. 7-1. Mark Litman, SHFL's outside patent prosecution counsel, prepared and prosecuted the '982 patent. Jennifer Farrar, SHFL's in-house intellectual property counsel, likely would have reviewed the patent application before filing it with the United States Patent and Trademark Office (PTO). The application lists Atilla Grauzer, an engineer at SHFL, as the first inventor. During prosecution, SHFL disclosed many other patents as prior art. The PTO issued the '982 patent in November 2003. In October 2003, SHFL filed an application for what eventually became the '935 patent, also based on the Deckmate 1, a divisional of the application that became the '982 patent. The '935 patent issued in April 2009.

         B. Competition in the automatic shuffler market

         Plaintiffs primarily contend that SHFL failed to disclose relevant pieces of prior art during the prosecutions and reexaminations of the '982 and '935 patents. The Court therefore provides an overview of these prior art references and SHFL's interaction with them.

         1. Nicoletti shuffler

         In September 1990, a New Jersey newspaper named The Courier-Post published an article about Adolph Nicoletti and an automatic shuffler he had invented. Pls.' Resp. to Defs.' SUMF, Ex. 17. The article described the shuffler as "installed under a blackjack table" and included an image of the installed machine. Id. It also stated that Nicoletti had conducted a test run of his machine by installing it in a casino in Atlantic City. The test run ended after one week due to malfunctions. Breeding testified that he knew of a shuffler in Atlantic City that was "so big it was built under the table and cards would go down inside, " but he never saw it and does not know who manufactured it. Pls.' Resp. to Defs.' SUMF, Ex. 856 (Breeding Dep.) at 97:9-10. Breeding stated that the patent holder for the machine called him with an offer to sell the technology but that he turned it down. Id. at 97:13-15.

         2. Luciano prototype

         Around July 1992, Lawrence Luciano developed a prototype of an automatic shuffler for his company, Luciano Packaging, Inc., as a result of a development agreement with International Game Technology, Inc. (IGT). In November 1993, IGT cancelled the development agreement. Luciano then began marketing his prototype shuffler (the Luciano prototype) to casinos and other potential customers. He made a promotional video that showed the prototype in operation, which he provided to anyone in the industry who expressed interest. Pls.' Resp. to Defs.' SUMF, Ex. 1027 (Luciano Dep.) at 92:7-9.

         3. Roblejo prototype

         In October 1997, SHFL participated in the World Gaming Expo in Nevada. Various SHFL executives and employees attended the expo, including Grauzer and Farrar, who was sent there to monitor competitive activity. At the expo, another company named Casino Concepts displayed a prototype of an automatic shuffler invented by Dr. Conrad Roblejo called the Sure-Shuffler (hereafter, the Roblejo prototype). During the expo, Halvard Solberg, who was hired by Casino Concepts to provide technical support at the expo, gave a very detailed demonstration of the Roblejo prototype to individuals he later learned were representatives of SHFL. The demonstration required Solberg to open the top cover and eventually remove side panels in order to answer specific technical questions. An executive at Casino Concepts later wrote a memo to Dr. Roblejo, in which he stated that "during the entire show people from [SHFL] looked at our equipment." Pls.' Resp. to Defs.' SUMF, Ex. 90 at 2. He stated that Casino Concepts representatives spoke with SHFL's original designer, vice president of finance, and other unidentified employees. Id.

         Farrar says that she visited a Casino Concepts booth at an expo in the early years of her career at SHFL but does not recall if it was in 1997. She observed a machine on the table but did not know what it was or how it operated, as there was no one manning the booth at the time. SHFL's file on the expo contains a copy of a brochure of the Roblejo prototype displayed at the 1997 expo. Grauzer testified that he has never seen the Roblejo prototype at all, much less the interior of the machine. Defs.' SUMF, Ex. 9 (Grauzer Dep.) at 141:3-12. Grauzer's files contain a report on the 1997 expo, which discusses the Roblejo prototype and includes a marketing brochure. See Pls.' Resp. to Defs.' SUMF, Ex. 9. Grauzer maintains that he did not write this report and could not possibly have done so because it contains non-technical information as well as bullet points, which he does not know how to create. Grauzer Dep. at 109:4-25; Pls.' Resp. to Defs.' SUMF, Ex. 1012 at 115:6-16. Donald Barnett, a former SHFL employee, testified during his deposition that Grauzer would have been the person SHFL relied upon to analyze competition at trade shows. Pls.' Resp. to Defs.' SUMF, Ex. 1022 (Barnett Dep.) at 18:7-16. Barnett stated that Grauzer is the only individual who would have written a report analyzing competition seen at a trade show. Id. at 187:9-188:3. Another former SHFL employee, Robert Pietrosanto, agrees that Grauzer would have been the only individual working for SHFL at the time who was qualified to analyze a competitive product. Pls.' Resp. to Defs.' SUMF, Ex. 1021 (Pietrosanto Dep.) at 33:16-34:3.

         4. Block patent

         The Block '044 patent, issued by the PTO in March 2002, discloses an automatic card shuffling and dealing system that includes a shuffling device under the gaming table and an elevator that delivers the shuffled cards to the table surface. SHFL disclosed this patent in the specifications of four patent applications it submitted in July 2003 as well as during the course of the prosecution of the '935 patent The company did not disclose the Block '044 patent in the application for the '982 patent.

         5. CARD litigation

         In 2002, Casino Austria Research and Development in Vienna (CARD) began importing into the United States an automatic shuffler known as the "one2six." In May 2003, CARD filed suit in federal court in Nevada against SHFL requesting a declaratory judgment that its shuffler did not infringe two of SHFL's patents, neither of which is at issue in this case. SHFL filed a counterclaim alleging infringement of those patents as well as one other. During the litigation, CARD argued that SHFL's patents were invalid because they were anticipated by the Nicoletti shuffler, the Luciano prototype, and the Roblejo prototype. Grauzer submitted a declaration in that case on behalf of SHFL in which he disputed this contention as to each reference. Both Grauzer and Litman attended the deposition of CARD's technical expert, Joel Greenberg, who opined that the Luciano and Roblejo prototypes anticipated SHFL's patents. Toward the end of the litigation, either SHFL or its counsel at the time created what the parties here refer to as the shuffler art discs, which contained documents from the CARD litigation and technical information on the pieces of allegedly invalidating prior art.

         In June 2004, SHFL and CARD voluntarily dismissed the Nevada case following a settlement agreement in which SHFL acquired CARD. Litman and Farrar then filed copies of the shuffler art discs in multiple pending patent applications before the PTO. SHFL did not file a copy of the disc as part of the then-pending '935 application. It did represent in amendments filed with a different patent application related to shuffler technology that both in-house and outside prosecution counsel for SHFL were "in the time-consuming process of reviewing documents . . . that are the result of litigation between [SHFL] and third parties." Pls.' Resp. to Defs.' SUMF, Ex. 248 at 12.

         C. The DigiDeal suit and the present litigation

         In October 2012, DigiDeal displayed the DigiShuffle prototype at a gaming show in Nevada, which SHFL employees attended. These employees saw the prototype and SHFL then filed suit against DigiDeal in the District of Nevada, alleging that the DigiShuffle infringed the '982 and '935 patents. The case was assigned to Judge Gloria Navarro. Shuffle Tech and Poydras both received notice of the suit and obtained counsel in anticipation of litigation.

         In July 2013, Shuffle Tech and DigiDeal amended their licensing agreement. The amendment expressly discussed SHFL's lawsuit and stated that Shuffle Tech agreed to pay litigation costs, even though the suit did not fall within the scope of the litigation Shuffle Tech was required to pay for as defined in the original agreement. Defs.' SUMF, Ex. 3 at F.1. The amendment also stated that Shuffle Tech "shall be entitled to any reimbursement for fees and expenses and/or other damages resulting from [SHFL's infringement suit] payable by SHFL to any" of the parties to the licensing agreement. Id. at 11.1. An investor at Poydras found an attorney, Marie Kerr, to represent DigiDeal. For some period of time, DigiDeal, Poydras, and Shuffle Tech held joint strategy sessions to determine the course of litigation, and Shuffle Tech primarily defended DigiDeal in the suit.

         In October 2013, however, Mike Kuhn, the president of DigiDeal, instructed attorney Kerr to keep confidential to DigiDeal all information regarding the suit. Pls.' Resp. to Defs.' SUMF, Ex. 872. In September 2014, DigiDeal removed Kerr as counsel and replaced her with James Boyle and Nathan Henderson. In August 2014, DigiDeal filed suit against Shuffle Tech and Poydras in the Eastern District of Washington, alleging breach of contract, primarily on the ground that Shuffle Tech had failed to uphold its obligation to defend DigiDeal against SHFL.

         Meanwhile, in January 2014, DigiDeal initiated re-examination proceedings before the PTO on claims 1-3 and 42-46 of the '982 patent, and claims 1, 2, 9-11, and 14 of the '935 patent. Alan Fanucci acted as lead counsel for SHFL in the reexamination proceedings and received assistance from Howard Shin and Kimball Anderson. In August 2014, the PTO rejected claims 1-3 and 42-46 of the '982 patent based on the Block '044 patent and the Roblejo '122 patent. SHFL then amended its claims to state that the shuffler must be mounted flush with a recessed support surface beneath the table cover and a cover set flush into the shuffler's top surface over the elevator, features not taught by the Block patent. The PTO agreed that the Block patent taught away from SHFL's invention as described in the amended claims, because the Block device prevents anyone from physically touching the cards and does not teach a shuffler that has a top surface mounted flush with the gaming table surface. Defs.' SUMF, Ex. 61E at 4. On May 2015, the PTO confirmed that the claims in the '982 patent were patentable, and it issued a reexamination certificate in July 2015.

         During the '935 reexamination, the PTO also rejected some of the claims in the '935 patent after determining that they were obvious based on the Block '044 patent and combinations of the Roblejo '122 patent with other patents. The PTO indicated that the material in the '935 patent was obvious in light of the disclosure in the Roblejo '122 patent of an automatic shuffler and another reference that described a mah-jongg block shuffler mounted to a gaming table and recessed beneath its surface. Defs.' SUMF, Ex. 62C at 14. The PTO also indicated that the Block patent teaches an automatic shuffler mounted to a gaming table and therefore that it "teaches the limitations deemed to be missing from the prior art during the original prosecution of the '935 patent." Pls.' Resp. to Defs.' SUMF, Ex. 6-1 at 1139. SHFL then cancelled all of the reexamined claims from the '935 patent "in order to expedite the issuance of a reexamination certificate." Defs.' SUMF, Ex. 62E at 5.

         In April 2015, plaintiffs filed the present suit against SHFL, alleging misconduct in its enforcement of the '982 and '935 patents. In count 1, plaintiffs request a declaratory judgment that SHFL fraudulently withheld information from the PTO in order to acquire the '982 and '935 patents and attempted to enforce these patents so as to restrict trade in the market for automated shufflers. Plaintiffs allege in count 2 that SHFL initiated sham litigation in order to sustain market power in violation of section 2 of the Sherman Act and section 16 of the Clayton Act. In count 3, they allege that SHFL has acquired many card-shuffler companies and technologies in order to consolidate market power in violation of section 7 of the Clayton Act. Plaintiffs allege in count 4 that SHFL knowingly misrepresented the validity of their patents in violation of the Lanham Act. In count 5, they allege that the conduct outlined above constitutes unfair competition in violation of Illinois statute. Plaintiffs allege in count 6 that the same conduct constitutes deceptive trade practices under Illinois statute.

         In June 2015, SHFL filed a notice of concurrent proceedings with the PTO in which it attached a copy of the complaint in this case. The notification indicated that SHFL had determined it had no obligation to submit the references mentioned in plaintiffs' complaint because it had already determined that they were either cumulative, already made of record, or not a patent or publication. In July and August 2015, the PTO issued reexamination certificates for the '982 and '935 patents.

         In October 2015, this Court granted SHFL's motion to dismiss counts 1, 3, 4, 5, and 6 but denied the motion as to count 2. Plaintiffs then filed an amended complaint for count 2, in which they alleged that SHFL violated the Sherman Act and the Clayton Act by procuring its patents using fraud on the PTO and then ...


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