All Bets Are Off: Kentucky Downs Trade Secrets Case Presents Novel Question Under Kentucky’s Uniform Trade Secrets Act

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Earlier this month, AmTote International, Inc. sued the famed Kentucky Downs racetrack, three high-ranking Kentucky Downs employees, and Encore Gaming, LLC in federal court alleging misappropriation of trade secrets related to horse racing betting machines.  AmTote’s lawsuit presents the interesting question of whether the “inevitable disclosure” doctrine applies under Kentucky law.

AmTote is a well-established provider of betting machines for live and historical horse racing.  Betting machines are an increasingly popular source of revenue for horse racing tracks, particularly with respect to slot-machine like betting terminals used to conduct historical horse racing.  Historical horse racing involves betting on races that have already been run.  After a patron deposits her wager, a race is randomly selected from a video library of thousands of previously run races.  Race identifying information (location, date,  etc.) is not shown, but patrons are provided with handicapping information to use in making placing their bets.  A short video clip of the race is then shown, and payouts are determined based on a traditional pari-mutuel wagering system—the only type of wagering system permitted for historical horse racing under Kentucky law.

In November 2011, AmTote entered into a contract to provide betting terminals and services at Kentucky Downs.  In April 2015, Kentucky Downs replaced AmTote’s terminals with terminals provided by Encore, prompting AmTote to file suit.

AmTote’s complaint alleges that Encore was founded in 2013 by a Kentucky Downs executive who had access to AmTote’s confidential information.  The complaint identifies the following categories of AmTote confidential information that defendants have allegedly compromised:

  • information related to AmTote’s totaliser system, which calculates the odds for a given pari-mutuel wager at the time the wager is placed
  • detailed diagnostic reports generated by AmTote’s system that are used to solve operational problems and to comply with relevant Kentucky regulations
  • information conveyed to Kentucky Downs in the course of AmTote’s technical training and support activities
  • information about the design of the AmTote system and its terminal-server communication protocols

AmTote’s complaint alleges, among other things, that defendants will inevitably misappropriate AmTote’s trade secrets in the course of operating the Encore historical racing terminals.  This is a high-stakes theory that remains untested in the Kentucky Court of Appeal.

Under the inevitable disclosure doctrine, AmTote may be able to obtain an injunction based on the theory that Kentucky Downs “cannot help but rely” on trade secret information it learned from AmTote.  This doctrine may provide a powerful tool for AmTote because of certain likely similarities between Encore’s system and AmTote’s.

In order to comply with Kentucky law, both systems must be true pari-mutuel wagering systems.  In a pari-mutuel wagering system, odds of a given wager are calculated based on the size of the applicable wagering pool.  In the context of live horse racing, this wagering involves software and network systems that are likely to have inherent similarities. For example, both systems will involve computer programs designed to facilitate the same types of bets (trifectas, parlays, etc.) and designed to operate in the same types of networks, i.e., remote terminals connected to central servers needed to rapidly perform and re-perform many complex odds calculations. In addition to these potential similarities, AmTote’s complaint expressly alleges that certain types of diagnostic reports produced by the AmTote system are “necessary to enable ongoing and uninterrupted operation of pari-mutuel wagering terminals and processing of wagers.”  If this allegation is correct, and if the diagnostic reports are truly trade secrets, Encore could be enjoined from continuing its historical horse racing operations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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