U.S.: the value of slot machine patents

by DLA Piper

I’ve been litigating patent cases involving slot machines for the past decade, and there are still a lot of misconceptions about what aspects of a gaming machine can be patented and why these patents are so valuable.

In fact, everything from the security systems to the bill validators to the play of the game is patentable, and a search of the Patent Office database shows over 6,000 patents with the words “slot machine.” As microprocessors and other computer-related inventions have appeared in the past 30 years, a slot machine has really become a fancy computer, and subject to as many development patents as a PC or laptop.

One of the seminal inventions in the gaming industry is a patent by Inge Telnaes, U.S. Patent No. 4,448,419, entitled “Electronic gaming device utilizing a random number generator for selecting the reel stop positions.” This short patent, with only three pages of text, revolutionized the gaming industry. Previously, the odds—and jackpots—for slot machines were limited because the machine reels that showed the game results could only contain so many symbols (for example, 7s or cherries). But Telnaes’ patent disclosed using a random number generator behind the scenes as a “virtual reel,” so that there could be a million (or more) symbol combinations that could trigger a win, as it is all controlled by a microprocessor and not by the physical reels. Players noticed no difference on the reels (the additional combinations being essentially imperceptible), but now bigger odds and jackpots were possible.

All modern slot machines use some variation of the Telnaes patent. Telnaes’ patent was bought by International Game Technology (IGT) in 1988, and IGT subsequently licensed it to the entire industry. WMS came out with a competing slot machine with virtual reels in 1993, and a six-year litigation battle ended with a finding that WMS’ machine did infringe, leading to a substantial settlement.

The value of the Telnaes and other slot machine patents has led to patent litigation becoming increasingly important to the slot manufacturers and the gaming industry. For much of the past decade, there was extensive patent litigation over the so-called “Wheel” patents, which were the basis for many of the slot machines that use a wheel to award a bonus prize, such as Wheel of Fortune. Both Bally Gaming and IGT claimed to be the first to invent wheel bonusing, each pointing to their many patents as well as many games that were released prior to the patents. Eventually, neither company was successful in convincing judges that one side had valid patents that the other side infringed.

Millions of dollars are spent each year on gaming patent litigation to determine who owns a slot machine invention and how valuable that invention is to the machine’s success. It can be money well spent—the tight regulation and heavy competition within the slot industry allows companies to control market share through its enforceable patents. For example, Ernie Moody patented a new type of poker, which is now popularized as multi-play poker worldwide. IGT has successfully enforced Moody’s patents in litigation and taken a dominant market share with this concept.

Because of the value of these patents, virtually every slot machine manufacturer has been involved in patent litigation since the Telnaes patent. Typically, these litigations have involved new types of bonusing, including wheel bonusing, mystery bonusing triggers and 3-D reel overlay bonusing, to name a few examples.

Another reason why patent rights are so valuable in the slot machine industry is that there is a constant demand for new and varied games. In order to produce new games regularly, game designers must invent many different concepts every year. All of these new concepts may be patentable.

Gaming patents are an essential part of the business. Companies developing any element of slot machines should be quick to apply for patents and use them effectively against infringers, especially given how quickly new machines appear in the marketplace.

Original story published in Casino Journal which can be accessed here.

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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