Prime v. Progressive: An IP Battle That Will Shape the Gaming Industry
By Robert A. Rowan

On New Years Eve 1998, Derek Webb received a call from a Las Vegas Sun reporter asking him what it felt like to be a defendant in a federal patent infringement lawsuit. Unbeknownst to the principal of Prime Table Games and inventor of Three Card Poker (TCP), Progressive Games Inc., then owned by Mikohn Gaming Corp., had filed suit against Webb and Prime, asserting that Prime’s TCP infringed certain patents that purportedly protected Caribbean Stud, another (allegedly) proprietary casino table game then at the apex of its popularity. Significantly, just prior to the lawsuit, Progressive’s corporate parent, Mikohn, had unsuccessfully attempted to buy out Prime’s rights in TCP.

Also unbeknownst to Webb, the patents on which he and Prime were being sued were worthless. As proven in court 10 years later, the Caribbean Stud patents had been obtained by an intentional fraud on the U.S. Patent and Trademark Office by concealing and affirmatively misrepresenting the rules of a pre-existing game, Sklansky Casino Poker. Also unknown to Webb was that Mikohn’s in-house gaming expert had, prior to Progressive’s lawsuit, authored a memo to Mikohn’s executive committee acknowledging that Webb had been able to bypass the Caribbean Stud patents. The same memo also set out the expert’s opinion that TCP was "the one novel table game that is both a proven commodity and … has the variety/playability to remain a contender for a substantial length of time …" and that Mikohn’s acquisition of TCP would "firmly entrench" Mikohn as the "market leader … in table games."

Shortly after filing the infringement suit, Mikohn representatives made another offer to Prime to buy the TCP rights, this time for less consideration than they had previously offered. Webb had no interest in selling out to the entity that had just sued him, but having neither the financial resources nor the facts necessary to defend against Progressive’s suit, Prime had little choice but to sell to someone. The beneficiary of Prime’s predicament turned out to be Shuffle Master Inc.

Shuffle Master was also engaged in protracted litigation with Progressive regarding some of the same patents asserted against Prime, but with respect to Shuffle Master’s Let It Ride. Six months after Prime’s sale of TCP, Shuffle Master reached a settlement with Progressive that required Shuffle Master to pay Progressive $2.75 million, but also required Progressive to pay Shuffle Master virtually the same amount over a five-year period, at $580,000 a year. Reading a news report of these unusual settlement terms made Webb suspicious that something was amiss.

Three years later, after unearthing additional facts and being in a position to finance major patent/antitrust litigation, Prime instituted its own suit under the Sherman Antitrust Act in federal district court in Mississippi, the state where TCP was first started in the United States, alleging attempted monopolization of the proprietary casino table game market.

As a necessary predicate to his antitrust allegations, Prime had to first overcome the statutory presumption of validity, to which all U.S. issued patents are entitled,1 and to overcome the First Amendment right of litigants "to petition the government for a redress of grievances." To do that, Prime had to prove that the patents on which it had been sued were obtained by a deliberate fraud on the Patent and Trademark Office and that Progressive knew of its patents’ invalidity when it sued Prime ("Walker Process fraud")2, or alternatively, that Progressive knew that its patents were not infringed by TCP and that its suit on that basis was not a bona fide attempt to obtain judicial relief, but rather a means to interfere with the business relationships of a competitor by the cost and hardship of the litigation itself (Noerr-Pennington "sham litigation")3. Prime proved such facts, first to a nine-person jury who heard Prime’s evidence in a trial lasting more than five weeks, then to the presiding judge of the Mississippi court on post-trial motions filed by Progressive.

The jury unanimously concluded that each of the patents on which Prime had been sued, as well as the "mother patent" from which they had been issued, had been obtained by intentional fraud on the Patent and Trademark Office and that, besides knowing that fact when it sued Prime, Progressive and Mikohn also knew the Caribbean Stud patents were not infringed on by TCP, even if valid. The jury further found Prime had been damaged by Progressive’s attempt to use those patents to monopolize the relevant proprietary casino table game market and that Prime had lost profits of $13 million it would have otherwise earned from TCP. This verdict, which was then tripled to $39 million under antitrust laws, was sustained by the trial judge, who also awarded Prime and Webb their attorney’s fees and costs. Subsequently, the defendants settled for $24.7 million, including Prime’s multimillion-dollar legal fees. The $39 million judgment was one of the 50 largest jury verdicts in 2007.

1. See, 35 U.S. Code, Section 282.
2. See, Walker Process Equipment v. Food Machinery & Chemical Corp., 382 U.S. 172, 177 (1965).
3. See, Professional Real Estate Inc. v. Columbia Pictures Inc., 508 U.S. 49, 60-61 (1993).