Inventor Alleges Patent Infringement by MGM, Caesars, WMS and Penn National Gaming

by Lisa Bailey
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Submitted by Lisa Bailey as part of our contributors program.

The inventor of “bonus round” shared slot machine play has been fighting for more than a decade to receive his patent from the U.S. government. He finally received it, and now he is suing the casino industry for millions- maybe even billions.

Steven Brandstetter filed for a patent of his original idea for linking slot machines to a LCD screen for bonus round play in October 2001. He conceived of this way for casinos to earn more profit by drawing crowds of spectators to large overhead screens and then enticing players to bet more money in order to qualify for bonus round play on this screen. The concept was complex and, to the dismay of Brandstetter, took approximately 10 years for the U.S. Patent and Trademark Office to clarify the precise scope of the invention. By February 2011, the office finally issued patent 7,892,088: “Gaming Device Having a Second Separate Bonusing Event.”

Now that he has received his patent, Brandstetter has partnered with a public company and a law firm to carry out his lawsuit. He is working with MGT Capital Investments (NYSE AMEX: MGT) and Nixon & Vanderhye to pursue the case. MGT Gaming is accusing the following companies of patent infringement:

• MGM Resorts (NYSE: MGM)
• Caesars Entertainment (NASDAQ: CZR)
• Penn National Gaming (NASDAQ: PENN)
• WMS Gaming (NYSE: WMS)
• Aruze Gaming America

If you have ever been to a casino, you have undoubtedly seen the games mentioned in the lawsuit. MGM and Caesars operate some of the largest casinos in the world, including Bellagio, Luxor, Excalibur, Mirage, Harrah’s, Bally’s, Rio, Aria, and Monte Carlo. All of these casinos contain pods of linked slot machines sharing an interactive, overheard sign.

• Battleship
• Clue
• Paradise Fishing
• Great and Powerful Oz
• Reel’em In Compete to Win
• Pirate Battle

MGT and Brandstetter allege that these slot machine games infringe on patent 7,892,088, entitling them to damages and ongoing royalties. The amount of the lawsuit could exceed a billion dollars, as slot machines generate over $36 billion in annual revenues and the total judgment could be a double-digit percentage of any infringing portion of that revenue. At this point, it is far too early to tell, and Brandstetter might fail to recover any damages whatsoever. In any case, the lawsuit is salt on the wounds of gaming manufacturers like WMS Gaming that recently reported disappointing earnings and has dropped over 20% year-to-date. Sentiment is similarly negative for other casino stocks, with Caesars deep in the red for the year amid a double-digit rally in broad U.S. markets.

MGT has $6.8 million in shareholder equity, no debt and over $6 million in cash to fund the lawsuit. The company filed in Mississippi courts- the state where WMS manufactures slot machines and other defendants maintain operations. None of the defendants have commented on the lawsuit so far.

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