Igt v. Alliance Gaming Corp.
| Decision Date | 17 December 2012 |
| Docket Number | No. 2011–1166.,2011–1166. |
| Citation | 702 F.3d 1338 |
| Parties | IGT, Plaintiff–Appellee, v. ALLIANCE GAMING CORPORATION, Bally Gaming International, Inc., and Bally Gaming, Inc. (Doing Business as Bally Gaming & Systems), Defendants–Appellants. |
| Court | U.S. Court of Appeals — Federal Circuit |
OPINION TEXT STARTS HERE
Deanne E. Maynard, Morrison & Foerster LLP, of Washington, DC, argued for plaintiff-appellee. With her on the brief were Alexander J. Hadjis, Brian R. Matsuiand Marc A. Hearron. Of counsel on the brief was Brett J. Williamson, O'Melveny & Myers LLP, of Newport Beach, CA.
Jennifer A. Kash, Quinn Emanuel Urquhart & Sullivan, LLP, of San Francisco, CA, argued for defendants-appellants. With her on the brief were Charles K. Verhoeven and Kevin A. Smith.
Before BRYSON, LINN, and REYNA, Circuit Judges.
Opinion for the court filed by Circuit Judge REYNA. Dissenting opinion filed by Circuit Judge BRYSON.
IGT owns several patents related to “wheel games,” a type of casino gaming machine containing a secondary bonus game incorporating a spinning wheel. IGT sued Alliance Gaming Corp., Bally Gaming International, Inc., and Bally Gaming, Inc. (collectively, “Bally”) for infringement of these patents, and Bally counterclaimed under state and federal antitrust laws. The district court denied the motions for summary judgment on the antitrust issues, granted the motions that the patents were invalid and not infringed, and certified the patent issues for interlocutory appeal. This court affirmed. On remand, the district court granted summary judgment against Bally on its antitrust counterclaims. Because the undisputed facts are insufficient to establish the existence of a relevant antitrust market in wheel games, we affirm.
IGT specializes in the design, development, manufacturing, distribution, and sales of computerized gaming machines and systems. One of IGT's most popular and successful games was “Wheel of Fortune,” a wheel game. In the mid–1990s, IGT applied for and obtained patents related to the wheel feature of the Wheel of Fortune game. At about the same time, Anchor Gaming (Anchor) developed a wheel game called “Wheel of Gold” and obtained a patent on it. Anchor was eventually acquired by IGT.
Bally, one of IGT's chief competitors, designs, manufactures, operates, and distributes gaming machines, owns and operates a significant number of gaming machines, and owns and operates a casino. Bally began selling wheel games in 2002. Because IGT and Anchor had successfully used their patents to drive competitors out of the wheel game market, Bally became IGT's only wheel game competitor. IGT sued Bally for infringement of its wheel game patents, and Bally responded that the patents were invalid and not infringed. In addition, Bally counterclaimed, alleging that the infringement lawsuit was an attempt to monopolize the wheel game market by asserting patents that IGT knew to be invalid, unenforceable, and not infringed.
In March 2007, the district court granted partial summary judgment on Bally's antitrust counterclaims. The court granted summary judgment against Bally as to the larger market of all gaming machines, reasoning that “Bally ha[d] not presented any evidence as to the gaming machine market as a whole,” but instead had only presented evidence related to the narrower wheel game market. The court then denied summary judgment with respect to the narrower wheel game market, finding that disputed issues of material fact existed. The court did not analyze the definition of the relevant market, but instead simply assumed the relevant market to be wheel games.
Following the partial denial of IGT's summary judgment motion, the parties served expert reports and deposed opposing expert witnesses. As part of its patent damages theory, IGT argued that there were no noninfringing substitutes for its wheel games. IGT's patent damages expert, Richard Troxel, opined that IGT would have leased one of its wheel games for every Bally wheel game a casino bought or leased. Troxel based his opinion on the premise that “the wheel has such a demand and drawing power for consumers.” Thus, Troxel reasoned, every sale of a Bally wheel game must represent a casino's desire to purchase a wheel game. Troxel does not appear to have analyzed whether any non-infringing alternatives existed. Instead, Troxel simply assumed that any substitute would necessarily be an infringing wheel game. This assumption appears to have been based on IGT and Bally's assertions that there were no other wheel game suppliers. Troxel had not been asked to opine on the relevant antitrust market, and had not examined price elasticity.
Both parties provided expert testimony regarding the definition of the relevant antitrust market. Bally's expert, Dr. Adams, concluded that a relevant market in wheel games existed. Dr. Adams based this largely on IGT's assertion that “the entry of Bally into the supplying of wheel games has caused IGT to have to lower its price for wheel games.” J.A. 8287. He also asserted that the resources IGT expended acquiring and enforcing intellectual property rights related to wheel games established that wheel games are a relevant market. Finally, he addressed the Brown Shoe factors.1 Dr. Adams identified the “peculiar characteristic” of the product as its wheel-shaped bonus feature. He stated that wheel games were recognized as a separate economic activity because internal IGT materials sometimes discussed wheel games separately. Dr. Adams also observed that there were no unique production facilities or customers for wheel games. Subsequently, after receiving price data, Dr. Adams updated his report, concluding that evidence of price erosion showed that the relevant market was wheel games because “[i]f the entry of [Bally] caused the price of wheel games to fall, then wheel games are, by definition, a relevant antitrust product market.” J.A. 25056.
IGT's antitrust expert, Professor Ordover, concluded that wheel games were not a relevant market. Ordover described gaming machines as a differentiated market, meaning that “any given machine will embody various characteristics that affect the appeal of the machine to players.” J.A. 8088. He explained that gaming machines are “differentiated by such factors as type of display, theme, cabinet design, denomination, progressive vs. nonprogressive, and bonus features.” J.A. 8108. Wheel games are one of many bonus types; other types include ladders, reels, elevators, and bouncing balls. Ordover stated that casinos offer a variety of gaming machines in order to attract and retain customers. He elaborated that the mix of machines on the floor is driven by profitability, and that each game competes for space on the gaming floor. In Ordover's opinion, the price erosion experienced by IGT after Bally introduced its wheel games was “the inevitable result of competition among differentiated products following the entry of a substitute to the product at issue.” J.A. 8108.
On October 16, 2008, the court granted Bally's motion for summary judgment of non-infringement of the wheel game patents and granted summary judgment that two of the patents were invalid. In the same order, the court denied IGT's motion for summary judgment on the antitrust issues. The court noted that the definition of the relevant market was a question of fact and that a submarket may be relevant if it meets the Brown Shoe factors. After summarizing evidence related to these factors, the district court concluded that there were genuine issues of material fact about whether wheel games were a relevant market and whether wheel games were a submarket under Brown Shoe. The parties appealed the ruling on the patent issues to this court and we affirmed. See IGT v. Alliance Gaming Corp., 334 Fed.Appx. 329 (Fed.Cir.2009).
On remand, IGT moved for reconsideration of the denial of its summary judgment motion on the antitrust counterclaims. It argued that a market definition of gaming machines with wheel-shaped bonuses was too narrow, pointing to evidence that “casinos mix and match different games on their floor space in order to maximize overall revenues.” J.A. 24444. It also pointed to statements from both antitrust experts that gaming machines are differentiated products, meaning that “the products reflect a spectrum of price and quality differences.” J.A. 24446. Changing course from its previous rulings, the district court ruled that wheel games were not a relevant market. The court noted that Bally had conceded that there is competition between wheel and non-wheel games. It stated that “it is undisputed that casinos mix and match products to maximize floor-space revenue generation.” It therefore concluded that “[b]ecause all gaming machines compete, wheel games are not an economically distinct relevant market,” and awarded summary judgment against Bally on its antitrust claims.
Bally appeals. This court has jurisdiction under 28 U.S.C. § 1295(a)(1).
To prevail in this appeal, Bally must show that the district court erred when it granted summary judgment that wheel games are not a relevant antitrust market. Bally offers three arguments why this is so: (1) that the district court improperly resolved disputed facts when it determined that wheel games were not a relevant market because wheel games competed with all gaming machines; (2) that the district court erred in concluding that the existence of some substitution between wheel and non-wheel games foreclosed the existence of a wheel game market; and (3) that the district court improperly focused on functional, rather than economic, substitution.
When reviewing a district court's conclusion as to the relevant market under antitrust law, this court applies the law of the regional circuit. See Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed.Cir.1998). We also “review[ ] the district court's grant or denial of summary judgment under the law of the regional...
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