DraftKings at Casino Queen and Casino Queen Marquette have sued Scientific Games for allegedly using “fraudulent” patents to litigate against competitors and give itself a monopoly in the automatic shuffler market. [Image: Shutterstock.com]
Plantiffs cry foul over defendant’s monopoly
Two casinos have filed a class action lawsuit in Illinois federal court against gambling products maker Scientific Games for unlawfully developing a monopoly in the automatic card shuffler market. DraftKings at Casino Queen in East St. Louis, Illinois and Casino Queen Marquette in Marquette, Iowa allege that Scientific Games has abused the patent process and then used its clout to “exclude and drive out competitors” via legal action.
files “sham lawsuits” against competitors
The casinos claim that Scientific Games goes so far as to obtain some of its patents fraudulently. The company, in turn, files “sham lawsuits” against competitors as soon as those competitors introduce their own automatic shuffler products. This practice allegedly keeps competing shufflers off the market, allowing Scientific Games to enjoy a monopoly.
Scientific Games got into the automatic shuffler business when it acquired Bally Technology in 2014. Bally had previously bought SHFL Entertainment, the developer of the Shuffle Master auto-shuffler, in 2013.
The lawsuit estimates that the market for automatic card shufflers and related products and services is worth about $100m per year. According to the class action, Scientific Games and its co-defendants SHFL Entertainment and Bally Technologies “now control virtually 100% of that market as a result of their misconduct.”
Scientific Games can charge exorbitant prices
The arguments the lawsuit makes sound like something Scientific Games’ competitors would say, but in this case, it is instead casinos that are making the allegations. The reason for this is because they believe the defendant’s actions have unfairly increased the price of the automatic shufflers, thus costing the casinos money.
Casinos and card rooms need automatic shufflers because the machines speed up the pace of play, greatly reduce human error, and help prevent cheating. Some jurisdictions don’t permit hand shuffling, so automatic shufflers are an absolute necessity. The only real alternative, the plaintiffs say, is to use pre-shuffled decks, but they can only be used once per hand, making them an unreasonable option.
Thus, because the casinos need the automatic shufflers and they allege that Scientific Games has created an unlawful monopoly, they have no choice but to pay whatever price the defendant wants.
This is an example of “substitute elasticity of demand,” an economic concept that says that if there is a readily available substitute for a product, an increase in the price in one will lead to an increase in demand for another. That is, if the price goes up, customers will go elsewhere for a similar product. In the Scientific Games case, the demand for its automatic card shufflers is “inelastic” because there are no easy substitutes.
This has happened before
Scientific Games has a history with this sort of litigation. The most visible case began in 2012, when Shuffle Tech introduced its new automatic shuffler, entering into a licensing agreement with DigiDeals, who, in turn, sub-licensed the product to Poydras-Talrick Holdings. Shuffle Master (now part of Scientific Games) sued for copyright infringement just a week and a half after the product, DigiShuffle, was unveiled.
In 2014, DigiDeal found that Shuffle Master had hidden key artwork in its patent filings and it was this artwork upon which the company based its lawsuit. Shuffle Tech, Poydras-Talrick Holdings, and Aces Up Gaming (a partner of DigiDeal’s) filed an antitrust lawsuit against Shuffle Master, noting that the company had a pattern of litigating competitors into submission.
Finally, in 2018, a jury ruled for the plaintiffs to the tune of $105m, which was tripled to $315m because of federal antitrust regulations. Despite the ruling, Shuffle Master partially accomplished its goal. Shuffle Tech couldn’t bear the cost of the lawsuits, so it sold the DigiShuffle technology, getting out of the commercial casino market.