IP Law Daily Methods for providing pari-mutuel ‘historical’ gaming were unpatentable abstract ideas
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Wednesday, March 2, 2016

Methods for providing pari-mutuel ‘historical’ gaming were unpatentable abstract ideas

By Mark Engstrom, J.D.

Three RaceTech patents on “methods and apparatus for pari-mutuel historical gaming” were abstract ideas that lacked an inventive concept, and thus were unpatentable, the federal district court in Bowling Green, Kentucky, has ruled (RaceTech, LLC v. Kentucky Downs, LLC, March 1, 2016, Stivers, G.). RaceTech’s infringement claims were therefore dismissed.

RaceTech sued Kentucky Downs and Encore Gaming for the infringement of U.S. Patent Nos. 6,358,150; 6,450,887; and 9,047,737. The patents described “methods and apparatus for pari-mutuel historical gaming.” The defendants sought dismissal on the ground that the inventions were unpatentable abstract ideas, or were the implementation of abstract ideas with generic computer equipment.

Patentability of ’150 and ‘887 Patents

The court analyzed the patentability of RaceTech’s inventions under the Supreme Court’s Alice test. Under the Alice test, a court first had to determine whether the challenged claims were directed to patent-eligible concepts or patent-ineligible laws of nature or abstract ideas. If the patents were directed to a patent-ineligible concept, the invention could still be patentable if an “inventive concept” transformed the nature of the claims into a patent-eligible application.

Because RaceTech’s ’150 and ’887 patents were fundamentally the same (each claimed a monopoly over the process of pari-mutuel gambling based on past events), the court analyzed their patentability together. The concept at issue was “wagering on unknown past events.”

Abstract ideas. The defendants argued that the asserted patents were abstract ideas that lacked an inventive concept that sufficiently transformed them into patentable subject matter. RaceTech argued that the “abstract idea principle” was limited to fundamental mathematical formulas and fundamental economic principles, but the court rejected that view as “too narrow.” Significantly, other courts had already applied the abstract idea principle to invalidate patents involving recreational wagering.

In this case, the asserted claims were abstract because a person could conduct pari-mutuel wagering using ordinary mental steps. In the court’s view, the required computations involved simple mathematical functions that could be accomplished on paper. Further, betting was intrinsic to horse racing, and pari-mutuel wagering on horse races had been conducted in the U.S. “long before the invention of computers.” Therefore, the court found that the fundamental activity of wagering on sporting contests was properly characterized as an abstract idea.

Because the only innovation in this case was RaceTech’s “technique” of permitting bets on prior completed events, the relevant question became whether betting on past events changed the inherent nature of the claimed patents to something other than abstract ideas. The court concluded that it did not.

Pari-mutuel gambling on live races was a longstanding practice, the court explained, and betting on prior recorded races did not change its fundamental characteristics. Similarly, gambling through computer hardware and software did not change the abstract nature of pari-mutuel gambling. Ultimately, the court concluded that the fundamental nature of wagering could be achieved through ordinary mental steps, even though computers could “speed up the process.”

For those reasons, the court found that the systems and methods of the ’150 and ’887 patents covered abstract ideas.

Inventive concept. The defendants argued that the ’150 and ’887 patents did not contain an inventive concept because the claimed processes and systems were well-understood, routine, and conventional, and were performed by common computer systems. According to the defendants, the ’887 patent described nothing more than basic computer functions.

The court agreed that an inventive concept was lacking. On their face, neither the ’150 nor the ’887 patent described anything beyond ordinary computer equipment that communicated in a functionally generic way. Although RaceTech argued that, when viewed as a whole, both patents constituted “something more” than a mere abstract idea, the patented systems accomplished “fundamentally standard” processes, according to the court.

For example, the video server and game server acted as storage devices to provide the data and videos that were needed to accomplish a game of pari-mutuel wagering; relevant information was sent to a game terminal where players could play the game; an administrative terminal existed to manage the game through totalization; the servers and terminals communicated over a network that was facilitated by a gateway; and all of the requisite equipment was readily available through well-known manufacturers such as Dell, Microsoft, and Compaq. In the court’s view, none of those elements were transformative.

The inventive element of RaceTech’s patents was the use of historical data rather than live data. Instead of providing something more, however, the ’150 and ’887 patents provided something less, according to the court.

Significantly, simulcast horse racing had long been used in the industry. Simulcasting provided live results from tracks across the country, the court explained, in a wide variety of weather conditions. Because the winners of the pre-recorded races were already determined before the wagering began, none of the frequent complications that occurred in real-time races impaired the wagering process in pre-recorded races.

Video footage or a simulation of the recorded race could be shown for its entertainment value, the court noted, but the betting results could be revealed almost immediately—because the outcome was known, in advance, by the computer. In the court’s view, the process of placing bets on recorded races was “something less” than the process of placing bets on live races because all of the vicissitudes of the races had occurred before the video race was shown to a bettor.

Consequently, RaceTech’s “something more” amounted to nothing more than replacing a live broadcast with a recording. The court acknowledged that the practice of allowing bettors to gamble on old races might not have been available before the ’150 and ’887 patents were issued, but that fact alone did not render the abstract ideas patent-eligible, according to the court.

Under those circumstances, the court concluded that the ’150 and ’887 inventions, which allowed customers to bet on recorded races using conventional computers, did not contain a sufficiently transformative inventive concept to render them patentable.

Patentability of ’737 Patent

The ’737 patent was distinguishable from the ’150 and ’887 patents because the ’737 patent provided a “seed pool” that allowed funds to be added to the total award if the award amount was below the “threshold value.” More specifically, an administrator provided the security that was needed to ensure that the winners were paid even if the wager pot lacked sufficient funds to pay the winners. However, the concept of insurance protection for credit owed was a fundamental human practice with a long history, and thus was an abstract concept, the court concluded.

As with ’150 and ’887 patents, RaceTech failed to identify an inventive concept that transformed the abstract idea of the ’737 invention into patentable subject matter. A combination of purely generic computer equipment was used to accomplish the “seed pool” process of the ’737 patent, the court explained. Because the patent involved the same combination of equipment and systems as the ’150 and ’887 patents, the court decided that the systems and methods of the ’737 patent we not inventive concepts.

Alternative Tests for Validity

The court noted that its finding that the contested inventions were not patentable was supported by three non-exclusive tests: the machine-or-transformation test, the technological arts test, and the business methods test.

The case is No. 1:15-cv-00059-GNS-HBB.

Attorneys: E. Kenly Ames (English, Lucas, Priest & Owsley, LLP) and Mark A. Thomas (Armstrong Teasdale, LLP) for RaceTech, LLC. Mark A. Thurmond (Crocker & Wilkey, Attorney at Law) and Spiro Bereveskos (Woodard, Ernhardt, Moriarty, McNett and Henry, LLP) for Kentucky Downs LLC and Encore Gaming LLC.

Companies: RaceTech, LLC.; Kentucky Downs, LLC; Encore Gaming, LLC

MainStory: TopStory Patent KentuckyNews

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