Antitrust Law Daily Wrap Up, TOP STORY—FedCir: Improperly Defined “Wheel Games” Market Requires Rejection of Monopoly Counterclaims Against Gaming Machine Maker, (Dec 18, 2012)

By Jeffrey May, J.D.

In a patent infringement action brought by gaming machine manufacturer IGT against competitor Bally Gaming related to the wheel feature of a popular and successful “Wheel of Fortune” slot machine game, Bally's monopoly counterclaims were properly dismissed for failure to establish a valid relevant market, a divided U.S. Court of Appeals for the Federal Circuit has ruled. Summary judgment on the antitrust counterclaim was affirmed (IGT v. Alliance Gaming Corp., December 17, 2012, Reyna, J.).

Bally had alleged that IGT monopolized and/or attempted to monopolize the market for wheel games—slot machines that include a secondary bonus game with a spinning wheel. Bally contended that IGT’s patents barred potential competitors from marketing these wheel games. However, the district court concluded that, because there was competition between wheel and non-wheel games, the relevant antitrust market could not be limited to wheel games.

On appeal, Bally unsuccessfully argued that the district court improperly resolved disputed facts when it determined that wheel games did not constitute a relevant market. Bally failed to produce evidence to show there was a genuine issue of material fact that wheel games compete with all gaming machines.

The appellate court went on to find that wheel games were neither a relevant market nor a submarket. There was undisputed evidence that wheel games competed with all gaming machines.

Bally argued that there was a lack of economic substitution based on IGT’s imposition of a small but significant and non-transitory increase in price (SSNIP) and that substitutability between gaming products would have restrained a hypothetical monopolist from profitably imposing a SSNIP. According to the appellate court, Bally failed to explain what the baseline price for wheel games was from which IGT imposed a SSNIP. While there was a dispute over whether the “SSNIP test” was an appropriate standard for determining relevant market, Bally’s failure to establish a baseline prevented the firm from arguing that IGT imposed a SSNIP.

The court also rejected Bally’s arguments that the existence of some substitution did not preclude wheel games from being a submarket. Generally, submarkets may be found where there is industry or public recognition of the submarket as a separate economic entity or where the product has peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. While the “peculiar characteristic” distinguishing wheel games from other games was the wheel-shaped secondary bonus, it was undisputed that there were no unique production facilities or specialized vendors for wheel games versus ordinary gaming machines, and there were no distinct customers.

Bally argued that “game players, casinos, and IGT all view wheel games as a separate economic activity from non-wheel games.” While some players might prefer wheel games and, accordingly, casinos allocate a specific percentage of their floor space to different types of games, including wheel games, this did not establish that there was a public or industry perception that wheel games constituted a separate market. Rather, it supported the view that gaming machines were a differentiated market and that wheel games competed with all gaming machines, according to the court.

Dissent

A dissent suggested that there was a genuine issue of material fact as to whether IGT used its patents to maintain a monopoly in a market limited to wheel games that was sufficiently separate from the market for other slot machines that IGT was able to demand monopolistic prices over an extended period of time.

The case is No. 2011-1166.

Deanne Maynard (Morrison & Foerster LLP) for plaintiff-appellee IGT. Jennifer Kash (Quinn Emanuel Urquhart & Sullivan, LLP) for defendants- appellants Alliance Gaming Corp., Bally Gaming International, Inc., and Bally Gaming, Inc.

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