IGT suit against competitors could cause a backlash

Gary Thompson

Monday, Nov. 29, 1999 | 11:17 a.m.

A lawsuit by International Game Technology alleging patent violations by competing slot makers could backfire on the big Reno-based company, gaming analyst Joe Coccimiglio said.

The Prudential Securities analyst said IGT's threat to seek an injunction barring its competitors from distributing popular slot machines has angered casino slot managers.

"We believe there could be a backlash against IGT if it moves forward with an injunction," Coccigmilio said in a report issued to Prudential clients last week.

"Some slot managers may remove some IGT participation games in retaliation," he wrote. "All the slot managers we spoke with indicated they aren't happy with IGT's announcement and will do anything they can to influence the company not to pursue its injunction."

IGT was granted a patent in September covering touch-screen technology. The following month, it sued slot makers WMS Industries, Casino Data Systems, Silicon Gaming and privately owned Sigma Gaming alleging patent infringement.

IGT also said it may seek a preliminary injunction to stop its competitors from "making, using, offering for sale or selling" any disputed game while the lawsuit is pending.

Citing a letter IGT sent to its clients, Coccimiglio said the injunction isn't likely to affect any machines already sold to casinos. But the letter also says an injunction "would prohibit any future sales of such machines, and possibly the operation of machines owned by the defendants."

"We believe that 'machines owned by the defendants' refers to proprietary games installed on a participation basis, including Monopoly, that are possibly in violation of the patent," Coccimiglio said.

Revenue participation games such as WMS' popular Monopoly slots are leased, rather than sold, to casinos. Slot makers like such games because they get a percentage of the win during the life of the game. But casino operators dislike them and mounted an unsuccessful campaign to get them banned during the last session of the Nevada Legislature.

Participation games from IGT, which supplies more than 70 percent of the slots used in domestic casinos, were the main target of the gaming operators. Since the negotiation of a shaky truce between IGT and Nevada casinos, the slot maker has lost market share to competitors, particularly WMS.

"In seeking the injunction, it appears that IGT is basically trying to shut down WMS," Coccimiglio said. "We believe this is a very aggressive and hostile move which could be very unpopular with casino operators and slot players.

"Our slot manager contacts are all very upset -- to put it mildly -- over IGT's actions," the analyst said. "They generally believe that IGT is going after WMS with a lawsuit because they are having trouble competing with them in the marketplace."

"IGT is only trying to protect its patent," responded Ed Rogich, IGT's vice president of marketing. "Our goal is to protect our assets as well as our customers. It's not our intention to do anything that would have any negative ramification for our customers.

"We've invited Williams and the others to discuss the issues and try to find a mutually agreeable solution. If we can't reach an amicable solution, we may seek an injunction," he said.

Meanwhile, Credit Suisse First Boston gaming analyst David Anders maintained his "buy" rating on IGT stock, saying the company's new games, growth in participation game revenue and a possible major new market opening in California could benefit share prices.

Anders said the new products IGT unveiled at September's World Gaming Congress were "the most expansive, creative and the clear favorites of the crowd." The 30-plus new games "will be instrumental in enabling IGT to regain lost market share and solidify its position as a market leader," he wrote in a report to CS First Boston clients.

Furthermore, he said, if Californians vote on March 6 to legalize casino gaming on tribal lands, "IGT will significantly benefit" from the expansion of slots to about 43,000 machines from the current 15,000 to 17,000 now operating there illegally.