Companies explain landmark deal settling slot suits

David Strow

Friday, Sept. 22, 2000 | 11:19 a.m.

International Game Technology and WMS Industries Inc. have abruptly and surprisingly ended a series of vicious legal battles that went on for years.

Five years of legal tussles between the No. 1 and No. 2 slot machine makers in the United States came to a sudden end this week, as the companies jointly announced the settlement of their lawsuits against one another. IGT had accused WMS of usurping a key video slot machine technology, while WMS had leveled charges of antitrust activity against IGT.

With so much at stake, why drop the claims? Both sides say the reason is simple -- pursuing such claims in court would have been too risky and expensive.

"Not withstanding how we felt about the claims, any litigation involves business risks and uncertainties," said Orrin Edidin, executive vice president and general counsel for Chicago-based WMS. "We felt the settlement made business sense in that it gives us the benefit of predictability and certainty in our business going forward.

"I think this is a philosophical realization that we want to compete on the quality of our respective products, and not to use litigation as a competitive tactic."

"It's a win-win for us and our customers, because we can spend less time on these issues and more time on development," said Ed Rogich, vice president of marketing for Reno-based IGT. "We're in a good position right now, and there's good demand for our games. Clearing up this issue lets us focus on a real positive track for IGT going forward."

The devil, of course, is in the details, and neither company is revealing many details about the settlement except that no money changed hands.

"This announcement is unique for what it doesn't say rather than what it does say," said Las Vegas Investment Advisors Chairman Dave Ehers. "(WMS) had what would appear to be a highly dangerous lawsuit against IGT. No money changed hands, so my question is, what did change hands? Something of value went from IGT to WMS, and I for one would like to know what it is."

WMS had lost its first round of legal fighting with IGT in 1999, when it settled claims by IGT that WMS had violated WMS' "Telnaes" reel-machine patent. Telnaes allows very large progressive jackpots to be offered on traditional reel slot machines, much larger than the mathematics of a 20-stop, three-reel machine would allow. Though WMS never admitted wrongdoing, it paid nearly $29 million to settle the lawsuit in 1999.

But soon after, IGT struck again, accusing WMS of violating a patent regarding "touch-screen" technology. This patent, IGT claimed, prevented WMS from using touch-screens on its video slots in conjunction with traditional buttons. The implications for WMS were huge; virtually all WMS slots are based on video touch-screen technology in conjunction with buttons.

Pushed into a corner, WMS struck back with a vengeance in February, accusing IGT of using predatory tactics to maintain its majority share of the U.S. slot market. IGT, WMS claimed, filed numerous patent infringement lawsuits it knew were invalid, solely for the purpose of tripping up competitors. The WMS suit also claimed IGT used joint ventures with other slot makers, "exclusionary market share" agreements with casinos and restrictions on the use of its slot system software protocols as methods of holding off competitors.

Both claims have been dismissed, with neither side making payments to the other. But in its settlement, WMS was finally able to reach several agreements to work with IGT.

One element involves Telnaes -- under their settlement, both sides agreed to the possibility of partnering to develop new slots based on the technology. But Edidin emphasized no agreements now exist for joint projects between the two companies.

"This provides us the opportunity to jointly develop reel-spinning gaming devices in the event we agree on such a game to develop," Edidin said.

In a second key agreement, WMS agreed to pay per-machine licensing fees to IGT partner Anchor Gaming Inc. for so-called "cashless" gaming patents held by Anchor and IGT.

"I don't know what would have transpired (in the lawsuits), but WMS wanted access to this cashless system," said Stuart Linde, gaming analyst with Lehman Bros. "That's what the antitrust suit was all about. At the end of the day, this was a good outcome for WMS."

Edidin said WMS already possesses the technology necessary to put slots on the market that can be used with ticket-pay systems. At the new Suncoast casino in Las Vegas, for example, patrons on WMS-made machines are paid only with tickets, rather than coins.

However, Edidin said, "there were a couple of patents out there which we determined we should license in order to allow us to put our games onto this (cashless) system without interference. Our company is willing to put a premium on (a guarantee) that this is something we can do without interference."

"It gives us great ... certainty in our company's ability to exploit what we see as an extremely lucrative market, cashless gaming."

The amount WMS will pay per machine was not disclosed.

"They're recognizing the validity of the patents related to this (cashless gaming)," Rogich said. "WMS was one of the biggest (slot makers) not in that group (licensing the Anchor-IGT patents)."

IGT also received "patents and other technologies of interest to us," Rogich said, though neither company is saying which WMS patents IGT will license.

"It's not like this settlement was all one-sided," Rogich said.