22 January 2017

The Challenges of Protecting and Commercialising IP in Casino Games

Skull CardsThere are people who seem to believe that ‘inventing’ is some kind of get-rich-quick scheme – come up with an idea, slap a patent on it, and then wait for the untold millions to (magically) come rolling in.  A logical corollary to this belief is that if somebody acquires an idea from such a person, and subsequently incorporates the idea into a patent application, then they have clearly deprived the originator of their rightful fortune!  And, of course, the way to deal with such a situation is by spending, collectively, a few hundred thousand dollars disputing ownership of the patent application firstly in a state Supreme Court and then before a Full Bench of the Federal Court of Australia.

The only way this could all be a bigger waste of money and effort would be if the patent application in question was directed to some kind of unpatentable subject matter, such as a method of wagering on a card game, for example.  Sadly, this was precisely the situation in a case decided last October, Kafataris v Davis [2016] FCAFC 134.  There was, however, more to the dispute than inventorship and rights to a potentially worthless patent application.  Also at issue was whether or not the plaintiff had made a contribution to the wagering system described in the application that the defendants were obliged to keep confidential.  If so, then he might have been entitled to some form of compensation, regardless of the fate of the patent application.

Setting aside the ultimate futility of the legal action, there is a valuable lesson to be extracted from this particular dispute for those people who choose to direct their innovative efforts to the wagering and gaming industry – namely that novel developments in this field can be notoriously difficult to protect as a form of intellectual property.  Fortunately, the high level of regulation of gaming creates some barriers to entry which can be used, along with branding, as a means to secure an edge on potential competitors, even if patents are not available.

The Players and the Game

For convenience, and because their names do not really matter, I shall refer to the main players in this unfortunate tale as follows (of course you can look up their full names in the published judgments):
  1. Mr D, an entrepreneur and patent applicant;
  2. Mr T, an originator of a new wagering system for card games (in particular the game of baccarat) with a ‘somewhat shabby past’ (not my opinion – a direct quote from the NSW Supreme Court judgment);
  3. Mr K, a businessman and experienced wagering and gaming industry figure (including operation as an oncourse bookmaker);
  4. Dr M, a statistical mathematician and academic; and
  5. Mr W, a patent attorney.
Mr T devised a system for making a secondary bet in the casino card game of baccarat.  I confess that everything I know of baccarat comes from Wikipedia, and from reading the judgments in this case, from which I conclude that the specific variant of the game targeted by Mr T’s wagering system is punto banco or ‘North American baccarat’.  The important thing to know about this game is that the outcome relies purely on chance – neither the player nor the banker gets a choice at any stage.  In each hand, bets are placed on various outcomes, and then the player and banker are each dealt two cards.  Depending on the cards dealt in this initial round, the player and/or the banker may be dealt a third card before the final outcome of the hand.

According to Mr T’s system, a secondary bet may be placed on the outcome of dealing a third card to the player or banker, independently of the bet placed on the overall outcome of the hand.

Provisional Application

Between February and March of 2012, Mr D and Mr T met with patent attorney Mr W, and on 3 April 2012 Mr W filed a provisional patent application naming Mr D as applicant and Mr T as sole inventor.  The pertinent parts of the provisional specification, describing Mr T’s secondary wagering system, are set out under paragraph [9] of the first instance judgment in the NSW Supreme Court, Con Kafataris & Ors v Cory Davis & Ors [2014] NSWSC 1454.  The specification describes only the punto banco baccarat game, but alludes to broader application of the idea.

The provisional specification does not describe specific odds for payouts on the proposed secondary wager.  For the baccarat variation to be adopted for casino play it would necessary to determine odds that would satisfy both the casinos’ requirement to operate a profitable business (i.e. that, over time, the variation should be biased slightly in favour of the house) and relevant regulatory requirements.

After filing the provisional application, Mr D and Mr T sought the assistance of Dr M in developing suitable odds for the secondary wager system.  It seems, however, that they were dissatisfied with Dr M’s calculations, because they were subsequently put in contact with Mr K who, based upon his gaming industry experience, advised that (among other difficulties) the odds developed by Dr M were unworkable in the context of commercial casino operations.  Mr K went on to develop a more practical odds table, for which he relied substantially upon probabilities obtained from a publicly-available website called ‘The Wizard of Odds’.

PCT Application and the Blackjack Variation

Crucially, Mr K also went on (seemingly of his own volition) to develop a corresponding odds table for a secondary wager in the game of blackjack, whereby the player would be able to place a bet on the dealer going bust (i.e. drawing over 21) instead of on the outcome of drawing a third card.

In negotiations with Mr D, Mr T and other interested parties, Mr K proposed that he should hold a 51% interest in a venture to commercialise the secondary wagering system.  While the content of meetings to discuss the venture are disputed, it appears that Mr K believed this majority interest to be justified on the basis that he would be contributing his experience and contacts within the gaming industry, along with his work on the blackjack variation.

Details of the blackjack variation were subsequently included, with Mr K’s cooperation, in an international (PCT) patent application filed by Mr W on the deadline of 3 April 2013.  However, a final business agreement between the parties was never concluded.  The PCT application, notably, named only Mr T as an inventor, and only Mr D as applicant/owner of the invention.  The ownership by Mr D of Mr T’s rights in relation to the invention was confirmed by a formal assignment agreement executed on or around 22 April 2013.

On 10 October 2013, the PCT application was published, thereby making public its full contents, including the rules of the secondary wagering system as applied to baccarat and blackjack, and the associated odds tables.

Court Proceedings

Clearly feeling that he had been unfairly excluded from the proposed business venture to commercialise the secondary wagering system as a casino game, Mr K commenced legal action against Mr D and Mr T.  The claims that he pressed at trial were firstly that he was an inventor of the invention described and claimed in the PCT application, and secondly that there had been a misuse of confidential information.

The NSW Supreme Court found, and the Full Federal Court agreed, that the inventive concept devised by Mr T was the general idea of providing for a secondary wager in casino card games generally, even though the evidence indicated that the only game considered prior to the involvement of Mr K was punto banco baccarat.  Both courts appeared to be substantially influenced by the fact that there was nothing new about the games of baccarat or blackjack themselves which, other than allowing for an additional wagering opportunity, proceeded entirely according to their existing and well-known rules of play, as well as by the fact that Mr K had relied substantially upon information publicly-available from the ‘Wizard of Odds’ website.  Mr K’s contribution was therefore not that of a co-inventor, but rather ‘to identify a development along the same line of thought which constituted or underlay the original invention’ (NSWSC at [240]), and to perform work that ‘did not alter the nature of the invention’ (FCAFC at [75]).

With regard to the confidential information case, the NSW Supreme Court found (at [251]-[253]) that the material prepared by Mr K was sourced largely from the ‘Wizard of Odds’ website and/or from Mr D and Mr T themselves, that it was not imparted in circumstances that would suggest an obligation to keep the information confidential, and that Mr K’s actions, in any case, indicated his consent to include the material in the PCT application.  The Full Federal Court agreed with these conclusions (at [85]-[86]).

Are Wagering Games Patent-Eligible, Anyway?

Both the NSW Supreme Court (at [54]) and the Full federal Court (at [10]) noted that there was some question as to whether a supplementary betting option for any card game can be a patent-eligible invention, but that this issue was not up for decision and would ‘be considered as part of the examination process, any opposition hearing or in any future infringement action’.

This might well be so, however it has been apparent for some time that the prospects of a patent being granted to anybody were extremely poor.  In a Written Opinion in relation to the PCT application, issued by IP Australia on 19 June 2013, the International Examiner declined to conduct any search or provide any opinion on patentability on the basis that:

The invention defined in Claims 1-50, as well as the specification as a whole, is directed to a card game played with one or more standard decks of cards; the concept relates to new rules for playing and wagering.

The PCT Rules do not require a search or opinion to be carried out in relation to certain subject matter, including schemes, rules or methods of doing business, performing purely mental acts or playing games.  The basis for this rule is that such subject matter is not patent-eligible in a majority of jurisdictions.  The value of a search and opinion in such cases is therefore limited.  Furthermore, many International Searching Authorities lack the necessary skills or expertise to adequately search or examiner unpatentable subject matter.

There is nothing new in rules for playing card games being patent-ineligible in Australia.  Indeed, while there is some older English authority (e.g. Cobianchi’s Application (1953) 70 RPC 199) for the proposition that a game involving a new or modified deck of cards may be patentable, I am not aware of any decision requiring deference by an Australian court in which a system of new rules for playing a game with a known deck of cards has been found patentable.  The current position of the Australian Patent Office, influenced by the more recent Full Federal Court decisions in Grant v Commissioner of Patents [2006] FCAFC 120, Research Affiliates LLC v Commissioner of Patents [2014] FCAFC 150, and Commissioner of Patents v RPL Central Pty Ltd [2015] FCAFC 177 (see the Examiners Manual, section is that:

...a game does not become eligible subject matter merely because it is implemented with the assistance of cards, tokens or a games board which are characterised by intellectual information related to the rules of the game.  Games apparatus may however be patentable where it has a practical utility other than merely allowing the game to be played.

The situation is no better elsewhere.  Under Article 52(2)(c) of the European Patent Convention (EPC), for example, ‘schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers’ (as such) are expressly excluded from patentability.  In the US, the Court of Appeals for the Federal Circuit last year confirmed the patent-ineligibility of claims directed to rules for conducting a wagering game using standard decks of cards: In re: Smith (Fed. Cir. 2016) [PDF 92kB].  The US court noted, however, that ‘claims directed to conducting a game using a new or original deck of cards’ might potentially be patentable.

The Fate of Further Patent Applications

While the dispute with Mr K was ongoing, Mr D filed patent applications based on his PCT application in a number of countries, including Australia, China, Europe, Russia, Singapore, South Korea, Turkey and the US.  The US application (serial no. 14/390,203) has been examined and rejected on various grounds, including patent-ineligibility of the claims, and has been abandoned.  The Australian application (no. 2013243230) has been abandoned by failure to respond to a direction to request examination.  As far as I can ascertain, the other applications have yet to be examined, however it seems unlikely that they will fare any better.

Conclusion – So How to Protect IP in Casino Games?

It is clearly difficult to protect intellectual property associated with novel wagering systems, no matter how original or commercially valuable they may be.

Generally speaking, patent protection is not available, unless there is significantly more to the system than new wagering rules for use with existing apparatus (e.g. known cards, tokens and/or game boards).

Confidentiality is of limited value.  While it might be possible to maintain secrecy around a new wagering system during the early stages of development, if the game is ultimately going to be played in a casino the rules will necessarily be published for all to see.  In the absence of an exclusive right, such as a patent, there is no legal barrier to anyone copying such publicly-available information.

Fortunately, there are some barriers to entry in the highly-regulated gaming industry that can give the originator of a new game or wagering system a competitive edge.  There are, for example, regulatory requirements that games be properly analysed, e.g. by accredited independent analysts, to ensure that the long-term return to the house is accurately known and satisfies the relevant regulations, and that games are not vulnerable to fraud or other abuse.  This implies that there is substantial work and expense involved before a new game can be brought to the casino tables.

At the same time, a game originator has a window of opportunity to develop a brand for the game, including promotional naming and artwork, and filing for corresponding trade mark protection.  While it may eventually be possible for any casino to copy the rules of the game, players may initially encounter it under its own new and distinctive branding.  It is then this branding, rather than the rules of the game, that may form the primary IP that can be licensed to casinos in order to profit from the development of a new game.


Finally, I would just like to highlight a moral in this rather sorry tale for everybody involved in innovation and commercialisation, in all fields of technology, and whether patentable or not.  Greed is not good!  It is hard enough to succeed in starting a new enterprise, and in bringing a new product or service to market, even without those involved fighting among themselves over the potential spoils.  I have seen it first-hand myself as, I expect, have most other patent attorneys.  From 14 years of practice I can recall five examples of potentially successful ventures being destroyed by in-fighting that ended with lawyers at 20 paces, where everybody’s share ended up being who-cares-what-percentage of nothing, minus the costs of the legal dispute.

Given the options of a smaller share of something, and a larger share of nothing, the choice should be obvious.  Unfortunately, to some it is not.


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