Feature

Gambling on Patentable Subject Matter

The Intersection of Daily Fantasy Sports and Patent Litigation

Nikki Little

©2016. Published in Landslide, Vol. 9, No. 2, November/December 2016, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

If you watched any National Football League (NFL) football last fall, or even just accidentally flipped past a game when channel surfing, chances are you saw a FanDuel or DraftKings commercial. One source estimates that in the opening month of the 2015 NFL season alone, these two companies spent an approximate combined $64 million on advertisements during NFL broadcasts, and over the course of the 2015 NFL season, they ran television advertisements an inundating 62,440 times.1 The reach of these two competitors extends beyond NFL football as well. For instance, DraftKings now has “Fantasy Sports Zones” at venues such as L.A.’s Staples Center, the Dallas Cowboys’ AT&T Stadium, and the Chicago Cubs’ Wrigley Field, and both companies tout ventures with Major League Baseball, Major League Soccer, and the National Hockey League, among others.

While each provider’s platform differs slightly, in general daily fantasy sports (DFS) users log on to websites like that of DraftKings or FanDuel and draft a fantasy team roster (using fantasy money) made up of real-life athletes. Users then enter contests for varying real-life dollar amounts. How much a user wins, if anything, is determined by the real-life players’ performances and the outcome of the real-life games. Ironically, DFS users are estimated to “play” for an average of four hours a week, which is more than the average American exercises.2

DFS has become, seemingly overnight to some, a very big business. One source estimated consumer spending on DFS in 2015 to have reached an astounding $3.7 billion, with projections of growth up to $17.7 billion by 2020.3 And where there is big business, there are often lawsuits. By now, most people are likely familiar with the legal woes that DFS operators have encountered in the form of dozens of putative class action lawsuits. These lawsuits are mostly centered on allegations that employees improperly used “insider information” to give them an unfair advantage over other contestants, or that the contests constitute illegal gambling actions. As of June 2, 2016, there are over 80 actions against DraftKings and FanDuel involving these or similar issues.4 DFS providers have also faced other challenges, such as ownership of the data itself or use of athletes’ likenesses.

DFS Patent Litigation

But a perhaps lesser-known category of lawsuits that these DFS providers are beginning to face more and more is that of patent litigation. There are a handful of patent cases involving fantasy sports of many varieties dating back to at least 2002. More recently, however, there are two major groups of patent suits relating to daily fantasy sports: a series of 20 lawsuits filed by Virtual Gaming Technologies LLC (VGT) in the Eastern District of Texas, and a series of seven lawsuits filed by CG Technology Development LLC, Interactive Games LLC, and Interactive Games Ltd. (CG Technology) in the District of Nevada.5

The VGT lawsuits were filed in late 2015 and early 2016 against various parties, including DFS operators DraftKings, FanDuel, and Fox Sports (another DFS provider). In those lawsuits, VGT alleged infringement of two patents, U.S. Patent Nos. 5,860,862 (’862 patent) and 6,193,610 (’610 patent), which it characterized as “pioneering patents in the field of real-time, interactive gaming systems.”6 VGT’s complaints tell a story of how the patents of the inventor, William Junkin, drove the increased popularity of fantasy sports, and helped the DFS industry become the billion-dollar business it is today.

The two patents asserted by VGT were filed in the 1990s (claiming priority to a provisional dating back to 1996) and issued in 1999 and 2001 to Junkin. The patents describe, among other things, real-time score values of players’ performances in a live event. Users, via an interactive apparatus, can pick a team and trade members based on the players’ performances while the event is occurring in real time. The patents describe that this real-time participation allows the users to “experience more emotional and intellectual enjoyment compared to what is likely in a periodic interaction.”7 Looking back on this seemingly innocuous statement today, it’s almost as if Junkin, or his patent attorney, foresaw the instant-gratification world that we are so accustomed to today.

The VGT patent claims themselves are relatively simplistic, and reveal the vastly different world between the legal issues confronting patent prosecutors 15+ years ago and now. For example, claim 1 of the ’862 patent recites:

An interactive game system comprising:

means for generating real time score values indicative of performances of players involved in an event; means for conveying to each participant at least one of the real time score values of the players; and means for enabling selecting at least one player to comprise a team for each participant of the interactive system based on the real time score values of the player.

Claim 1 of the ’610 patent recites:

An interactive game system comprising:

a controller for generating real time score values indicative of performances of players involved in an event; an interactive device for displaying video information to a participant of an interactive game based on the event; and a communication network coupling said controller and said interactive device such that the real time score values are conveyed to the participant.

Even though I don’t do much patent prosecution work these days, I’m fairly certain the chances of getting claims like that through the U.S. Patent and Trademark Office (USPTO) today would be slim to none.

Although VGT has since settled all of its 20 lawsuits, a review of its complaints against DFS providers DraftKings, FanDuel, and Fox Sports is still enlightening. VGT clearly was concerned about possible patentable subject matter challenges to its claims, because its complaints specifically detail that its technology is “not a conventional business practice” and that its claims “do not preempt the field of interactive contest systems,” among other allegations.8 Indeed, over 40 paragraphs in each of the VGT complaints appear to be devoted to undermining any potential § 101 challenge.

The second set of DFS patent infringement cases were filed in April 2016 by CG Technology in the District of Nevada. CG Technology asserted 10 to 12 different patents against DraftKings and FanDuel based on each DFS provider’s gaming platforms and services.9

Reviewing the patents asserted by CG Technology shows a much different set of patent claims than the VGT patent claims. For example, claim 1 of U.S. Patent No. 9,355,518 (’518 patent) recites:

A method for supporting multiple users in an electronic gaming system, the method comprising:

establishing for a user of the electronic gaming system a user profile on a data storage device, wherein the user accesses the electronic gaming system via an electronic device; receiving by at least one processor via a communications network from the electronic device location data of the electronic device, wherein:

the electronic device comprises sensor for detecting location, the electronic device obtains the location data from the sensor, and the electronic device communicates the location data via the communications network;

recognizing by the at least one processor an occurrence of an event; updating by the at least one processor the user profile in response to the event,

wherein recognizing the occurrence of the event comprises determining, based on the location data, an existence of the user in a particular location, and

wherein updating the user profile in response to the event comprises storing the particular location; and

based on determining the existence of the user in the particular location, initiating by the at least one processor a gaming session, wherein initiating the gaming session includes communicating via the communications network information to the electronic device, wherein the information causes the electronic device to present via a display of the electronic device a gaming environment to the user or to present via the display to the user a modified gaming environment that indicates to the user a last gaming activity of a plurality of gaming activities accessed by the user during a prior gaming session, a determination as to whether to display the gaming environment or the modified gaming environment being based on whether there is or is not a stored indication of a last one of the plurality gaming activities accessed by the user during the prior gaming session.

As another example, claim 1 of CG Technology’s U.S. Patent No. 6,884,166 (’166 patent) recites:

A platform for establishing a wager associated with a gaming application, comprising:

a processor that:

receives a wager offer generated by a first user, wherein the wager offer is associated with a gaming application hosted by a remote server; presents the wager offer to a plurality of second users; receives a wager acceptance by a second user, the wager offer and the wager acceptance combining to form a wager between the first user and the second user; and generates a wager record in response to receiving the wager acceptance, the wager record associated with the wager between the first user and the second user and comprising a plurality of wager parameters; and

a memory coupled to the processor that stores the wager record according to a wager record identifier.

These patents, and their prosecution histories, hint at how the challenges of protecting these types of computer and software-related inventions have changed over time. Even a cursory glance among the claims reveals that the CG Technology patent claims are seemingly more complex than the VGT patent claims, reciting many more steps and recounting at a much greater level of detail the structure needed to carry out the claimed systems and methods.

Impact of Recent Subject Matter Eligibility Decisions

Looking at the timeline of these patents, and the Supreme Court’s recent foray into patentable subject matter and software-related patents, explains some of the differences. In July 2001, CG Technology’s ’166 patent was filed—which is about the same time that the last of VGT’s patents issued. The prosecution of these patents, and any subsequent litigation, would have been guided by Diamond v. Diehr10 and related cases, which had been in place since 1981. Those cases taught that § 101 was to be interpreted broadly, and that a computer-implemented process could be patentable if it transformed the process, which used a well-known and patent-ineligible mathematical equation, into an inventive application. As such, patents were challenged under § 101 far less frequently than they are today. Consistent with this, VGT’s ’862 patent cites just two references on its face, and its ’610 patent cites only eight references, while CG Technology’s ’166 patent cites less than 30 references. Nothing that I have found indicates that patentable subject matter was of interest to anyone involved in prosecuting or enforcing these particular patents.

But then the Supreme Court’s Bilski v. Kappos11 decision issued in June 2010, its Mayo12 decision issued in March 2012, and its Alice13 decision followed in June 2014, and the landscape changed drastically. Amid all of this change is when the most recent of CG Technology’s patents (the ’518 patent) was filed—September 2012—and it did not issue until May 31, 2016. In stark contrast to the VGT patents and even its own ’166 patent, the list of cited references in CG Technology’s ’518 patent spans nine pages, covering an astounding 1,125 references. While some of these differences between the patents could be due to other developments in patent law, such as in the area of inequitable conduct, at least part of it is likely due to the recent developments in § 101 case law.

As a refresher, § 101 requires: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.”14

The Supreme Court’s recent case law has established a two-part framework, as set forth in Mayo15 and “clarified” in Alice,16 that is now applied to determine whether a patent meets the requirements of § 101. The first step is asking whether the claims are directed to a patent-ineligible concept, i.e., laws of nature, natural phenomena, and abstract ideas. If not, the invention is directed to patentable subject matter and the § 101 inquiry is over. If, however, the claims are directed to such an ineligible concept, the claims will only survive if there is an inventive concept that transforms the nature of the claim into a patent-eligible application.

In practice, this test has proven fatal to many patent owners and inventors, who are now continually finding themselves defending against, and more often than not losing, § 101 challenges in all parts of prosecution and litigation. Given this state of affairs, it is not surprising that VGT was expecting such a challenge, and attempted to ward it off by beefing up its complaints with allegations that its claims are directed to patent-eligible subject matter. While we don’t know how any potential eligibility challenge would have actually played out in the VGT cases now that they are all settled, we can still fantasize whether these allegedly groundbreaking patents would have survived a challenge under today’s § 101 standards, and if the later-in-time CG Technology patents will fare any better against a potential challenge.

Looking at VGT’s patents, is the concept of “enabling real time interaction and optimization of a fantasy sports team” an ineligible abstract idea? Are CG Technology’s concepts, for example, of “preventing users from conducting transactions from unauthorized areas” or “providing enhanced services to a user of a gaming application” ineligible abstract ideas? Anyone following the Federal Circuit’s developing body of post-Alice case law, which overwhelmingly found any challenged concepts to be patent ineligible and invalid under § 101, would likely have said “yes” to those questions—at least up until May 2016, when the Federal Circuit issued its opinion in Enfish, LLC v. Microsoft Corp.17 Enfish marks only the second time since Alice issued in 2014 where the Federal Circuit has upheld the validity of challenged patent claims under § 101.

Enfish involved claims to a “self-referential database” wherein all records are contained in a single table, as opposed to the more traditional “relational databases” where records may be stored in multiple tables. The district court invalidated all the claims as claiming a patent-ineligible concept that failed to incorporate an inventive concept that transformed the claim into a patent-eligible concept under § 101. On appeal, the Federal Circuit reversed on the basis of the first prong of the Mayo/Alice test, instead finding that the claimed self-referential database was properly patentable subject matter. The court discarded the notion that all claims directed to software are inherently abstract, and that an invention’s ability to run on “general-purpose computer[s] dooms the claims.”18 However, throughout its opinion, the court emphasized that the claims at issue involved an improvement in the function of a computer, rather than merely adding conventional computer components or steps to well-known business practices. Claim 17 of Enfish’s U.S. Patent No. 6,151,604, one of the challenged patents, recited:

A data storage and retrieval system for a computer memory, comprising:

means for configuring said memory according to a logical table, said logical table including:

a plurality of logical rows, each said logical row including an object identification number (OID) to identify each said logical row, each said logical row corresponding to a record of information;

a plurality of logical columns intersecting said plurality of logical rows to define a plurality of logical cells, each said logical column including an OID to identify each said logical column; and

means for indexing data stored in said table.

Similar to the VGT patents, the challenged Enfish patents issued in late 2000 and claimed priority to applications filed in the mid-1990s. Also like the VGT patents, the Enfish patent claims are relatively simplistic, reciting only two “means for” limitations, as shown in the exemplary claim 17, above. But, as the court emphasized in Enfish, the specification itself touted the invention as an improvement in database functionality, explaining how the invention provided multiple benefits from its claimed design over the prior art. I am not convinced that VGT’s disclosed benefits of increased “enjoyment of an interactive game” or increased “intellectual and emotional enjoyment to a participant viewing an event such as a sport” would be the type of improvement-touting that would save its interactive game system claims. On the other hand, it does seem more likely that such improvements will be found within the 12 asserted CG Technology patents, especially among the later-issued of those patents.

Conclusion

The aftermath of Enfish has given hope to many patent owners and inventors that they will still be able to obtain valuable patent coverage for their software or software-related inventions. Indeed, the USPTO issued a memorandum regarding Enfish just one week after the Federal Circuit’s decision, clarifying that patent examiners can “determine that a claim directed to improvements in computer-related technology is not directed to an abstract idea under . . . the subject matter eligibility examination guidelines.”19 The other side of this coin, of course, is whether software or software-related patents that have already issued will be able to withstand continued attacks under § 101 in the courts. I believe that Enfish is just the beginning of what will prove to be an increasingly greater number of patents surviving § 101 challenges in district court litigation. Only time will truly tell whether CG Technology’s gamble against FanDuel, DraftKings, and the like will pay off. But in the meantime, one thing is for certain: during the 2016 NFL season, we have a pretty good chance that we’ll still see an advertisement or two for these burgeoning DFS companies.

Endnotes

1. Hayden Bird, This Chart Shows the Steep Decline in Daily Fantasy Ads on TV, BostInno (Feb. 5, 2016), http://bostinno.streetwise.co/2016/02/05/nfl-tv-ad-spending-totals-draftkings-fanduel-daily-fantasy-commercials-drop-off-stats.

2. Shareen Pathak, Inside DraftKings’ Reign: Online Sports Meets Offline Experiences, Digiday (Aug. 3, 2015), http://digiday.com/brands/inside-draftkings-reign-online-sports-meets-offline-experiences.

3. Wayne Friedman, Super Bowl Almost Here: Where Are Ads for Draftkings and Fan Duel?, MediaPost (Feb. 4, 2016), http://www.mediapost.com/publications/article/268333/super-bowl-almost-here-where-are-ads-for-draftkin.html.

4. See, e.g., In re Daily Fantasy Sports Litig., MDL No. 2677, 2016 U.S. Dist. LEXIS 72957 (J.P.M.L. June 2, 2016).

5. Some of the defendants in these lawsuits do not provide DFS experiences, and instead are focused on online social casino games and other online gaming experiences.

6. See, e.g., Complaint for Patent Infringement, Virtual Gaming Techs., LLC v. DraftKings, Inc., No. 2:15-cv-01706, slip op. at 2 (E.D. Tex. Nov. 2, 2015) [hereinafter VGT DraftKings Complaint]; Complaint for Patent Infringement, Virtual Gaming Techs., LLC v. FanDuel, Inc., No. 2:15-cv-01707, slip op. at 2 (E.D. Tex. Nov. 2, 2015) [hereinafter VGT FanDuel Complaint]; Complaint for Patent Infringement, Virtual Gaming Techs., LLC v. Fox Sports Interactive Media, LLC, No. 2:15-cv-01709, slip op. at 2 (E.D. Tex. Nov. 2, 2015) [hereinafter VGT Fox Sports Complaint].

7. U.S. Patent No. 5,860,862 (filed Jan. 5, 1996).

8. See, e.g., VGT DraftKings Complaint, supra note 6, at 8; VGT FanDuel Complaint, supra note 6, at 8; VGT Fox Sports Complaint, supra note 6, at 8.

9. See Plaintiffs’ Complaint for Patent Infringement, CG Tech. Dev., LLC v. DraftKings, Inc., No. 2:16-cv-00781 (D. Nev. Apr. 7, 2016); Plaintiffs’ Complaint for Patent Infringement, CG Tech. Dev., LLC v. FanDuel, Inc., No. 2:16-cv-00801 (D. Nev. Apr. 8, 2016). The complaints against DraftKings and FanDuel were each amended on June 13, 2016, to name additional patents, bringing the total asserted patents against DraftKings to 10 and against FanDuel to 12.

10. 450 U.S. 175, 185 (1981).

11. 561 U.S. 593 (2010).

12. Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1293 (2012).

13. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).

14. 35 U.S.C. § 101.

15. Mayo, 132 S. Ct. at 1293.

16. Alice, 134 S. Ct. 2347.

17. 822 F.3d 1327 (Fed. Cir. 2016).

18. Id. at 1338.

19. Memorandum from Robert W. Bahr, Deputy Comm’r for Patent Examination Policy, U.S. Patent & Trademark Office, to Patent Examining Corps, Recent Subject Matter Eligibility Decisions (Enfish, LLC v. Microsoft Corp. and TLI Communications LLC v. A.V. Automotive, LLC) (May 19, 2016), available at http://www.uspto.gov/sites/default/files/documents/ieg-may-2016_enfish_memo.pdf.

Nikki Little

Nikki Little is a partner at Fitch, Even, Tabin & Flannery LLP, a national intellectual property law boutique headquartered in Chicago, focusing her practice primarily on patent litigation, with other notable experience in patent prosecution, clearance and opinion work, and advertising, marketing, and promotions law.