By Jared Good
In a case involving three companies in the sports betting industry, a federal judge from District of Nevada dismissed the lawsuit of one of the companies, which alleged the other two companies infringed upon its patent. In so ruling, the court agreed with the defendants, which argued that the plaintiff’s patent “is directed toward patent-ineligible subject matter and thus an infringement claim is not viable.”
With the collapse of the Professional and Amateur Sports Protection Act (PASPA) following the Supreme Court’s ruling in Murphy v. National Collegiate Athletic Association, companies like Fanduel, MGM, Caesars and DraftKings, among others, have taken over the legal sports betting market. With all the attention directed at the sportsbooks, most consumers are not aware of the underlying technology that allows for these betting systems to function. Given Nevada’s role as the preeminent gambling market of the United States, it is not surprising that many groups would use the local market there to develop new processes to capitalize on. Pure Parlay, LLC is one of those parties, filing a lawsuit against Stadium Technology Group and GVC Holdings in May of 2019 claiming patent infringement.
The lawsuit was filed in Nevada federal court and centered around the alleged infringement of Pure Parlay’s patent. This patent, US Patent # 9,773,382 (hereafter “382,”) was concerned with multi-game wagering, or parlays. Titled “Computer-Implemented System and Method for Making Multiple-Game Sporting Event Wagers,” the patent is said to involve:
A systemand method for effecting a multiple-arm wager incorporating a plurality of events, such as sporting events, including accessing a wagering system of the type including a central computer accessible by at least one network terminal interconnected thereto and hosting an executable instruction set for computing intermediate revised odds between a minimum and a maximum as a function of bettor-selected point shades to modify the line applicable to selected individual competing event teams for determining whether the selected teams have won the game for the purposes of the wager. The line for each team is individually selectively point-shaded in accordance with the wishes of the bettor, and the betting odds for the wager are calculated as a function of the total number of points shaded for the selected teams (Patent Abstract, ECF No. 65-1).
The patent involved only a single independent claim, simply allowing for greater wagering flexibility to bettors making multi-armed wagers from electronic wager input devices having a display. In this process, the bettor is allowed to set up their parlay, with establishing the “shading” for that particular wager, with the maximum amount that can be won from said point shading. Shading in this context is defined as: “the number of points a bettor shifts the betting line from the line established by the bookmaker, with the consequence of more “shade” resulting in greater variation from the market payout.”
To illustrate exactly what this means, Judge Cristina Silva, US District Judge, discussed the example listed within the patent registration:
[T]ake a traditional three-team parlay returning 6-to-1 on a bet where Team A is a seven-point favorite (displayed as “Team A -7”), Team B is a ten-point favorite (“Team B -10”), and Team C is a four-point underdog (“Team C +4”). To win the parlay, the bettor would need Team A to win by seven or more, Team B to win by ten or more, and Team C to win outright or lose by four or fewer points. See ECF No. 65-1 at 7 (using this example in the background information of the patent). The ‘382 patent describes a method allowing the bettor to “shade” each line of the parlay, for example, by purchasing six points on each leg. Id. Team A turns into a one-point favorite (“Team A -1”), Team B turns into a four-point favorite (“Team B -4”), and Team C turns into a ten-point underdog (“Team C +10”). Id. With the six point “shade” applied, the bettor is more likely to win their parlay, but the winning wager payout would drop from 6-to-1 to 2-to-1.
An admittedly confusing formulation for those not versed within the rules and nature of sports betting, but a very useful development. Within this formulation, however, stemmed the problem that Stadium and GVC sought to prove by arguing that Pure Parlay’s patent was presumptively invalid. Under § 101 of the Patent Act, patentable subject matter is “any new or useful processes, machine, manufacture, or composition of matter, or any new or useful improvement thereof.” This section also indicates there is a key exception to these allowable subject matters, specifically that “laws of nature, natural phenomena, and abstract ideas are not patentable.” Prior Supreme Court precedent laid out in the Alice decision that courts are required to examine patentability with a two-step inquiry:
First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts. If so, we then ask, “[w]hat else is there in the claims before us?” To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. We have described step two of this analysis as a search for an “‘inventive concept'”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more thana patent upon the [ineligible concept] itself.”
Under step one of the analysis, courts examine the claims at issue and compare those with claims that had already been found to be abstract in previous litigation. The second step requires the court to analyze whether, notwithstanding the abstract nature of the claim, if there is significantly more patentable material within practice than the idea itself. Among the two prongs, the second step is the more analysis-driven, requiring enough basis to prove the claim through clear-and-convincing evidence. As such, merely arranging known, conventional ideas and concepts into a non-conventional and/or non-generic formulation would be considered patentable material since the concept is inventive.
In finding that Patent ‘382 was in-fact a non-patentable subject, and thus presumptively invalid, the Court found that both prongs of the analysis failed. Regarding the first step of the Alice test, the Court had three reasons for why the patent was an abstract idea. First, the methods involved in the parlay format were seen as only generalized steps that were only functional in nature. The court took issue with the lack of specificity that the ‘382 patent was described with. Throughout the explanation that Pure Parlay gave for how their system functions, it involved generic statements for how the mathematical equations are ascertained, with equally generic statements on how the computer arrives at its results. Second, the process being described is one that already existed and was the longstanding practice that existed within the sports betting industry. Because this was not a novel idea, patent eligibility would not be valid. Third, the patent does not establish an improvement or change to computer functionality. Prior precedent holds that processes that fail to create a specific improvement to functionality and fail to provide technical details of the tangible components, will be deemed to contain unpatentable subject matter.
Given the failure of the patent to survive under step one of the Alice analysis, step two provides an opportunity for the party to save their patent and show validity. Unfortunately for Pure Parlay, that did not happen. The Court found that the patent failed this prong as well. Moreover, the Court focused on the same concepts that spelled the doom to the patent’s claims under the first prong: namely that it was merely generic terms and components, that in and of itself did not establish an inventive idea. In her discussion, Judge Silva was rightly skeptical of the claims being offered, as there was little evidence provided that showed that Pure Parlay’s patent was based on subject matter that met even the fundamental requirement of patentability: novelty. Compound that with the clear generic nature of the process and the lack of any inventive formation that would establish it as more than merely abstract, it was clearly a longshot for Pure Parlay from the start.
Ultimately the Court found that the patent was invalid and should not be given the protections awarded as such. Resultingly, Stadium and GVC Holdings were successful in proving that patent infringement didn’t occur, since there should have never been a patent from the start.