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International Gamco, Inc. v. Multimedia Games

August 11, 2010

INTERNATIONAL GAMCO, INC. , PLAINTIFF,
v.
MULTIMEDIA GAMES INC., DEFENDANT.



The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge

ORDER: (1) GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT OF NON-INFRINGEMENT; (2) DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT OF INVALIDITY

(Doc. Nos. 268, 269)

Presently before the Court is Defendant and Counter Claimant Multimedia Games, Inc.'s ("MGAM") motion for summary judgment of non-infringement (Doc. No. 269.) and motion for summary judgment of invalidity. (Doc. No. 268.) Also before the Court is Plaintiff International Gamco, Inc.'s ("Gamco") and Counter Defendant Oasis Technology, Inc.'s ("Oasis") oppositions to both motions (Doc. Nos. 293, 294), and MGAM's replies. (Doc. Nos. 314, 321.) For the reasons stated below, the Court HEREBY GRANTS MGAM's motion for summary judgment of non-infringement and DENIES MGAM's motion for summary judgment of invalidity.

BACKGROUND

MGAM is a publicly traded company with its principal place of business located in Austin, Texas. (Lannert Decl. ISO MSJs, ¶ 1.) Gamco is a gaming company with its principal place of business in Omaha, Nebraska. The patent at issue in this case is United States Patent Number 5,324,035, filed December 1, 1992, entitled "Video Gaming System with Fixed Pool of Winning Plays and Global Pool Access." (See Bjurstrom Decl. ISO MSJs, Ex. E (the "'035 Patent").) The '035 Patent was originally rejected by the United States Patent and Trademark Office ("USPTO") for anticipation and obviousness over prior art not at issue in this case.*fn1 (See Bjurstrom Decl. ISO MSJs, Ex. F at 109-115; Passarelli Decl. ISO Opp., Ex. H at 224-25.) During an interview with the USPTO, the Patent Examiner cited another relevant prior art, United States Patent Number 4,494,197, referred to as the "Troy" patent. (See Bjurstrom Decl. ISO MSJs, Ex. F at 116-127; see also Passarelli Decl., Ex. H at 238-39 (hereinafter "Preliminary Amendment").) Thereafter, Gamco submitted a Preliminary Amendment on January 10, 1994, amending each claim of the '035 Patent. (Id.) The '035 Patent issued on June 28, 1994.

In 2002, MGAM was awarded the contract to provide a central lottery system (the "Central System" or "MGAM System") for the New York State Lottery ("NYSL"). (Lannert Decl. ISO MSJs, ¶ 4.) On May 25, 2004, Gamco filed its original complaint against MGAM for infringement of the '035 Patent based on the MGAM System for the NYSL.*fn2 (Doc. No. 1.) The operative complaint, the Third Amended Complaint, was filed on January 9, 2008. (Doc. No. 167.) A claim construction hearing was held before this Court on January 13, 2009. (See Doc. Nos. 235, 252.)

The present motions for summary judgment were filed on February 23, 2010. (See Doc. Nos. 268, 269.) Gamco filed oppositions to both motions on April 20, 2010. (See Doc. Nos. 293, 294.) MGAM filed its replies to both oppositions on May 13, 2010. (See Doc. Nos. 314, 321.) On May 25, 2010, the Court gave Gamco leave to file sur-replies to both motions for summary judgment and further granted MGAM leave to respond in opposition to these sur-replies. (Doc. No. 333.) All four briefs were timely filed. Furthermore, with its original reply, MGAM filed objections to the declarations of Gamco's expert witness under Federal Rules of Evidence 702 and 703 and Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 592-93 (1993). The Court thereafter granted Gamco leave to respond to these objections and for MGAM to reply to Gamco's opposition. (Doc. No. 333.) Both briefs were timely filed. A hearing on all motions was held on Thursday, July 22, 2010 and the matter was thereafter taken under submission.

LEGAL STANDARD

Federal Rule of Civil Procedure 56 permits a court to grant summary judgment where (1) the moving party demonstrates the absence of a genuine issue of material fact and (2) entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "Material," for purposes of Rule 56, means that the fact, under governing substantive law, could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). For a dispute to be "genuine," a reasonable jury must be able to return a verdict for the nonmoving party. Anderson, 477 U.S. at 248.

The initial burden of establishing the absence of a genuine issue of material fact falls on the moving party. Celotex, 477 U.S. at 323. The movant can carry his burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party "failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof." Id. at 322--23. "Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).

Once the moving party establishes the absence of genuine issues of material fact, the burden shifts to the nonmoving party to set forth facts showing that a genuine issue of disputed fact remains. Celotex, 477 U.S. at 324. The nonmoving party cannot oppose a properly supported summary judgment motion by "rest[ing] on mere allegations or denials of his pleadings."

Anderson, 477 U.S. at 256. When ruling on a summary judgment motion, the court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

"Summary judgment is as appropriate in a patent case as in any other case." Cabot Safety Intermediate Corp. v. Arkon Safety Equip., Inc., 44 F. Supp. 2d 375, 376 (D.Mass. 1999 (quoting Avia Group Int'l Inc. v. L.A. Gear Cal., Inc., 853 F.2d 1557, 1561 (Fed. Cir. 1988)). However, a determination of infringement is a question of fact. Insituform Techs., Inc. v. Cat Contracting, Inc., 161 F.3d 688, 692 (Fed. Cir. 1998). Accordingly, summary judgment is proper only if the court finds that "no reasonable jury could return a verdict for the nonmoving party." Anderson, 4777 U.S. at 255; see also Lockheed Martin Corp. v. Space Systems/Loral, Inc., 324 F.3d 1308, 1318 (Fed. Cir. 2003); CAE Screenplates Inc. v. Heinrich Fiedler GmbH & Co. KG, 224 F.3d 1308, 1319 (Fed. Cir. 2000). Furthermore, a patent is presumed valid, see 35 U.S.C. § 282, so the invalidity of patent claims must be proven by clear and convincing evidence. See Apotex USA, Inc. v. Merck & Co., Inc., 254 F.3d 1031, 1036 (Fed. Cir. 2001); WMS Gaming, Inc. v. Int'l Game Tech, 184 F.3d 1339, 1355 (Fed. Cir. 1999).

DISCUSSION

I. Gamco's Expert Witness

MGAM objects to Gamco's expert witness Susan Spielman under the standard qualifying expert witnesses set forth in Federal Rules of Evidence 702 and 703 and Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993). (Doc. No. 323).

"A trial court can only consider admissible evidence in ruling on a motion for summary judgment." Orr v. Bank of Am., 285 F.3d 764, 773 (9th Cir. 2002); Fed. R. Civ. P. 56(e)(1). Expert evidence therefore must meet the standard of relevance and reliability articulated in Daubert:

Faced with a proffer of expert scientific testimony . . . the trial judge must determine . . . whether the expert is proposing to testify to (1) scientific knowledge that (2) will assist the trier of fact to understand or determine a fact in issue. This entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoningor methodology properly can be applied to the facts in issue. 509 U.S. at 592-93; see also Fed. R. Evid. 702 (permitting expert to testify only if: "(1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods and (3) the witness has applied the principles and methods reliably to the facts of the case."); Fed. R. Evid. 703 (requiring the facts or data upon which the expert relies to be "of a type reasonably relied upon by experts in the particular field"). The Court has a gatekeeping responsibility to determine whether such expert testimony complies with Rules 702 and 703. Daubert, 509 U.S. at 592; see also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 148-49 (1999).

Further, issues related to patent infringement and invalidity "are analyzed in great part from the perspective of a person of ordinary skill in the art, and testimony explaining the technical evidence from that perspective may be of great utility to the factfinder." Sundance, Inc. v. DeMonte Fabricating Ltd., 550 F.3d 1356, 1361-62 (Fed. Cir. 2008). Accordingly, the Federal Circuit has held that a trial court abuses its discretion if it allows testimony from an expert witness who has "no skill in the pertinent art." Id. This, the Federal Circuit observed, "serves only to cause mischief and confuse the factfinder." Id. at 1362.

It is undisputed that Ms. Spielman has substantial experience with distributed computer networking systems. However, Ms. Spielman admittedly has no expertise or experience in the field of gaming or lottery systems. (See Bjurstrom Decl. ISO Reply, Ex. X (Spielman Depo.) at 19:20-20:8; see also id. at 5:9-12.) In fact, Ms. Spielman's deposition clearly evidences that Ms. Spielman cannot define an instant lottery game and lacks a genuine understanding of gaming and lottery systems. (See Bjurstrom Decl. ISO Reply, Ex. X at 73:1-75:3.) Further, MGAM contends that distributed computing experience "is only tangentially related to the relevant field of gaming and lottery systems" and that Ms. Spielman's lack of experience in gaming and lottery systems renders Ms. Spielman from offering a reliable opinion in this case. (Obj. at 5.) The Court disagrees. While Ms. Spielman may lack the context in which these patents and technologies at issue are designed and implemented, i.e. a gaming or lottery system, the main component of the '035 patent and its technologies at issue is clearly the distributed computing system. The '035 Patent uses well-known computer processes which are found not only in gaming systems but distributed computer networking systems in general. Further, while MGAM conclusively argues that Ms. Spielman's lack of experience in gaming and lottery systems renders her opinions unreliable as a whole, MGAM does not specifically point to any claims or interpretation of those claims where experience in these systems is essential to offering a valid, reliable expert opinion which will aid the factfinder. To the contrary, as will become more apparent throughout this Order, the claims are based almost entirely on the distributed computer system elements used to implement the gaming and lottery systems at issue and not the gaming aspects of the lottery system itself. In other words, experience in gaming and lottery systems is not necessary to aid the factfinder in making determinations of invalidity and infringement of the '035 Patent's distributed computer networking system and its claims.*fn3 Thus, the Court OVERRULES MGAM's objection.

II. MGAM's Expert Witness

Gamco argues in its sur-replies that MGAM's expert witness Stacy Friedman's opinions should be discredited due to his alleged improper reliance on extrinsic evidence and faulty constructions of the '035 Patent.*fn4 MGAM further argues that MGAM's counsel interfered with discovery and improperly influenced Mr. Friedman's opinions on non-infringement.*fn5

Accordingly, Gamco contends that his opinions should be given little or no weight and cannot properly serve as the basis for finding an absence of genuine issues of fact. The Court finds no merit to these assertions and, regardless, at the motion for summary judgment stage, the Court does not make credibility determinations or "weigh" the evidence. See Musick v. Burke, 913 F.2d 1390, 1394 (9th Cir. 1990). Moreover, any discovery disputes are properly brought up before the magistrate judge, not this Court. As such, the Court will not discredit or disqualify Mr. Friedman's opinions on these grounds.

III. MGAM's request to reconsider claim construction of "game play record" and "game play records"

In its opening motion for summary judgment of non-infringement, MGAM brings to the Court's attention for the first time a prior Nevada federal district court's construction of the terms "game play record" and "game play records." This opinion was not before the Court at this litigation's claim construction hearing and MGAM now moves the Court to reconsider its construction of these claim terms and adopt the Nevada court's construction under the doctrine of collateral estoppel. (See Infringement MSJ at 3-6, 7-10.) For the reasons explained below, the Court grants reconsideration of the construction of the terms "game play record" and "game play records"; adopts the Nevada court's construction; and hereby construes these terms to mean: "electronic game play record(s) which includes graphic data transmitted to the player terminal."

The Nevada litigation involved the Sierra Design Group ("SDG") and Oasis Technology, Inc. ("Oasis"). SDG had acquired the Troy patent referenced above and developed a video lottery system in Washington State. (Lannert Decl. ISO MSJs, ¶ 2.) In March 1999, Oasis (the then-current owner of the '035 Patent) asserted that SDG's system was infringing the '035 Patent.*fn6 On November 12, 1999, SDG filed a declaratory relief and preliminary injunction action against Oasis in the United States District Court for the District of Nevada to determine if the SDG system infringed the '035 patent. (See id., Ex. I (Complaint).) As a result, the district court conducted a three-day claim construction hearing which included numerous witnesses and live testimony. (See id., Ex. J (excerpts from hearing).)

On June 20, 2000, the district court issued its decision from the bench. (See id., Ex. L.) The court construed the terms "game play record" and "game play records" as used in Claim 1 of the '035 Patent to mean:

[T]he bundle of information or signal transmitted from the master computer to the player or slave terminal at the time a player requests a play. The ['035] Patent provides for transmission from the master computer to the slave terminal of an indication whether the particular play constitutes a winning or losing play, and the amount won. (Id., Ex. L at 175.)

The court went on to review the specifications and the prosecution history. The court found that, from the specification, "it is clear under the ['035] patent that to the extent the game play record involves graphic data and game play information, that data is generated by the central computer, not by the slave terminal, and it is transmitted to the slave terminal by means of the master computer." (Id., Ex. L at 177.) The court then analyzed the prosecution history of the '035 patent, including the Patent Examiner's comments regarding the Troy patent, and concluded that the amendments made "must be viewed as intended to distinguish the ['035] invention from Troy and other prior inventions." (Id., Ex. L at 182.) Thus, the court found that the only way to distinguish the amended claims from Troy was to find that "the bundle of information transmitted by the master computer to the slave terminal must include graphics to be displayed in the slave terminal." (Id., Ex. L at 183.) "Claim 1 of the ['035] patent, in order to be valid, must be read to include the requirements that the graphic information that will be displayed in the player terminal be generated by the master computer or higher in the network." (Id., Ex. L at 185.)

After the district court's construction, the litigation was dismissed, with prejudice, in March 2001 pursuant to a settlement reached between SDG and Oasis. (See id., Ex. M.) The court's opinion construing Claim 1 was not vacated.

While this opinion was admittedly in the possession of both parties at the time of the claim construction hearing before this Court, neither party brought it to the Court's attention.*fn7

Accordingly, without the benefit of this construction or the potential estoppel effect of this decision, the Court construed "game play record" to mean "electronic game play record." (Doc. No. 252 at 6.) If the Court had had this opinion before it, it would have undoubtedly considered this opinion and would have ultimately adopted its construction under the doctrine of collateral estoppel. Because it would have done so then, it will do so now.

As a threshold matter, Collateral estoppel may apply to claim construction determinations. See In re Freeman, 30 F.3d 1459, 1465-69 (Fed. Cir. 1994); see also TM Patents, LP v. IBM Corp., 72 F. Supp. 2d 370 (S.D.N.Y. 1999). Under Ninth Circuit law, collateral estoppel applies if: "(1) the issue necessarily decided at the previous proceeding is identical to the one which is sought to be relitigated; (2) the first proceeding ended with a final judgment on the merits; and 3) the party against whom collateral estoppel is asserted was a party or in privity with a party in the first proceeding." Hydranautics v. FilmTec Corp., 204 F.3d 880, 885 (9th Cir. 2000). The first and third factors are clearly met in this action and are not disputed by the parties.

As for the second factor, Gamco argues that the Nevada district court's decision is not a "final judgment on the merits" sufficient to apply summary judgment.*fn8 Under Ninth Circuit law, a court approved settlement is a final judgment on the merits for purposes of collateral estoppel. See Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 (9th Cir. 2006). Gamco, however, contends that Federal Circuit law should control and that the Federal Circuit requires that the claim construction must have been "the reason for the loss on the issue of infringement" in the prior case in order to apply collateral estoppel See In re Freeman, 30 F.3d at 1466; see also A.B. Dick Co. v. Burroughs Corp, 713 F.2d 700, 704 (Fed. Cir. 1983) ("[J]udicial statements regarding the scope of patent claims are entitled to collateral estoppel effect in a subsequent infringement suit only to the extent that determination of scope was essential to a final judgment on the question of validity and infringement."); Graco Children's Prods., Inc. v. Regalo Intern., LLC, 77 F. Supp. 2d 660, 664 (E.D. Pa. 1999). This contention is misguided. Collateral estoppel is not a matter exclusively within the Federal Circuit's jurisdiction. See Source Search Tech., LLC v. LendingTree, LLC, 588 F.3d 1063, 1071 (Fed. Cir. 2009). Thus, the Federal Circuit must construe the relevant circuit law when determining collateral estoppel issues; in this case, Ninth Circuit law. See id.; see also Bayer AG. v. Biovail Corp., 279 F.3d 1340, 1345 (Fed. Cir. 2002).

To be sure, the Federal Circuit has recognized that some circuits require for purposes of collateral estoppel that the "previous determination [be] necessary to the decision," see Source Search Tech., 588 F.3d at 1074 (applying Third Circuit law), or that "the determination of the issue in the prior litigation must have been a critical and necessary part of the judgment in that action," see Bayer AG., 279 F.3d at 1345 (applying Eleventh Circuit law). However, such a requirement is not an element in the Ninth Circuit. See, e.g., Af-Cap, Inc. v. Chevron Overseas (Congo) Ltd., 475 F.3d 1080, 1086 (9th Cir. 2007); Hydranautics, 204 F.3d at 885. Accordingly, Gamco's contention that the Federal Circuit has held that the construction must be essential to the final determinations under the applicable circuit law in those cases, this has no bearing on this Court's collateral estoppel determination under Ninth Circuit precedent.

As such, applying Ninth Circuit law, the Court finds that the settlement in the Nevada litigation is appropriately considered a final judgment on the merits for purposes of collateral estoppel. See Reyn's, 442 F.3d at 746; see also Rein v. Providian Financial Corp., 270 F.3d 895, 903 (9th Cir. 2001); In re Dominelli, 820 F.2d 313, 316-17 (9th Cir. ...


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