Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 1 of 41 PageID #:1
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF ILLINOIS
`EASTERN DIVISION
`
`
`Rancho’s Club Casino, Inc. d/b/a Magnolia
`House Casino, on behalf of itself and all
`others similarly situated,
`
`Plaintiff,
`
`vs.
`
`Scientific Games Corporation, a Nevada
`corporation, formerly a Delaware
`corporation;
`
`Bally Technologies, Inc., d/b/a SHFL
`Entertainment or Shuffle Master,
`a Nevada corporation;
`
`and
`
`Bally Gaming, Inc., d/b/a Bally
`Technologies, f/k/a Bally Gaming and
`Systems, f/k/a SHFL Entertainment, Inc.,
`f/k/a Shuffle Master, Inc., a Nevada
`corporation,
`
`Defendants.
`
`
`
`
`Case No.
`
`Judge:
`
`Magistrate Judge:
`
`
`JURY TRIAL DEMANDED
`
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`)
`
`COMPLAINT
`
`Plaintiff Rancho’s Club Casino, Inc. d/b/a Magnolia House Casino (“Plaintiff”), by and
`
`through its undersigned attorneys, brings this proposed class action and alleges as follows.
`
`INTRODUCTION
`
`1.
`
`This action arises out of the alleged monopolization of the market for automatic
`
`card shufflers used at casinos through Defendants’ abuse of the patent system and judicial process
`
`to exclude and drive out competitors from the market. Specifically, Plaintiff alleges that
`
`
`
`1
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 2 of 41 PageID #:2
`
`Defendants Scientific Games Corporation (“SGC”), Bally Technologies, Inc. (“BTI”) and Bally
`
`Gaming, Inc. (“BGI”) (collectively “Bally”), which manufacture and sell fully automated card
`
`shufflers under the Shuffle Master, DeckMate, and Bally names, procured patents by fraud and
`
`then asserted those patents in sham lawsuits against competitors, which effectively excluded
`
`competitors from the market and caused Plaintiff and others similarly situated to pay more for
`
`automated card shufflers than they otherwise would have in a competitive market.1 Defendants’
`
`alleged misconduct constitutes a violation of Sections 2 and 3 of the Sherman Act (15 U.S.C. §§
`
`2, 3).
`
`2.
`
`Several of Defendants’ would-be competitors—other manufacturers and
`
`distributors of automated card shufflers—have sued Defendants alleging similar facts about
`
`Defendants’ effects to monopolize the market using fraudulently procured patents and sham
`
`litigation. In fact, in December of 2018, a Chicago jury rendered a verdict against Defendants for
`
`violations of Section 2 of the Sherman Act and awarded the competitor-plaintiffs $105 million in
`
`damages, which was then trebled for a total of $315 million. See Shuffle Tech, et al. v. Scientific
`
`Games Corp., No. 15-cv-3702 (N.D. Ill.) (“Shuffle Tech”). In another competitor suit alleging
`
`violations of Section 2, the United States District Court for the Northern District of Illinois recently
`
`denied Defendants’ motion to dismiss. See TCS Inc., et al. v. Scientific Games Corp., No. 19-cv-
`
`1846, 2020 WL 1678258 (N.D. Ill. March 20, 2020). This lawsuit will be referred to herein as the
`
`”TCS Litigation”.
`
`3.
`
`As described further below, the market for automated card shufflers and related
`
`services is valued at approximately $100 million per year, and Defendants now control virtually
`
`100% of that market as a result of their misconduct.
`
`
`1 SGC and Bally will be collectively referred to herein as “Defendants.”
`
`2
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 3 of 41 PageID #:3
`
`4.
`
`Automated card shufflers play an important role in casinos and at card clubs. These
`
`machines are designed to produce reliably random shuffles to ensure fairness and increase game
`
`speed, profitability, and security. In many jurisdictions, shuffling by hand is illegal as well, making
`
`these machines a necessity. But the market is no longer competitive for these machines, allowing
`
`Defendants to set prices without fear of competitors undercutting them or stealing market share.
`
`5.
`
`Plaintiff, a direct purchaser of automated card shufflers, and others like it have
`
`suffered as a result of Defendants’ monopolization and exclusion of competitors, forcing their
`
`direct customers—purchasers and
`
`lessees
`
`(collectively “direct purchasers”)—to pay
`
`supracompetitive prices for automated card shufflers while Defendants collect monopoly rents.
`
`JURISDICTION
`
`6.
`
`This action arises under the antitrust laws of the United States, specifically
`
`Sections 4 and 16 of the Clayton Act (15 U.S.C. §§ 15, 26) for violation of Sections 2 and 3 of
`
`the Sherman Act (15 U.S.C. §§ 2, 3). This Court has jurisdiction over the subject matter of this
`
`action pursuant to 15 U.S.C. §§ 4, 15 and 26; and 28 U.S.C. §§ 1331 and 1337.
`
`7.
`
`This Court has personal jurisdiction over Defendants in this state and district
`
`under 15 U.S.C. § 22; 28 U.S.C. §§ 1391(b), (c), and (d); Fed. R. Civ. P. 4(k)(1); the long-arm
`
`statutes of the State of Illinois; and the Due Process Clause of the United States Constitution,
`
`because the Defendants regularly conduct and transact business in this state and district, have a
`
`regular and established business in this district, are “found” in this district, “reside” in this
`
`jurisdiction, have agents in this state and district, and have well more than “minimum contacts”
`
`with this state and district, all as further specified in the following paragraphs. Defendants have
`
`also committed acts violating the United States patent and antitrust laws in this state and district
`
`and have reaped the benefits of their unlawful activities in this district and the impact of those
`
`3
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 4 of 41 PageID #:4
`
`violations will be a substantial lessening of competition in the relevant market for card shufflers
`
`in this district. Moreover, Defendants’ acts, both within and without of this district, have
`
`resulted in injury to Plaintiff’s business and property.
`
`8.
`
`Venue is proper in this judicial district under 15 U.S.C. §§ 15, 22, and 26, and 28
`
`U.S.C. § 1391(b)(1) and (2), (c)(2), and (d) because, inter alia, Defendants reside in this district,
`
`inhabit this district, are found in this district, have an agent in this district and transact business
`
`in this district and are subject to personal jurisdiction in this state and district, and a substantial
`
`part of the events giving rise to the claims asserted herein arose in this state and district, as
`
`further detailed in the following paragraphs. In addition, key witnesses, such as Messrs. Kimball
`
`Anderson (“Anderson”) and Richard Schultz (“Schultz”), who reside in this district, would not
`
`be subject to the subpoena power of courts outside this district. Chicago is also more convenient
`
`for other key witnesses in the East and Midwest than other potential venues. Furthermore, key
`
`documents compiled and readily available in this district and subject to the subpoena power of
`
`this court may not be as easily obtained in other jurisdictions. Additionally, as a result of prior
`
`litigation in this court, the court is already familiar with many of the issues presented by this
`
`case. Defendants conduct business in this state and judicial district by, inter alia, distributing
`
`and/or selling card shufflers which are the subject of this action to casinos located in Joliet,
`
`Aurora, Elgin, and Des Plaines.
`
`9.
`
`Defendant SGC also has a Chicago campus at 350 North Orleans St., Chicago IL
`
`60654 and has had a 483,000 square foot technology campus and administrative office in this
`
`judicial district at 2718 Roscoe St., Chicago, IL 60018. SGC has employed over 700 employees
`
`in Chicago and has had over 1,000 employees in Northern Illinois. Additionally, SGC has had a
`
`long-term contract with the Illinois Gaming Board to design, implement, and administer a
`
`4
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 5 of 41 PageID #:5
`
`Central Communications System (“CCS”) for Illinois that provides real-time communication and
`
`control between every licensed video gaming terminal in Illinois, as well as day-to-day
`
`management of the operation and servicing of the CCS throughout Illinois.
`
`10.
`
`On information and belief, Defendant BTI, under the direction of SGC, has sold
`
`card shufflers which have been manufactured by Defendant Bally Gaming, Inc. under the
`
`direction of SGC which are based on the patents at issue in this case (owned by BGI) to various
`
`casinos which are within the Northern District of Illinois and/or within the subpoena power of
`
`this court, i.e., Hollywood Casino (Joliet); Harrah's Joliet Casino & Hotel (Joliet); Hollywood
`
`Casino (Aurora); Grand Victoria Casino (Elgin); and Rivers Casino (Des Plaines). Defendants
`
`also conduct business with the Ameristar Casino in East Chicago and the Horseshoe Casino in
`
`Hammond.
`
`PARTIES
`
`11.
`
`Plaintiff Rancho’s Club Casino, Inc. d/b/a Magnolia House Casino is a California
`
`corporation with its principal place of business located at 1275 Folsom Blvd., Rancho Cordova,
`
`CA 95670. During the class period, Magnolia House Casino purchased and/or leased substantial
`
`quantities of card shuffflers directly from one or more of the Defendants at supra-competitive
`
`prices and suffered injury to its business or property as a direct or proximate result of
`
`Defendants’ wrongful conduct. Plaintiff is aware of its obligation to diligently represent the best
`
`interests of the class and is committed to doing so throughout the pendency of this litigation.
`
`12.
`
`Defendant SGC is a corporation of the state of Nevada, formerly a corporation of
`
`Delaware, with a corporate office in Las Vegas, Nevada and an administrative and technology
`
`campus at 350 North Orleans St., Chicago IL, and was previously located at 2718 Roscoe St.,
`
`Chicago, IL. SGC is a leading developer of technology-based products and services and
`
`5
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 6 of 41 PageID #:6
`
`associated content for the worldwide gaming, lottery, social and digital gaming industries. Its
`
`portfolio of revenue-generating activities primarily includes supplying gaming machines and
`
`game content, casino management systems, and table game products and services to licensed
`
`gaming entities; providing instant and draw-based lottery products, lottery systems and lottery
`
`content and services to lottery operators; providing social casino game solutions to retail
`
`consumers and regulated gaming entities, as applicable; and providing a comprehensive suite of
`
`digital real-money gaming and sports wagering solutions, distribution platforms, content,
`
`products and services.
`
`13.
`
`SGC does business in this judicial district by, inter alia, distributing and/or selling
`
`under the Shuffle Master and/or Bally name, card shufflers which are the subject of this action to
`
`casinos located in Joliet, Aurora, Elgin, and Des Plaines. SGC has also previously had
`
`administrative offices and manufacturing facilities that support SGC’s gaming business in this
`
`judicial district at 800 S. Northpoint Road Blvd., Waukegan, IL. SGC controls and directs the
`
`actions and operations of the other Defendants, including the authorization, maintenance and
`
`conduct of the sham litigation described herein, the conduct of the reexaminations described
`
`below, and the frauds perpetrated on the United States courts and the United States Patent and
`
`Trademark Office (“USPTO” or “PTO”) and the courts and patent offices of other countries,
`
`notably South Africa, as further described below.
`
`14.
`
`Defendant BTI is a corporation of the State of Nevada, with offices at 6650 S. El
`
`Camino Road, Las Vegas, NV. On November 25, 2013, BTI acquired all of the stock of SHFL
`
`Entertainment, Inc. f/k/a Shuffle Master, Inc., which was merged into BTI on June 30, 2014.
`
`SHFL Entertainment, Inc. was concurrently or thereafter dissolved as a separate corporate entity,
`
`6
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 7 of 41 PageID #:7
`
`although Defendants failed to advise the court of this fact and to substitute the proper corporate
`
`entity in at least one of the sham litigations described herein.
`
`15.
`
`On November 21, 2014, SGC acquired Bally for $5.1 billion (including the
`
`refinancing of approximately $1.9 billion of existing Bally indebtedness). Bally’s financial
`
`records and data were thereafter consolidated with SGC’s on financial reports to the Securities
`
`and Exchange Commission (“SEC”). Bally’s financial records and data have been consolidated
`
`for business purposes, and its revenues and funds have been commingled such that it is no longer
`
`possible, at least for the public, to separate or segregate Bally’s and SGC’s funds and revenues in
`
`any meaningful way.
`
`16.
`
`Subsequent to BTI’s acquisition of SHFL Entertainment, Inc. (f/k/a/ Shuffle
`
`Master Inc.) on Nov. 25, 2013, Bally, and after November 21, 2014, SGC began using “Shuffle
`
`Master” or “SHFL” as trade names and have sold or leased card shufflers based on the patents at
`
`issue in this case under the “Shuffle Master” or SHFL name, including to casinos within the
`
`Eastern Division of the Northern District of Illinois, i.e., Hollywood Casino (Joliet); Harrah’s
`
`Joliet Casino & Hotel (Joliet); Hollywood Casino (Aurora); Grand Victoria Casino (Elgin); and
`
`Rivers Casino (Des Plaines). For these reasons and because Bally's automatic card shuffler
`
`business has been consistently known throughout the gaming industry by its former names
`
`“Shuffle Master” and “SHFL Entertainment,” this Complaint will sometimes refer to SGC and/or
`
`the Bally Defendants collectively as “SHFL”.
`
`17.
`
`Defendant BGI is or was a corporation of the State of Nevada, with offices
`
`located at 6650 S. El Camino Road, Las Vegas, NV 89118. BGI is or was a subsidiary of Bally
`
`Gaming International, Inc., which operates, or was operated, as a subsidiary of Alliance Holding
`
`Co., which operates, or was operated, as a subsidiary of Defendant Bally. BGI operates, under
`
`7
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 8 of 41 PageID #:8
`
`the direction of SGC management, as a manufacturer of equipment and games, including under
`
`the Shuffle Master or SHFL name, for casinos in the United States, including all five casinos
`
`within the Northern District of Illinois (Eastern Division), i.e., Hollywood Casino (Joliet),
`
`Harrah’s Joliet Casino & Hotel (Joliet), Hollywood Casino (Aurora), Grand Victoria Casino
`
`(Elgin), and Rivers Casino (Des Plaines). According to assignment records in the USPTO, BGI
`
`is also the owner of record of the patents described herein.
`
`18.
`
`Since acquiring Bally on November 21, 2014, SGC has held itself out to the
`
`public as a single integrated entity, both financially and operationally. On Dec. 9, 2014, Bally
`
`filed with the SEC, a Form 15 providing notice of termination of its registration under section
`
`12(g) of the Securities Exchange Act of 1934, essentially removing itself from the rolls of
`
`publicly traded entities, and began filing consolidated financial reports with the SEC, combining
`
`its financial data with that of SGC and its other wholly owned (or controlled) subsidiaries. As
`
`further documented by SGC’s August 7, 2015 10-Q filing for the period ending June 30, 2015,
`
`all of Bally’s and SHFL’s financial data has been combined with SGC’s. Separate financial
`
`statements have not been publicly available for Bally or SHFL as separate entities since that
`
`time.
`
`19.
`
`SGC’s relationship with Bally far exceeds the normal scope of a parent/subsidiary
`
`relationship. SGC manages and directs Bally’s internal and external affairs and determines how
`
`Bally operates on a day-to-day basis. SGC’s August 7, 2015 SEC form 10-Q filing with the SEC
`
`states that its operations are divided into three business segments - Gaming, Lottery, and
`
`Interactive—along product lines, rather than corporate lines. Each segment is managed by a
`
`separate executive who reports directly to the SGC Chief Executive Officer (“CEO”) who is
`
`described as the "chief operating decision maker" on SGC’s March 2015 Form 10-Q.
`
`8
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 9 of 41 PageID #:9
`
`20.
`
`To implement its corporate integration, SGC formed an “Integration Management
`
`Office” led by SGC’s Chief Administrative Officer. By October 2015, SGC's website referred to
`
`“[t]he combined company” and that “[t]he combination of Scientific Games and Bally
`
`Technologies creates a premiere gaming and lottery entertainment and technology company . . .
`
`.”2 By that date, no breakout information on Bally was available on either Bally’s website or
`
`SGC’s website (www.scientificgames.com). By October 2015, Bally was no longer a viable,
`
`operating entity, but a mere shell corporation through which SGC conducts its business.
`
`Subsequent to that date, Bally’s operations, including those relevant to this case, were wholly
`
`directed by SGC and, to the extent Bally formally exists as a separate entity, it operates wholly
`
`as an agent of SGC.
`
`21.
`
`As described above and hereafter, (1) SCG’s and Bally’s funds have been
`
`commingled; (2) SGC is treating Bally’s assets as its own; (3) Bally is governed and influenced
`
`by its alter ego, SGC, in particular, by the actions and directions of its chief executives and legal
`
`officers; (4) there is a unity of interest and ownership such that Bally and SGC are one and the
`
`same entity; and (5) adherence to the fiction that Shuffle Master, Bally, and SGC are separate
`
`entities would sanction a fraud on the Plaintiffs and the Court, promote injustice, and adversely
`
`affect the U.S. and worldwide markets for automatic card shufflers for casinos.
`
`FACTUAL ALLEGATIONS
`
`A. The Relevant Market
`
`22.
`
`Since at least the early 20th century, casinos and card clubs have used machines
`
`to shuffle card-decks without human assistance and interference. These machines help reduce
`
`
`2 https://www.prnewswire.com/news-releases/scientific-games-to-acquire-bally-technologies-in-
`transaction-valued-at-51-billion-269521831.html
`
`9
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 10 of 41 PageID #:10
`
`the labor associated with shuffling, as well as ensuring that there is more security and
`
`randomization associated with the shuffles.
`
`23.
`
`By the 1990s, electronic card shuffler machines were introduced, controlled by an
`
`onboard computer and fully-automated. In those shufflers, the computer determined the final
`
`"random" or other intended order for the final set of cards and the cards were mechanically
`
`sorted into that intended order.
`
`24.
`
`Automatic card shufflers can be used for virtually every card game on the casino
`
`floor, from public domain games such as blackjack and baccarat, to popular proprietary games
`
`such as Texas Hold ‘Em, Caribbean Stud, Three Card Poker, Three Card Baccarat, and Pai Gow
`
`Poker.
`
`25.
`
`Casinos and card clubs, in particular, drive demand for these automatic card
`
`shufflers. The card shufflers assist the casino with minimizing labor and time spent on shuffling,
`
`reduce opportunity for cheating and collusion, and increase efficiency in the number of card
`
`games played, helping to bring in more guests and thus more revenue.
`
`26.
`
`For the purpose of this complaint, the “relevant market” is the market in the
`
`United States for automatic card shuffler machines certified and approved for use by casinos,
`
`excluding card shufflers designed for private consumer use in unregulated environments and also
`
`excluding electronic machines that randomize virtual “cards” in video-based games (hereafter,
`
`“automatic card shufflers”).
`
`27.
`
`Upon information and belief, the market for these automated card shufflers and
`
`related services is valued at approximately $100 million per year. SHFL’s, Bally’s, and SGC’s
`
`annual revenues for these shufflers have exceeded $100,000,000 per year. Defendants have
`
`cumulatively earned over $1 billion in shuffler revenues through 2018.
`
`10
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 11 of 41 PageID #:11
`
`28.
`
`There are no reasonable substitutes for automatic card shufflers for casino table
`
`games that use physical playing cards. Without an automatic card shuffler, the dealer must
`
`shuffle by hand. Hand-shuffling is prohibited by gaming regulators in some jurisdictions. It is
`
`also more expensive and less secure by introducing human error and interference.
`
`29.
`
`The only other alternative to using automatic card shufflers is to use pre-shuffled
`
`cards, which can include either decks that are pre-shuffled in the backroom of a casino or
`
`pre-shuffled decks provided by the playing card manufacturer. But neither of these alternatives
`
`are considered an adequate substitute for automatic card shuffling machines. Pre-shuffled cards
`
`can only be used for one hand of cards, after which an additional pack of pre-shuffled cards
`
`needs to be used or the used cards need to be shuffled by hand or by machine. These purported
`
`alternatives are both time-consuming and expensive. Additionally, security suffers from pre-
`
`shuffling. There have been several instances of cheating based on pre-shuffled cards that were
`
`not in fact randomly shuffled. Cheating can result in multi-million dollar losses for affected
`
`casinos.
`
`30.
`
`Consequently, there are no reasonable subsitutes or alternatives for automatic card
`
`shufflers for casino table games that use physical playing cards, meaning that demand is inelastic
`
`for these products. Inelastic demand means that increases in price result in limited declines in
`
`quantity sold in the market. In other words, because the demand for automatic card shufflers is
`
`inelastic, sellers of automatic card shufflers—like the Defendants—can raise the prices of these
`
`shufflers above competitive levels without seeing a decline in sales revenue. It also means that
`
`entities like Plaintiff and others similarly situated have no alternatives to use as substitutes for
`
`these machines to be able to avoid any supracompetive prices charged by Defendants.
`
`11
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 12 of 41 PageID #:12
`
`31.
`
`Any potential competitor also faces high barriers to entry to enter the relevant
`
`market. The United States casino industry is highly regulated by multiple gaming regulators,
`
`including by the state and/or Indian reservations where the casinos are located. Such regulations
`
`include licensing of the vendors to casinos, including vendors of gaming machines and ancillary
`
`equipment, as well as testing and licensing of the gaming equipment itself. In the case of card
`
`shufflers, such regulations include character and financial investigations of the potential vendors
`
`as well as rigorous testing of the shuffling equipment, including for randomness, by certain
`
`states, such as Nevada, as well as by testing companies such as Gaming Laboratories
`
`International (“GLI”). In addition to such regulation and testing, equipment such as shuffling
`
`machines must be field tested by the individual casinos or casino chains contemplating lease or
`
`purchase of machines. As a result of all these factors, entry into the relevant market is extremely
`
`expensive, time-consuming, and risky.
`
`32.
`
`Additionally, as decribed below, Defendants have erected other barriers to entry
`
`through their multitude of patents—which competitors have called a “patent thicket”— and
`
`which Defendants have historically used to keep out any and all would-be competitors, including
`
`through the use of patent fraud and sham litigation.
`
`33.
`
`Fringe firms also cannot easily enter the market or increase productions if
`
`Defendants increase prices for their automatic card shufflers because of the technology involved
`
`in creating these machines and the multitude of patents they need to navigate.
`
`34.
`
`Defendants have effectively achieved a 100% share in the relevant market and
`
`have achieved monopoly power in that market. Defendants’ market share and monopoly power
`
`in the relevant market have not been achieved by virtue of superior acumen, innovation, skill,
`
`foresight, or industry, or by the proper functioning of the market, or by natural market
`
`12
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 13 of 41 PageID #:13
`
`conditions. Instead, such monopoly power has been achieved as the result of purposeful abuse of
`
`the patent system and the judicial process by Bally and SGC and their predecessor entities. For
`
`more than a decade, Defendants have filed sham patent infringement lawsuits against every
`
`potential competitor that has marketed competitive card shufflers to casinos in the United States,
`
`leaving United States casinos and other direct purchasers with essentially no choice in automatic
`
`shufflers since at least 2009.
`
`35.
`
`According to SHFL’s 2012 Annual Report (the last year that contained detailed
`
`shuffler sales and leasing information), as of the report date, SHFL had 8,285 SHFL shufflers on
`
`lease worldwide (primarily in the United States), with an average monthly lease of $451/unit,
`
`producing $44,838,420 in recurring revenue. That price has subsequently been increased by
`
`Defendants, after they successfully drove various competitors described below from the relevant
`
`market. According to SHFL, the majority of its leases are month-to-month and include shuffler
`
`service and support. Additionally, in 2012, SHFL sold 2,135 units at an average price of
`
`$15,843, for total sales of $33,824,805. Once again, that sale price was further increased after
`
`SHFL drove competitors from the market. SHFL’s shuffler service revenue in 2012 was
`
`approximately $11,839,000 including monthly service fees for shufflers purchased and owned by
`
`casinos. SHFL’s total utility segment revenue (excluding chipper sales) was $92,502,000 in
`
`2012, comprised of almost $34,000,000 in one-time sales (subject to ongoing support revenue)
`
`and $59,000,000 in recurring revenue.
`
`B. Defendants’ Sham Litigation
`
`1. CARD Litigation
`
`36.
`
`In 2003, the manufacturer of another automatic card shuffler, Casinos Austria
`
`Research Development, GmbH. (“CARD”) and its United States subsidiary, filed suit seeking
`
`13
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 14 of 41 PageID #:14
`
`declaratory judgment of non-infringement CARD’s one2six shuffler of certain patents held by
`
`SHFL.3 SHFL counterclaimed several months later for infringement of those and additional
`
`patents
`
`37.
`
`SHFL’s counterclaim was the start of a pattern of litigation and threatening of
`
`litigation to secure Defendants’ dominance and monopoly. Former SHFL General Counsel Jerry
`
`Smith (“Smith”) declared in SHFL’s lawsuit against then competitor CARD that: “… the mere
`
`showing of the [CARD] one2six has the potential ability to disrupt Shuffle Master’s order taking
`
`and sales process. It could confuse customers into believing that there is an alternative to Shuffle
`
`Master’s shufflers available to them.” CARD litigation, Decl. of Jerry Smith, ¶ 14, (Sept. 5,
`
`2003). Then and now, Defendants’ attitude was that no competition and no alternatives to its
`
`shufflers would be permitted in the relevant market. In fact, SHFL successfully obtained a
`
`preliminary injunction against CARD to prevent it from selling its automatic card shufflers in the
`
`United States.
`
`38.
`
`CARD continued to pursue the litigation, however, and during discovery, a series
`
`of information came to light undermining SHFL’s patents and revealing its fraud on the USPTO.
`
`Among other things, documents produced in discovery revealed that certain of SHFL’s so-called
`
`inventions were in fact developed by another: Halvard Solberg (a.k.a. “Hal Solberg”) and his
`
`company, Machine Design Associates, Inc. in 1996-98 for Casino Concepts, Inc.
`
`39.
`
`Specifically, CARD discovered that certain SHFL patents were based on
`
`Solberg’s “Roblejo Shuffler,” which was publically exhibited and operated at the 1997 World
`
`Gaming Congress and Expo in Las Vegas on October 14-16, 1997. The Roblejo Shuffler was
`
`
`3 A declaration of non-infringement refers to an application to the court for a declaration that a
`new business does not infringe an existing patent.
`
`14
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 15 of 41 PageID #:15
`
`demonstrated at the show with transparent sides that enabled anybody that visited the booth the
`
`see the internal workings of the shuffler. In addition to personally inspecting the Roblejo
`
`Shuffler at the expo, SHFL representatives also obtained a Roblejo Shuffler brochure that
`
`showed and described the operation of the Roblejo Shuffler. CARD thus discovered that SHFL
`
`knowingly incorporated what it had learned about the Roblejo shuffler into its patent application
`
`and wrote and amended claims to include features that they knew SHFL had not invented and
`
`were instead known to be present in the prior art Roblejo shuffler. Furthermore, CARD
`
`discovered that SHFL intentionally concealed the Roblejo shuffler (including all the material
`
`information in their possession relating thereto, as described herein) from the PTO, despite the
`
`fact that all of this information was required to be disclosed under applicable rules and laws.4
`
`Had that art not been concealed from the PTO, certain of SHFL’s patents would not have issued.
`
`More facts about SHFL’s illicit use and incorporation of technology from the Roblejo and related
`
`shufflers, as well as its illicit concealment of this prior art from its patent applications, are
`
`discussed in the following section.
`
`40.
`
`CARD’s momentous discovery revelations did not stop SHFL, however, from
`
`continuing with the litigation and finding ways to punish its would-be competitor. At the time,
`
`CARD only had a few million dollars of sales, and the preliminary injunction prevented it from
`
`selling its core products in the United States. Thus, despite these significant discovery
`
`revelations, SHFL leveraged the situation to acquire CARD for $50,000,000, comprised of a
`
`cash payment and 767,076 shares of the company’s common stock. This acquisition resulted in
`
`
`4 USPTO guidelines specifically state that information material to patentability may include
`information learned from “co-workers, trade shows, communications from or with competitors,
`potential infringers, or other third parties.” MANUAL OF PATENT EXAMINING
`PROCEDURE § 2001.06 (8th ed., Aug. 2001).
`
`15
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09/08/20 Page 16 of 41 PageID #:16
`
`CARD exiting the market and SHFL avoiding the threat of competition. It also solidified
`
`SHFL’s monopoly position in the market and ensured that its casino customers would have no
`
`“alternative to Shuffle Master’s shufflers available to them,” thus achieving the goal set forth in
`
`the September 2003 declaration of Smith.
`
`41.
`
`SHFL in fact bragged about its sue-and-acquire strategy to the press. In a news
`
`article published in IBD on November 15, 2004, several months after SHFL acquired former
`
`competitor CARD and its competing One2Six card shuffler, SHFL’s former CEO, Mark
`
`Yoseloff, explained how he forced the distress sale of CARD, a company with a “terrific
`
`product” that he desired: “[s]o we had to create a situation where they would be induced to sell,”
`
`Yoseloff said. “It struck me that one way (to do that) was to sue them (and have them incur)
`
`legal fees sufficiently high even for a company the size of the parent.” This was one of the first
`
`cases of Defendants’ using sham litigation to secure and enforce their monopoly.
`
`2. VendingData Litigation
`
`42.
`
`Less than six months after the CARD litigation was finalized, on October 5, 2004,
`
`SHFL filed suit against its next target, VendingData. SHFL filed this suit one day after
`
`VendingData announced the availability of its PokerOne automatic card shuffler. SHFL accused
`
`VendingData of allegedly infringing a child patent in the same Patent Family that CARD had
`
`previously demonstrated had been obtained through fraud on the PTO.
`
`43.
`
`Initially, a preliminary injunction issued against VendingData, but during
`
`discovery, it was again learned that SHFL withheld the the Roblejo shuffler and other prior art
`
`(described below) from the PTO. VendingData eventually won its case on summary judgment of
`
`non-infringement, which ended the case in February 2008 after years of litigation. In the
`
`16
`
`
`

`

`Case: 1:20-cv-05295 Document #: 1 Filed: 09