Analysts say verdict could cripple Progressive

LAS VEGAS, Nevada -- Casino equipment provider Progressive Gaming International Corp., which found itself on the losing end of a judgment of more than $39 million in a decade-old antitrust violation lawsuit this month, is trying to put a positive spin on the situation.

But rival manufacturers and gaming analysts believe the decision in the federal court jury trial could be a devastating blow to the Las Vegas-based company.

"They are a company without a lot of cash on hand, so this could really hurt them if they had to pay out a verdict of this size," Jefferies & Co. gaming analyst Aimee Marcel-Remey said. "That's the worst-case scenario. The best case is the judge dismisses the verdict. No matter what, it's going to take at least two years for this to get through the system."

One rival manufacturer, who asked not to be named, said the judgment could open Progressive Gaming up to additional antitrust lawsuits.

The five-week trial took place in U.S. District Court in Jackson, Miss., and found that Progressive Gaming, which manufactures table games and develops casino and jackpot management systems, engaged in anti-competitive conduct. The lawsuit alleged that Progressive Gaming tried to monopolize the table game market against a rival table game developer in 1998 and 1999.

A jury awarded British-based Prime Table Games and Derek Webb, the lead plaintiff in the matter, $13 million plus attorneys fees on Feb. 7. The judgment was tripled based on federal antitrust laws. U.S. District Judge Henry Wingate signed the judgment on Feb. 21.

Progressive Gaming general counsel Robert Ziems said Monday the company is filing post-trial motions with the court, which he expects will take more than a year to be acted upon by the judge. He said the company didn't need to post a bond on the judgment because of the post-trial motions.

Progressive Gaming said the verdict should not hurt the company's cash position during the current fiscal year because of the appeal process.

"It's been a little difficult to try to explain to people that we're not even in the seventh-inning stretch on this case," Ziems said. "The post-trial motions protect us from this type of jury verdict. We believe that our position in this case is solid and well supported by the law and facts."

The case began in the late 1990s when Mikohn Gaming, which Progressive was known as at the time, filed a lawsuit against Webb, the developer of Three Card Poker, claiming the game infringed on certain patents owned by the company.

While the lawsuit was pending, Webb sold the American portion of Three Card Poker to Shuffle Master Gaming. In 2002, Webb sued Progressive Gaming, claiming the company tried to create a monopoly in 1998 and 1999. Webb said Progressive's original patent infringement case was a sham lawsuit and kept him from getting his games into the market.

The eight-person jury found in favor of Webb on all counts, including the questions concerning whether Progressive Gaming misrepresented facts to the U.S. Patent and Trademark Office. The jury ruled that Webb suffered $13 million in lost profits.

Webb declined to comment on the verdict.

Ziems said the verdict didn't reflect the nature of the table games market at the time of the alleged conduct.

"The company's U.S. table games market share was less than 5 percent during the relevant time period, a percentage that pales in comparison to what we believe is traditionally required to support an antitrust allegation," Ziems said.

To help deflect any questions about the lawsuit, Progressive Gaming placed three pages of "Frequently Asked Questions" on the litigation page of its Web site as a way to address the issue.

"We're dealing with two very complicated areas of the law in one case," Ziems said. "We've anticipated a lot of questions about this."

Marcel-Remey, who follows the gaming equipment suppliers for Jefferies, said she expects the subject to be addressed during Progressive Gaming's March 6 conference call with analysts and investors, following the company's fourth-quarter earnings release. She said that the lengthy path through the court system could mitigate immediate concerns about Progressive's financial stability.

"For now, it looks like this should not impact them financially other than attorneys fees, which they have accounted for in the past," Marcel-Remey said. "Unfortunately, they have been paying out a lot in legal fees."

Roth Capital Partners gaming analyst Todd Eilers, who also follows Progressive Gaming, agreed that it doesn't seem the company would be hurt by the verdict this year.

Progressive Gaming executives took part in a forum last week in Southern California sponsored by Roth that included financial presentations from 300 companies. Eilers said the company didn't address the lawsuit.

"It's always tough to handicap any sort of legal situation so we'll just have to see where this is headed," Eilers said.