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Best of Liz Benston

Gaming Guru

Liz Benston

Court's Latest Patent Ruling Not Rewarding for Harrah's

22 November 2005

LAS VEGAS, Nevada -- Hundreds of thousands of people in Las Vegas carry a card in their wallets that allows them to get free buffets, show tickets and other perks.

It's called a "Boarding Pass" and is offered by Station Casinos, which owns the majority of big locals casinos across town. The company uses the card to track how much and how frequently its customers gamble.

It's a powerful marketing tool that has been the subject of an expensive, behind-the-scenes legal battle between Station and Harrah's Entertainment that may be winding down after a federal appeals court ruled in Station's favor last week.

Harrah's sued Station in federal court in July 2001, claiming that Station's Boarding Pass slot club infringed on three patents held by Harrah's. The world's largest casino company, Harrah's has its own player tracking system called "Total Rewards."

The Total Rewards card boasts the largest membership in the casino business. With the company's acquisition of Caesars Entertainment last summer, Harrah's now has close to 40 million names in its Total Rewards database.

More than any other casino company, Harrah's credits its slot club for accelerating profit growth by keeping its customers coming back to Harrah's properties instead of the competition.

In patents filed with the U.S. Patent and Trademark Office, Harrah's claims to be the first to offer a loyalty program that allows gamblers to rack up points across several casinos. Such programs have since been adopted by Station Casinos as well as many other casino companies in Las Vegas and beyond.

The legal dispute has significant consequences for the industry. A victory against Station might have fueled future lawsuits against other casino companies with slot clubs, putting those programs in jeopardy. Instead, Harrah's may now be less likely to sue competitors with similar programs.

On Nov. 15, the 9th U.S. Circuit Court of Appeals affirmed an earlier federal court ruling finding that patents governing the Total Rewards gambler loyalty program can't be enforced against Station in court. The appeals court did not issue an opinion explaining its decision.

In May 2004, U.S. District Judge David Ezra ruled in Station's favor, invalidating two of the three patents at issue. In August 2004, the court declared the third Harrah's patent invalid, resolving the remainder of the claims. Harrah's appealed the ruling in September 2004.

Ezra ruled that the Harrah's patents are invalid and unenforceable because they are too vague and lack an "adequate written description of the claimed subject matter."

Harrah's spokesman David Strow said the company hasn't yet seen the latest appeals court decision, adding that it would be "premature" to comment on it.

Harrah's can push for a rehearing before the appeals court or appeal the decision to the U.S. Supreme Court.

One industry insider who doesn't work for either company suspects Harrah's will drop the matter and move on.

"Things have changed," said the source, who declined to be named. "The cat is already out of the bag. Everybody's got a (player-tracking system). And Harrah's has proven that they can still dominate the market with their (slot club)."

Station spokeswoman Lori Nelson said the latest court victory won't change things much for the company or its customers.

"It's business as usual for our Boarding Pass program," Nelson said. Station will continue to offer the program as it has during the litigation, she said.

Patent disputes turn on specifics, said Rob Phillips, a patent attorney with Greenberg Traurig in Las Vegas, who was not involved in the case.

"Subtle differences between two player-tracking systems can mean the difference between infringement and noninfringement," said Phillips, who has represented gaming companies in disputes over player-tracking systems.

"Harrah's would need to evaluate the other player-tracking systems in view of its patents on a case-by-case basis to determine whether it was sensible to bring a lawsuit," he said.

Neither Station nor Harrah's were the first to offer a slot club allowing customers to gamble at one casino and redeem points at another property, said Jeffrey Compton, a Las Vegas-based gaming consultant and slot club expert.

"Both of them took a similar idea but did different things with it," Compton said. Each program has its own advantages and disadvantages, though both use direct mail as an effective way to reach customers, he said.

Harrah's Total Rewards has probably been the most effective slot club on a national level, Compton said. Harrah's was the first to aggressively market its slot club as part of a bigger effort to brand the company, he said.

On a local basis, however, Station's slot club "is by far the most effective," he said.

Court's Latest Patent Ruling Not Rewarding for Harrah's is republished from