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Judge's order will declare some IGT patents invalid

LAS VEGAS, Nevada -- A federal judge in Las Vegas has apparently invalidated several patents held by slot machine giant International Game Technology, which could allow rival manufacturers to put out their own bonus wheel-based games.

U.S. District Judge Robert Clive Jones ruled from the bench Wednesday during hearing in a patent infringement case between IGT and Bally Technologies. According to a statement from Bally, Jones told attorneys he intends to issue a written order declaring that bonus wheel patents held by IGT are invalid. The patents cover such games as Wheel of Fortune and similar products.

The order would reject IGT's belief that Bally's bonus wheel-based slot machines infringe on patents held by IGT.

Macquarie Securities gaming analyst Joel Simkins said the ruling could turn out to be the worst case scenario for IGT in which any slot maker can distribute a bonus wheel-based game without concern of violating IGT's patents.

"This is a company built on intellectual property and the (bonus) wheel-based games are the significant franchise for IGT," Simkins said. "This opens up a Pandora's box and allows other developers to bring out their own (bonus) wheel-based games."

Bally said it issued a statement in response to numerous inquiries and market activity following the hearing. The company said it would make an official comment once the judge's order is filed.

Shares of Bally increased $1.99, or 9.79 percent, to close at $22.31 on the New York Stock Exchange. More than 4.6 million shares were traded, four times the average daily volume. Shares of IGT closed at $12.24, down $1.93, or 13.62 percent, also on the NYSE.

In a note to investors, Deutsche Bank gaming analyst Bill Lerner said he expects IGT will appeal the decision once the ruling is finalized.

Lerner said the IGT's bonus wheel slot machine, in which gamblers can obtain bonus points or jackpots, benefits from the Wheel of Fortune brand, which is based on the popular television game show.

"If somebody comes up with a better brand, then you might be able to take some volume away from Wheel of Fortune," Lerner said.

Bally and IGT have multiple lawsuits weaving their way through the federal court system for patent infringement matters and antitrust issues.

Morgan Stanley gaming analyst Celeste Brown told investors the favorable ruling for Bally makes it unlikely IGT will succeed in obtaining damages regarding any bonus wheel patents. She said a settlement is out of the question because the company would permanently lose its patents.

"Investors should have more confidence in Bally's legal position going forward," Brown said. "In our view, the decision makes a global settlement of all litigation between the companies less likely, as IGT will have to appeal the decision if it hopes to recover its patent."

Bally said the judge also said the written order would invalidate certain claims of IGT's player-tracking patents at issue.

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