Gaming patent wars as CG Technology goes after DFS

April 19, 2016 3:00 AM


With the recent lawsuits over patent infringements filed by CG Technology (CG), formerly known as Cantor Gaming, against DraftKings and FanDuel, my first thoughts were, jeez what a bad couple of years for the two major fantasy sports contest companies. They have gotten hammered as operating illegally by a number of states with numerous open questions remaining from a federal perspective. Then to have a techno-centric gaming company like CG with their presumable Wall Street backing come after them for patent infringements, things may just not seem like they could get any worse, and being a CEO of one of those fantasy companies may not be as fun as it used to be.

However, with any high-risk high-reward ventures there are significant challenges and barriers to get through, particularly when your company is not on legal firm footing for its core business operations and is using technology, if the CG suit is accurate, that is infringing on the patent rights of another company.

While the continuing trials and tribulations surrounding the fates of FanDuel and DraftKings will make for a good continuing story to follow for some time yet to come, are the patent infringement cases merely a harbinger of more patent wars to come?

Patents are intended to protect the rights of a party, which spent the time, money and effort in creating an invention, from exploitation by persons or companies using the same ideas without permission or license. It does happen often that parties in similar lines of business, when faced with similar problems, come to the same types of solutions; sometimes independently, sometimes not.

As it is often near impossible, particularly in today’s information age, to tell when an innovation was independently arrived at or copied, patents and their respective issue dates become incredibly important when a dispute arises between parties. It may well be that the respective sports fantasy companies came to their own independent solutions and invention for dealing with their business needs, but that does not forgive a violation of another’s issued patent even if it was not intentional.

Patent fights are expensive and as such they have become big business. Companies often buy patents they have no intention of actually using for themselves, but simply to extract license revenues from enterprises whose activities may infringe on a patent they acquired. This type of company is often called a “trolls.”

Trolls often acquire a wide range of patents and look for companies that might have activities that violate, or look like they might cross the patent protection lines. Then they send those companies demand letters that basically say stop using our patents, pay us a penalty for violating them and/or sign a license agreement deal with us to use our patent rights or we will sue you.

As patent lawsuits are very expensive, companies will often look at the cost of a patent license versus the cost of litigation and go the path of least cost.

Put yourself in the company’s shoes: You can get into a lawsuit that can cost millions of dollars or you can pay a license fee for hundreds of thousands of dollars or you can discontinue that line of operation in your business.

Some consider trolls as perpetrating legal blackmail, but if you own a patent and someone is violating it, you have every right to protect your interest. As CG is actually in the sports wagering business they should not be considered a troll picking on the poor sports fantasy companies but a competitor who feels their patent rights are being violated.

Technology continues to expand through the gaming experience, and the forms and methods of those activities will naturally progress to look and act like other e-commerce activities, requiring the expanded use of various identity protocols, location verifications, use of e-currencies. Such activities will probably ultimately be integrated through familiar smart devices. As such the stage is already set for future clashes over various patent rights not only between gaming companies but potentially large tech companies that are pioneers in e-commerce.

It would not be a surprise, if CG is successful in its patent infringement case, that such success inspires other battles over gaming technology and e-commerce patents and inspires other technology innovators to join the patent wars as well.

The Analyst is an experienced gaming industry executive who offers insight each week on events and issues affecting the industry. Contact The Analyst at