RaceTech, LLC v. Kentucky Downs, LLC et al

Filing 40

MEMORANDUM OPINION AND ORDER by Judge Greg N. Stivers re Defendants' Motion to Dismiss (DN 21 ), Defendants' Motion to Dismiss for Failure to State a Claim (DN 22 ), and Defendants' Motion to Dismiss Amended Complaint (DN 29 ). For the reasons set forth, IT IS HEREBY ORDERED that Defendants' Motions to Dismiss (DNs 21 , 22 , 29 ) are GRANTED. cc: Counsel; U.S. Patent & Trademark Office (CDR)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
BOWLING GREEN DIVISION
CIVIL ACTION NO. 1:15-CV-00059-GNS
RACETECH, LLC

PLAINTIFF

v.

KENTUCKY DOWNS, LLC
ENCORE GAMING, LLC

DEFENDANTS

MEMORANDUM OPINION AND ORDER
This matter is before the Court on Defendants’ Motion to Dismiss (DN 21), Defendants’
Motion to Dismiss for Failure to State a Claim (DN 22), and Defendants’ Motion to Dismiss
Amended Complaint (DN 29). The motions have been fully briefed and are ripe for decision.
For the reasons stated below, the motions are GRANTED.
I.

BACKGROUND

In 2002, the United States Patent and Trademark Office (“USPTO”) issued two patents to
Plaintiff RaceTech, LLC (“RaceTech”): U.S. Patent Nos. 6,358,150 (“the ‘150 patent”) and
6,450,887 (“the ‘887 patent”). (Am. Compl. 3). Both patents granted RaceTech ownership in
“methods and apparatus for pari-mutuel historical gaming.” U.S. Patent No. 6,358,150, at [54]
(issued Mar. 19, 2002); U.S. Patent No. 6,450,887, at [54] (issued Sept. 17, 2002). In 2015, the
USPTO issued a third patent—U.S. Patent No. 9,047,737 (“the ‘737 patent”), which claims “web
based methods and apparatus for parimutual (sic) historical gaming.”1 See U.S. Patent No.
9,047,737, at [54] (issued June 2, 2015).

1

The ‘887, ‘150, and ‘737 patents are collectively referred to as the “Asserted Patents.”

Prior to the issuance of the ‘737 patent, RaceTech entered into a contract with Defendant
Kentucky Downs, LLC (“Kentucky Downs”) licensing wagering devices utilizing the ‘150 and
‘887 patents. (Am. Compl. 3). Kentucky Downs later terminated the contract and entered into
an agreement with Defendant Encore Gaming, LLC (“Encore”) for similar systems offering parimutuel gaming. (Am. Compl. 3).
On April 3, 2015, RaceTech filed its Complaint alleging infringement of the ‘887 and
‘150 patents. (Compl. 1, DN 1). On June 19, 2015, RaceTech amended its Complaint to add a
claim for infringement of the ‘737 patent. (Am. Compl. 6). In the present motions, Defendants
move to dismiss all claims pursuant to Fed. R. Civ. P. 12(b)(6), attacking the validity of the
Asserted Patents under 35 U.S.C. § 101 on the basis that the patents claim the invention of an
abstract idea or the implementation of an abstract idea with generic computer equipment. (Defs.’
Mot. to Dismiss 1, DN 21; Defs.’ Mot. to Dismiss 1, DN 22; Defs.’ Mot. to Dismiss 2, DN 29).
II.

JURISDICTION

The Court has subject matter jurisdiction over this action under 28 U.S.C. §§ 1331 and
1338(a) because it arises under the patent laws of the United States.
III.

STANDARD OF REVIEW

In order to survive a challenge for failure to state a claim under Rule 12(b)(6), “a
complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is
plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks
omitted) (citation omitted). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (citation omitted). “[A] district court must (1) view the complaint in
the light most favorable to the plaintiff and (2) take all well-pleaded factual allegations as true.”

2

Tackett v. M & G Polymers, USA, LLC, 561 F.3d 478, 488 (6th Cir. 2009) (citation omitted).
“But the district court need not accept a bare assertion of legal conclusions.” Id. (internal
quotation marks omitted) (citation omitted). “A pleading that offers labels and conclusions or a
formulaic recitation of the elements of a cause of action will not do. Nor does a complaint
suffice if it tenders naked assertion[s] devoid of further factual enhancement.”2 Iqbal, 556 U.S.
at 678 (internal quotation marks omitted) (citation omitted).
IV.
A.

DISCUSSION

Patent Eligibility under 35 U.S.C. § 101

Under 35 U.S.C. § 101, patent protection is granted to “[whomever] invents or discovers
any new and useful process, machine, manufacture, or composition of matter, or any new and
useful improvement thereof, . . . subject to the conditions of this title.” As an implicit limitation
on this statutory standard, the U.S. Supreme Court has long recognized that laws of nature,
natural phenomena, and abstract ideas are not patentable because these represent “the building
blocks of human ingenuity” which should not be inhibited by the grant of monopolistic patents.
LeRoy v. Tatham, 55 U.S. (14 How.) 156, 174-175 (1853); Mayo Collaborative Servs. v.
Prometheus Labs., Inc., 132 S. Ct. 1289, 1923 (2012) (“[M]onopolization of those tools through
the grant of a patent might tend to impede innovation more than it would tend to promote it.”).
On the other hand, the Supreme Court has expressed caution in application of the exclusionary
principle, “lest it swallow all of patent law.” Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct.
2347, 2354 (2014) (citing Mayo, 132 S. Ct. at 1293-94). As the Supreme Court has noted, “in

2

In addressing the motion to dismiss, the Court is analyzing the facial validity of the Asserted
Patents as a matter of law, not a finding of fact. While the parties have extensively argued the
applicability of the clear and convincing evidence standard, that is not the appropriate standard in
this context. See Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 720-21 (Fed. Cir. 2014)
(Ultramercial II) (Mayer, J., concurring).
3

applying the Section 101 exception, we must distinguish between patents that claim the
‘buildin[g] block[s]’ of human ingenuity and those that integrate the building blocks into
‘something more’, thereby ‘transform[ing]’ them into a patent-eligible invention.”

Id.

(alterations in original) (internal citation omitted) (citation omitted).
In Alice Corp. Pty. Ltd. v. CLS Bank International, the Supreme Court articulated a twostep process for evaluating whether patent claims are directed to patent-eligible concepts versus
laws of nature and abstract ideas, embodying “the longstanding rule that [a]n idea of itself is not
patentable . . . .” Id. at 2355 (internal quotation marks omitted) (citation omitted). The Supreme
Court explained:
[W]e determine [first] whether the claims at issue are directed to one of those
patent-ineligible concepts. If so, we then ask “[w]hat else is there in the claims
before us?” To answer that question, we consider the elements of each claim both
individually and “as an ordered combination” to determine whether the additional
elements “transform the nature of the claim” into a patent-eligible application.
Id. at 2355 (third alteration in original) (internal citations omitted) (quoting Mayo, 132 S. Ct. at
1296-98).

This second step is a “search for an ‘inventive concept’—i.e., an element or

combination of elements that is ‘sufficient to ensure that the patent in practice amounts to
significantly more than a patent on the [ineligible concept] itself.’” Id. (alteration in original)
(quoting Mayo, 132 S. Ct. at 1294).
The Court in Alice initially determined that the patent claims before it—a method of
exchanging financial obligations between parties through “shadow accounts” managed by a third
party using generic computer equipment—was equivalent to intermediated settlement, a practice
“long prevalent in our system of commerce . . . .” Id. at 2356 (quoting Bilski v. Kappos, 561
U.S. 593, 611 (2010)). In describing the method before it as a “fundamental economic practice,”
the Court held that the intermediated settlement claims constituted an abstract idea. Id. at 2357

4

(citation omitted). The Court further found the patent lacking any transformation sufficient to
elevate the abstract idea into a patent-eligible application. See id. at 2357-58. “Taking the claim
elements separately, the function performed by the computer at each step of the process is
‘[p]urely conventional.’ Using a computer to create and maintain ‘shadow’ accounts amounts to
electronic recordkeeping—one of the most basic functions of a computer.” Id. at 2359 (citation
omitted). Utilizing computers to obtain data, adjust account balances, and issue automated
instructions did “no more than require a generic computer to perform generic computer
functions.” Id.
The Supreme Court concluded that the methods claims “amount[ed] to ‘nothing
significantly more’ than an instruction to apply the abstract idea of intermediated settlement
using some unspecified, generic computer.

Under our precedents, that is not ‘enough’ to

transform an abstract idea into a patent-eligible invention.” Id. at 2359-60 (internal citation
omitted) (citations omitted). Reaching the same conclusion with respect to the system claims,
the Court stated:
[T]he system claims are no different from the method claims in substance. The
method claims recite the abstract idea implemented on a generic computer; the
systems recite a handful of generic computer components to implement the same
idea. . . . Because [the] system and media claims add nothing of substance to the
underlying abstract idea, we hold that they too are patent ineligible under § 101.
Id. at 2360.
The Supreme Court has not delineated the precise parameters for determining what
constitutes an abstract idea or what additional “something” will suffice to boost the abstraction
over the patentability threshold. One formulation that has been used to identify non-patentable
abstract ideas is the “machine-or-transformation test.”

Under this analysis, a process is

patentable “only if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a

5

particular article into a different state or thing.” Bilski, 561 U.S. at 602 (citation omitted).
Although the Supreme Court rejected this as an exclusive test in Bilski v. Kappos, the Court also
indicated that “the machine-or-transformation test is a useful and important clue, an investigative
tool, for determining whether some claimed inventions are processes under § 101.” Id. at 604.
Recognizing the hedging method in that case as an “economic practice long prevalent in our
system of commerce,” the Court held the patent impermissibly claimed an abstract idea without
any additional transformative element. Id. at 611 (internal quotation marks omitted) (citation
omitted).
Another useful principle in analyzing patentability under Section 101 holds that business
methods generally do not pass muster.3 Although Bilski also disproved of the categorical denial
of patents covering mere business methods, the Court recognized that business method patents
were traditionally granted only rarely and “raise special problems in terms of vagueness and
suspect validity.” Bilski, 561 U.S. at 608 (citation omitted). The Court further noted that “the
Patent Act leaves open the possibility that there are at least some processes that can be fairly
described as business methods that are within patentable subject matter under § 101.” Id. at 609
(emphasis added). Thus, though not prohibited per se, it would appear that a business method
patent demonstrating the required “something more” would be unusual.
In response to Bilski’s invitation that the Federal Circuit develop parameters in this
regard, Judge Mayer’s concurrence in Ultramercial, Inc. v. Hulu, LLC articulated a
“technological arts” test derived from Bilski and Alice, that is, “a rule that claims are
impermissibly abstract if they are directed to an entrepreneurial objective, such as methods for
3

In Bilski, the Supreme Court noted that there is no precise definition of what constitutes a
business method under Section 101. See Bilski, 561 U.S. at 607 (citing Bronwyn H. Hall,
Business and Financial Method Patents, Innovation, and Policy, 56 SCOTTISH J. POL. ECON. 443,
445 (2009)).
6

increasing revenue, minimizing economic risk, or structuring commercial transactions, rather
than a technological one . . . .” Ultramercial II, 772 F.3d at 721 (Mayer, J., concurring). Under
this paradigm, “claims must harness natural laws and scientific principles—those truths about the
natural world that have always existed—and use them to solve seemingly intractable problems.
The claims must, moreover, not only describe a technological objective, but set out a precise set
of instructions for achieving it.” Id. at 722. This technological arts test has not been considered
by the Supreme Court, but may be helpful in analyzing the Asserted Patents.
B.

Analysis of the Asserted Patents

RaceTech’s patents describe gaming methods and systems for pari-mutuel wagering4 on
“historical events” generally, and in particular, horse, dog, and “animal” racing. ‘737 Patent col.
12 l. 63. These games are intended to increase the utility of recorded horse races and offer
gambling patrons a greater number of wagering opportunities compared to live or simulcast
races, thereby placing horse tracks in a better competitive position with casinos and slot
machines. See ‘150 Patent col. 1 l. 36 to col. 2 l. 7; ‘887 Patent col. 1 l. 43 to col. 2 l. 12; ‘737
Patent col. 1 ll. 26-43.
In each patent, the system consists of:





a video server (‘150 Patent col. 11 l. 32; ‘887 Patent col. 14 l. 7; ‘737 Patent col.
15 l. 55);
a game server (‘150 Patent col. 11 l. 35; ‘887 Patent col. 14 l. 9; ‘737 Patent col.
15 l. 58);
a gateway to the game server (‘150 Patent col. 11 l. 39; ‘887 Patent col. 14 l. 13;
‘737 Patent col. 2 l. 64); and
game terminals (‘150 Patent col. 11 l. 42; ‘887 Patent col. 14 l. 10; ‘737 Patent
col. 15 l. 57).

4

Black’s Law Dictionary defines the term “pari-mutuel betting” as “[a] system of gambling in
which bets are placed on a race pooled and then paid (less a management fee and taxes) to those
holding winning tickets.” Pari-Mutuel Betting, BLACK’S LAW DICTIONARY (10th ed. 2014).
7

The hardware components of the system are described generically as being available from
manufacturers such as Cisco Systems, Compaq Computer Corporation, Stratus Computer, Dell
Computer Corporation, N-cube, Microsoft Corporation, and Oracle Corporation. See ‘150 Patent
col. 3 ll. 42-52, col. 6 ll. 64-65; ‘887 Patent col. 3 ll. 49-60, col. 10 ll. 38-42, col. 11 ll. 53-56,
col. 11 ll. 9-14; ‘737 Patent col. 4 ll. 25-30, col. 12 ll. 20-24, col. 12 ll. 56-59. Game terminals
for bettors’ use in placing wagers are “any computer having a user interface,” a keyboard, a
pointer or mouse, a video monitor, and software. ‘150 Patent col. 6 ll. 58-62; ‘887 Patent col. 8
ll. 5-7; ‘737 Patent col. 3 ll. 14-17. The patents also claim a method for pari-mutuel wagering
which consists of “accessing the system.” See ‘150 Patent col. 13 ll. 43-44; ‘887 Patent col. 16
ll. 29-30; ‘737 Patent col. 2 ll. 7-8.
The first patent granted—the ‘150 patent—calls for configuration of the components
connected through use of networks to results from past races (including video footage) for
wagering.

See ‘150 Patent, at [57].

Two exemplary games called “Quick Trifecta” and

“Thoroughbred Mania” are appended to each Asserted Patent, and these games allow customers
to bet on races presented on their computer monitor, watch video footage, and either collect an
“instant payout” or qualify for additional wagering pools in the event of a winning wager. ‘150
Patent col. 8 ll. 55 to col. 16 ll. 19. Both games have a minimum guaranteed payout, which is
funded from a portion deducted from all wagers. See ‘150 Patent col. 9 ll. 57-65.
The ‘887 patent repeats largely verbatim the contents of ‘150, but expands the number of
independent claims from 2 to 5 and the dependent claims from 41 to 71. The ‘887 patent adds an
ability to connect the customer’s monitor to live racing in addition to the recorded race library.
See ‘887 Patent col. 6 l. 57. Further, the ‘887 patent includes hardware-based fault tolerance to

8

provide for continuous operation in the event of component failure. See ‘887 Patent col. 3 ll. 4648.
The ‘737 patent—issued just months ago and roughly thirteen years after ‘150 and
‘887—contains a great deal of the substance of its predecessors, but also describes the generation
of an alarm to the operator when the award pool runs below a minimum level.5 See ‘737 Patent
col. 16 l. 3. Additionally, this iteration of the gaming system allows the player to select
handicapping data by horse, jockey, or trainer, and to assign proportionate weights to each factor.
See ’737 Patent col. 6 ll. 5-65. The ‘737 patent also recites claims for computer-readable nontransitory storage media programmed to perform game functions, which was not part of the ‘150
or ‘887 patents.6 See ‘737 Patent col. 18 ll. 1-4.
C.

Application of Alice to ‘150 & ‘887 Patents

Defendants claim that RaceTech’s ‘150 and ‘887 patents regarding methods and
apparatus for pari-mutuel historical gaming are abstract ideas that involve no inventive concept
that sufficiently transforms the invention into patentable subject matter. Patents ‘150 and ‘887
are fundamentally the same, though ‘887 essentially subsumes ‘150; each claims a patent over
the process involved with pari-mutuel gambling based on past events. See ‘150 Patent col. 11 ll.
31-43; ‘887 Patent col. 14 ll. 5-11.

5

As with the ‘150 and ‘887 patents, the ‘737 patent utilizes a game server, gateway, video
server, administrative terminal, and game terminals. See ‘737 Patent col. 4 ll. 11-14.
6
The term “computer-readable storage media” refers to storage devices like computer hard
drives or RAM. See Ex parte Uslontsev, No. 2012-000905, 2014 WL 4254152, at *1 (P.T.A.B.
Aug. 11, 2014). To be eligible for patent protection, computer-readable storage media must be
non-transitory because transitory signals are not patentable. See In re Nuijten, 500 F.3d 1346,
1357 (Fed. Cir. 2007). See also MPEP § 2106 (9th ed. Rev. 07.2015, Nov. 2015) (“Non-limiting
examples of claims that are not directed to one of the statutory categories . . . [includes]
transitory forms of signal transmission (for example, a propagating electrical or electromagnetic
signal per se) . . . .” (citation omitted)).
9

Following the analysis of Alice, this Court must first determine if the ‘150 and ‘887
patents claim ownership over patentable subject matter versus an abstract idea. Courts have
consistently held that fundamental principles are abstract ideas. On the other hand, when a party
invents something entirely new, the idea is not abstract. See Ass’n for Molecular Pathology v.
Myriad Genetics, Inc., 133 S. Ct. 2107, 2216-17 (2013) (finding that while a DNA strand found
in nature is unpatentable subject matter, a lab-created DNA strand not found in nature would be
patentable). Furthermore, a practice with a long history is more likely to be abstract than an
entirely new practice. See Cal. Inst. of Tech. v. Hughes Commc’ns Inc., 59 F. Supp. 3d 974,
1001 (C.D. Cal. 2014). A review of RaceTech’s ‘150 and ‘887 patents indicates that the concept
in question is the wagering on unknown past events rather than a memory test, as suggested by
Defendants. (Defs.’ Mem. in Supp. of Mot. to Dismiss 5, DN 29-2). The patents disclose that
the game’s purpose is to ensure an unknown result rather than to test the player’s ability to recall
past events. See ‘150 Patent, at [57]; ‘887 Patent, at [57]. Therefore, the Court must consider
whether such a game based on unknown events is an abstract idea.
RaceTech argues that the abstract idea principle is only intended to apply to
“fundamental mathematical formulas” and “fundamental economic principles.” (Pl.’s Resp. to
Mot. to Dismiss 15, DN 31 [hereinafter Pl.’s Resp.]). The Court rejects this view as too narrow.
The abstract idea principle has also invalidated patent claims beyond those involving
mathematical formulas and economic principles. See Funk Bros. Seed Co. v. Kalo Inoculant Co.,
333 U.S. 127, 129 (1947) (finding different strains of bacteria unpatentable); Myriad Genetics,
133 S. Ct. at 2109 (finding newly discovered DNA strand unpatentable). More specifically,
courts have also applied the abstract idea principle to invalidate patents related to recreational
wagering. See, e.g., Planet Bingo, LLC v. VKGS LLC, 576 F. App’x 1005, 1006-07 (Fed. Cir.

10

2014); Everglades Game Techs., LLC v. Supercell Inc., No. 14-643-GMS, 2015 WL 4999654, at
*3-4. (D. Del. Aug. 21, 2015).
In Planet Bingo, the plaintiff owned two patents over computer-aided management of
bingo games. See Planet Bingo, 576 F. App’x at 1006. The defendant claimed that both patents
covered unpatentable subject matter, as the patents attempted to claim ownership over the
abstract idea of playing a game of bingo. See id. at 1008. The court struck down the plaintiff’s
claims over its management of bingo cards regardless of how efficient the invention made
playing the game, reasoning that the steps in the patent could be performed by an ordinary
person utilizing a pen and paper and mental processes. See id. at 1007.
Planet Bingo supports the conclusion that the ‘150 and ‘887 patents comprise abstract
ideas. Planet Bingo establishes that ideas are abstract when a claim “consists solely of mental
steps which can be carried out by a human using pen and paper.” Id. (internal quotation marks
omitted) (citation omitted). Under this analysis, an idea may be abstract regardless of how
efficiently the invention implements the process. See id. Thus, RaceTech’s claim would be
abstract if the process of pari-mutuel gaming could be carried out by a human using mental steps
and a pen and paper. Id.
The wagering systems described in ‘150 and ‘887 patents encompass a fundamental
human activity. See Alice Corp., 134 S. Ct. at 2355. Applying the reasoning of Planet Bingo,
the asserted claims are abstract since a person could achieve pari-mutuel wagering through
ordinary mental steps. See Planet Bingo, 576 F. App’x at 1007. The computations involved
with this process require simple mathematic functions, which could be accomplished on paper—
though hand-computation would certainly be much more cumbersome. Betting is intrinsic to
horse racing, and pari-mutuel wagering on horse races has been conducted in the United States

11

since at least 1927—long before the invention of computers. See STEVEN A. REISS, CITY GAMES:
THE EVOLUTION

OF

AMERICAN URBAN SOCIETY &

FERRAN CANYAMERES, L’HOMME

DE LA

THE

RISE

OF

SPORTS 188 (1991). See also

BELLE ÉPOQUE 35 (1946) (noting that pari-mutuel

betting was invented in 1867). This fundamental activity of wagering on sporting contests, thus,
is properly characterized as an abstract idea. See Alice Corp., 134 S. Ct. at 2356-57; Bilski, 561
U.S. at 611-12.
The singular innovation in this case is that RaceTech’s wagering method/system
embodies the technique of allowing bets on events that have already occurred—perhaps months
or years earlier. The question thus becomes whether betting on past events changes the inherent
nature of the claimed patents to something other than abstract ideas. In this regard, the Federal
Circuit noted in Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335 (Fed. Cir. 2013) (Ultramercial
I), vacated sub nom. WildTangent, Inc. v. Ultramercial, LLC, 134 S. Ct. 2870 (2014):
In an effort to grapple with this non-statutory “abstractness” exception to
“processes,” the dictionary provides some help. See MERRIAM-WEBSTER’S
COLLEGIATE DICTIONARY 5 (11th ed. 2003) (defining abstract as “disassociated
from any specific instance . . . expressing a quality apart from an object <the word
poem is concrete, poetry is [abstract]>”). An abstract idea is one that has no
reference to material objects or specific examples—i.e., it is not concrete.
Id. at 1342-43. Extending the poetry/poem analogy, flight would be abstract but an airplane
would be concrete. The Court believes that characterizing RaceTech’s patents as concrete would
be the equivalent of saying that flight is abstract, but flying while facing backwards is concrete.
Pari-mutuel gambling on live races is a longstanding practice, and betting on recorded races does
not change the fundamental characteristics of the activity. Given that the abstract idea limitation
applies to fundamental economic practices, Planet Bingo indicates that computer-aided
gambling, including wagering on past events, is analogous to those principles. See Planet Bingo,

12

576 F. App’x at 1008-09. See also Alice Corp., 134 S. Ct. at 2356-57; Bilski, 561 U.S. at 61112;
Another wrinkle with the subject patents is the implementation of the claimed processes
and methods through use of computer equipment. Conducting this activity through computer
hardware and software, however, likewise does not change the abstract nature of the subject. As
discussed above, the analysis turns on the fundamental nature of wagering which can be
achieved with ordinary mental steps, despite the use of computers to speed up the process.7 See
Alice Corp., 134 S. Ct. at 2354-55; Planet Bingo, 576 F. App’x at 1007 (citing Alice Corp., 134
S. Ct. at 2347; Bilski, 561 U.S. at 610-11). Thus, the Court concludes that the systems and
methods described in ‘150 and ‘887 cover abstract ideas.
As directed by Alice, finding that pari-mutuel wagering on historic events is an abstract
idea is not the end of the analysis. “Abstract ideas may still be patent-eligible if they contain an
inventive concept sufficient to transform the claimed abstract idea into a patent-eligible
application.”

Id. (citing Alice Corp., 134 S. Ct. at 2357).

Inventive concepts represent

significantly more than just the abstract idea and cannot be merely the implementation of an
abstract idea through a general computer process. See Alice Corp., 134 S. Ct. at 2354-55.
Indeed, patents that claim ownership over an abstract idea must integrate that idea into
“something more” than merely the idea itself. See id. at 2354. The Supreme Court has held that
a combination of processes may be patentable even if each individual element is abstract. See
7

RaceTech also argues that its invention does not preempt others from engaging in gambling on
historical events and that other inventors are free to utilize any process that does not involve a
“video server” or “game terminal.” (Pl.’s Reply 26). Further, RaceTech claims that it is not
asserting ownership over historical gambling in other contexts besides racing. RaceTech posits
the use of “tables” and “photographs” as an alternative to videos. (Pl.’s Reply 26). These
arguments are unpersuasive. RaceTech cannot claim exclusive ownership over the inclusion of
video and game terminals in historical gaming. See Planet Bingo, 576 F. App’x at 1008-09
(finding claim over use of video and game terminals invalid).
13

Diamond v. Diehr, 450 U.S. 175, 187 (1981). When considering whether an inventive concept
exists, the Court must consider the entire patent as a whole rather than each claim individually
because “a combination of conventional elements may be unconventional.” Cal. Inst. of Tech.,
59 F. Supp. 3d at 992-93 (citation omitted).
Defendants argue RaceTech’s patent does not contain an inventive concept because the
processes and systems claimed by RaceTech’s patent are “well-understood, routine, [and]
conventional” processes performed by everyday computer systems and the ‘887 patent describes
nothing more than basic computer functions. (Defs.’ Mem. in Supp. of Mot. to Dismiss 14).
These elements are not viewed in a vacuum, however, as the entire claim must be analyzed to
determine if an inventive concept exists.8 See Diehr, 450 U.S. at 188.
When computers communicate over a network, the process is functionally generic and
unpatentable. See buySAFE, Inc. v. Google Inc., 765 F.3d 1350, 1355 (Fed Cir. 2014). The
Court cannot find “something more” through the basic use of computers to accomplish a process
already well-known. See Alice Corp., 134 S. Ct. at 2358 (citing Parker v. Flook, 437 U.S. 584,
592 (1978)). Furthermore, additional utilization of generic hardware in combination with a
computer system is insufficient to constitute a transformative innovation.

See Content

Extraction & Transmission LLC v. Wells Fargo Bank, N.A., 776 F.3d 1343, 1347 (Fed. Cir.
2014). These concepts have been particularly applied in the context of computer systems and

8

Defendants specifically argue that independent claims 1, 29, 48, 61, and 71 of the ‘887 patent
describe basic computer functions such as storage, server-to-server communication, gateways,
and network connections. (Defs.’ Mem. in Supp. of Mot. to Dismiss 13-16). Defendants
reference several dependent claims utilizing basic computer equipment and processes such as
keyboards, mice, storage devices, and various types of computer data. (Defs.’ Mem. in Supp. of
Mot. to Dismiss 21-24). Since the dependent claims are merely elements of the entire process
associated with claims in the ‘150 and ‘887 patents, the Court declines to address these
separately.
14

hardware utilized in conjunction with computerized gambling. See Planet Bingo, 576 F. App’x
at 1006-07. See also Everglades Game Techs., 2015 WL 4999654, at *3-4.
On their face, neither the ‘150 nor ‘887 patent appears to describe anything beyond
various pieces of ordinary computer equipment communicating in a functionally generic way.
While RaceTech argues that viewed as a whole the ‘150 and ‘887 patents constitute something
more, these systems accomplish fundamentally standard processes. The video server and game
server act as storage devices to provide the data and videos needed to accomplish a game of parimutuel wagering.9 (Pl.’s Resp. 22-23). The information is then sent to a game terminal where
players can play the game. (Pl.’s Resp. 22-23). An administrative terminal exists to manage the
game through totalization.10 See ‘150 Patent fig. 1, item 22; ‘887 Patent fig. 1, item 18. The
servers and terminals communicate over a network facilitated by a gateway. See ‘150 Patent fig.
1, item 16; ‘887 Patent fig. 1, items 15-16. All of this equipment is described as being readily
available through well-known manufacturers such as Dell, Microsoft, and Compaq. None of
these elements appear to be transformative.
Case law dictates the conclusion that the claimed systems do not describe patentable
subject matter. See Alice Corp., 134 S. Ct. at 2360 (implementation of computer equipment to
accomplish basic calculations, data storage, and transmission held unpatentable); buySAFE, Inc.,
765 F.3d at 1355 (computers communicating with each other over a network comprising various
9

This configuration appears to differ from regular simulcast racing primarily in that the live
video feed is replaced with recorded images.
10
The term “totalizator” (also spelled “totalisator”), which is synonymous with the term “parimutuel,” is defined as “a machine for registering the bets and computing the payoff in parimutuel
betting.”
Totalizator,
MERRIAM-WEBSTER,
http://www.merriamwebster.com/dictionary/totalizator (last visited Feb. 8, 2016); Pari-mutuel, MERRIAM-WEBSTER,
http://www.merriam-webster.com/dictionary/pari-mutuel (last visited Feb. 8, 2016). RaceTech’s
patent incorporates a totalisator system in the “Administrative Terminal” labeled in the ‘150
patent as “Gateway to Tote System” in its ‘887 patent. See ‘150 Patent fig. 1, item 22; ‘887
Patent fig. 1, item 16; ‘887 Patent col. 3 ll. 43-44.
15

pieces of generic computer equipment ineligible for patent protection); Wells Fargo Bank, 776
F.3d at 1347 (computer system utilizing scanners invalid under Section 101); Planet Bingo, 576
F. App’x at 1008-09 (system consisting of “a computer with a central processing unit, a memory,
an input and output terminal, a printer, in some cases a video screen, and a program . . . enabling
the steps of managing a game of bingo” did not constitute an inventive concept). The use of
generic computer systems to achieve well-known principles in an industry does not change an
abstract idea into patentable subject matter. See Flook, 437 U.S. at 592. By contrast, a process
may be patentable when standard equipment is used to accomplish an entirely new result not
before achieved in an industry. See Diehr, 450 U.S. at 175. In Diehr, the contested process
utilized a combination of abstract ideas to create something that had never been achieved in the
pertinent industry.

See id. at 178 (using a thermocouple to record constant temperature

measurements inside the rubber mold—something “the industry ha[d] not been able to obtain”).
The inventive element of RaceTech’s patents is the use of historical data instead of live
data. Instead of providing something more, however, the Court believes the ‘150 and ‘887
patents provide something less. Simulcast horse racing has long been utilized in the horse racing
industry. Simulcast broadcasts provide live results from tracks across the country in a wide
variety of weather conditions. None of the frequent complications occurring in real-time races
would impair wagering on pre-recorded races because the winners have been determined before
wagering on the recorded race even commences. Though video footage or simulation of the
recorded race can be shown for its entertainment value, the results of the betting could be
revealed almost immediately because the outcome is “known” in advance by the computer. This
is something less than live racing because all of the vicissitudes of the actual contests have
already occurred before the video “race” is shown to the bettor.

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RaceTech’s claimed “something more” amounts to replacing a live broadcast with what
is akin to—in archaic terms—inserting a video tape into a VCR and pressing “play.” Although
the practice of allowing bettors to gamble on old races may not have been available before the
‘150 and ‘887 patents, that fact alone does not render the ideas patent-eligible.
“[G]roundbreaking, innovative, or even brilliant discovery does not by itself satisfy the § 101
inquiry.” Myriad Genetics, 133 S. Ct. at 2117 (citation omitted). “[W]hile a person may have
‘invented’ something under the sun, it does not qualify for patent protection unless the Patent
Act’s statutory requirements have been satisfied.” Ultramercial II, 772 F.3d at 720 (Mayer, J.,
concurring). See also id. at 716 (holding “that some of the [patent’s] steps were not previously
employed in this art is not enough—standing alone—to confer patent eligibility upon the claims
at issue.”); OIP Techs. v. Amazon.com, Inc., 788 F.3d 1359, 1364 (Fed. Cir. 2015) (collecting
customer statistics was “well-understood, routine, conventional data-gathering activities that do
not make the claims patent eligible.” (citing Alice, 135 S. Ct. at 2359; Mayo, 132 S. Ct. at
1298)); Everglades Game Techs. v. Supercell, Inc., No. 14-643-GMS, 2015 WL 4999654, at *4
(D. Del. Aug. 21, 2015) (finding no inventive contribution to gathering, storing, and displaying
data, and enabling customer access via computer interface). In this instance, the collected data
consists of recorded horse races and there is certainly nothing novel about recording a sporting
event for later viewing. Under these circumstances, RaceTech’s patents allowing customers to
bet on recorded races through use of conventional computers do not contain a sufficiently
transformative inventive concept to render them patentable. See Intellectual Ventures I LLC v.
Capital One Bank, 792 F.3d 1363, 1371 (Fed. Cir. 2015) (denying patent eligibility for claims
consisting of entering data into computer database, organizing, and transmitting information to
user through generic computer equipment).

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D.

‘737 Patent: “Web Based Methods and Apparatus for Pari-mutual
Historical Gaming”

The ‘737 patent involves similar, and sometimes identical, claims to the ‘887 and ‘150
patents. The ‘737 patent distinguishes itself in independent claims 8 and 15 that provide for a
“seed pool” which allows additional funds to be added to the total award amount if the amount is
below the “threshold value.” See ‘737 Patent col. 16 l. 39 to col. 17 l. 37. Even more so than
wagering on past events, coverage of amounts overdrawn by customers seems to comprise a
fundamental economic concept. For example, such a practice appears analogous to “the house”
covering bets at a casino. Under ‘737, the administrator provides security to ensure winners are
paid even when the pot lacks sufficient funds to pay the winners, much like the Federal Deposit
Insurance Corporation provides security when a bank lacks sufficient funds to cover the value of
its customers’ deposits.

Courts have held that similar risk-reducing economic policies are

abstract. See Bilski, 561 U.S. at 599 (risk hedging against price changes in energy commodities
held to be abstract). As with pari-mutuel wagering, the concept of insurance protection for credit
owed is a fundamental human practice with a long history and is therefore abstract. See Alice
Corp., 134 S. Ct. at 2354-55. See also Cal. Inst. of Tech., 59 F. Supp. 3d at 1001.
As previously noted, courts have compared such principles to practices in the gaming
industry and found them to be abstract. See Planet Bingo, 576 F. App’x at 1006-07; Everglades
Game Techs., 2015 WL 4999654, at *3-4. Here, the ‘737 process manages a game of wagering
by ensuring sufficient funds to pay successive winners through “seed pools” funded from
previous wagers. See ‘737 Patent col. 2 ll. 37-39. By adding its own funds to the wagering
pools, the operator then becomes involved in the bet—at least to the extent of ensuring the
availability of funds to pay off winning bets at the minimum threshold level. Betting against the

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house is a fundamental and abstract concept. Thus, the Court finds the additional claims in the
‘737 patent are abstract.
As with ‘150 and ‘887 patents, RaceTech has failed to establish the “something more”
needed to transform this abstract idea into patentable subject matter. A combination of purely
generic computer equipment is utilized to accomplish the seed pool process of the ‘737 patent.
See ‘737 Patent col. 4 ll. 23-32. As the patent involves the same combination of equipment and
systems, the Court finds the systems and methods in the ‘737 patent are not inventive concepts.
E.

Alternative Tests for Validity

The conclusion that the contested patents do not pass muster is also supported by the
various, albeit non-exclusive, tests discussed above.

See Bilski, 561 U.S. at 602-04;

Ultramercial II, 772 F.3d at 721-22. Under the machine-or-transformation test, the processes
described by these patents are clearly not tied to any particular machine or apparatus. Instead,
the equipment necessary for the operations consists of name-brand computer equipment that is
widely available. Additionally, there is no transformation of any particular article into a different
state, only the placement of a wager utilizing an ordinary computer. Likewise, the patents at
issue are best characterized as encompassing a business method. RaceTech’s patents describe a
business method with the express purpose of adding greater shelf life to the operator’s inventory
of gaming events by recycling previously recorded races. This may very well be an excellent
money-making concept, but it hardly qualifies as a transformative invention or discovery.
Finally, the patents in this case would not qualify under a technological arts test. These
patents claim methods that are intrinsically entrepreneurial in nature and clearly do not harness
any natural laws or scientific principles to solve seemingly intractable problems. While the

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Asserted Patents may comprise a profitable means of reusing the results from prior races,11 they
do not constitute patentable inventions under Section 101.
V.

CONCLUSION

RaceTech’s patents encompass subject matter facially unpatentable under Section 101.
Dismissal is appropriate at this time when there has been a minimum expenditure of time and
money by the parties and the court. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007)
(citation omitted). Indeed, other courts have dismissed cases at this stage in litigation involving
similarly unpatentable computer processes. See, e.g., buySAFE, Inc., 765 F.3d at 1351; Wells
Fargo Bank, 776 F.3d at 1344; Ultramercial II, 772 F.3d at 711.
The only plausible reading of the ‘150, ‘887, and ‘737 patents reflects that they are
ineligible for patent protection. The Asserted Patents are abstract ideas, and RaceTech has failed
to demonstrate an inventive concept required to transform these claims into patentable subject
matter within the meaning of Section 101. Thus, the claims asserted in the Amended Complaint
must be dismissed.
For the foregoing reasons, IT IS HEREBY ORDERED that Defendants’ Motions to
Dismiss (DN 21, 22, 29) are GRANTED.

Greg N. Stivers, Judge
United States District Court
February 29, 2016

cc:

counsel of record

11

Kentucky Downs reportedly grossed over $30 million dollars with its historical racing
machines in one month during the pendency of this action. See Pl.’s Mot. to Dismiss Ex. A, at 4,
DN 22-3, RaceTech, LLC v. Ky. Downs, LLC, No. 1:15-CV-00082-GNS (W.D. Ky.).
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