Home Gambling Network, Inc., etal VS Chris Piche, etal

Filing 333

ORDER Granting 312 Defendants' Motion for Summary Judgment and Denying 323 Plaintiffs' Motion to Defer Defendants' Motion for Summary Judgment. Signed by Judge David A. Ezra on 9/30/2013. (Copies have been distributed pursuant to the NEF - SLD)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEVADA
HOME GAMBLING NETWORK,
INC., et al.,

)
)
)
Plaintiffs,
)
)
vs.
)
)
CHRIS PICHE, et al.,
)
)
Defendants.
)
_____________________________ )

2:05-cv-00610-DAE-VCF

ORDER: (1) GRANTING DEFENDANTS’ MOTION FOR SUMMARY
JUDGMENT; (2) DENYING PLAINTIFFS’ MOTION TO DEFER
Before the Court is the Motion for Summary Judgment (doc. # 312)
brought by Defendants Inversiones VS Dos Mil, S.A. d/b/a casinowebcam.com
(“CWC”), Chris Piche, and Eyeball Networks, Inc. (collectively, “Defendants”)
and the Motion to Defer or Deny Defendants’ Motion for Summary Judgment
(doc. # 323) brought by Plaintiffs Home Gambling Network, Inc. (“HGN”) and
Mel Molnick (collectively, “Plaintiffs”). After reviewing the motions and the
supporting and opposing memoranda, the Court GRANTS Defendants’ Motion for
Summary Judgment and DENIES Plaintiffs’ Motion to Defer.

BACKGROUND
I.

Factual Background
On September 1, 1998, the United States Patent and Trademark Office

issued Patent No. 5,800,268, entitled “Method of Participating in a Live Casino
Game from a Remote Location” (the “Method Patent”), to inventor Mel Molnick,
who subsequently assigned all rights in the Method Patent to HGN. (See Doc. # 98
(“FAC”) ¶ 12.) In 2003, Molnick, the President of HGN, contacted CWC to
license the Method Patent. (Id. ¶ 4.) On November 25, 2003, CWC entered into
five license agreements with Plaintiffs, which were superseded by a patent license
agreement (the “HGN Contract”) on August 10, 2004. (Id. ¶¶ 24, 27.)
The HGN Contract granted Defendants a license to use the Method
Patent and, in turn, to grant sublicenses to other companies. (Id. ¶¶ 29–34.) More
specifically, the contract gives CWC “a perpetual, exclusive, royalty-free
worldwide license to use the Licensed Technology” and the right “to grant
sublicenses therein to CWC Resellers, CWC Licensees, and End Users.” (Doc.
# 111-3 (“HGN Contract”) § 2.1.) The HGN Contract also expressly provided that
“[n]o further approval or documentation” was “required” from Plaintiffs with
respect to the granting of sublicenses. (Id.) The HGN Contract further defines
“CWC Software” as “any software owned or licensed by CWC, which CWC
2

makes generally available to its customers, and which enables CWC and CWC
Licensees to provide any games over computer networks to end users, excluding
Bingo, Keno, Lottery and all sporting events.” (Id. § 1.4 (emphasis added).)
Pursuant to the HGN Contract, CWC used the Method Patent in
conjunction with online gambling operations. (See Doc. # 312-5 (“Piche Decl.”)
¶ 3.) CWC ran a “live webcam casino” (the “Live Casino”), which functioned like
any other casino except that it was outfitted with digital cameras to allow
physically remote customers to view and interact with the casino, which was
located in Costa Rica, through the internet. (Id.) Players could access the Live
Casino through the website www.casinowebcam.com. (Id.) CWC also ran a
related business that offered licences to third-party online gaming websites,
allowing them to use CWC software to offer live webcam casino gaming without
needing to operate their own “live” casinos. (Id.) At all relevant times, CWC’s
computer servers, which hosted the online games, and the employees of the Live
Casino were located in Costa Rica. (Id; see also FAC ¶¶ 5, 7 (admitting that
Defendants are all foreign individuals or entities and that CWC was a Costa Rican
business with its principal place of business in Costa Rica); Doc. # 274 (“Beall
Decl.”) Ex. 1 ¶ 1 (claiming servers recorded time in their local Costa Rica time).)
II.

Procedural Background
3

On July 10, 2006, Plaintiffs filed a First Amended Complaint,
alleging, among other things, that CWC infringed their Method Patent through
CWC’s operation of an online gambling website and its production and distribution
of online gambling software, all of which permitted sports betting, lottery, keno,
and bingo games. (FAC ¶¶ 88–89.) While recognizing that Defendants had the
right to grant sublicenses under the HGN Contract, Plaintiffs assert that CWC
improperly sublicensed its software without excluding bingo, keno, lottery, and
sports betting. (Id. ¶¶ 112–14.)
On August 10, 2006, Defendants filed a Motion for Summary
Judgment on all counts of the First Amended Complaint. (Doc. # 111.) On March
30, 2007, the Court issued an Order Granting in Part and Denying in Part
Defendants’ Motion for Summary Judgment. (Doc. # 143.) The Court granted
Defendants summary judgment as to Count Two (Declaratory Judgment) and
Count Seven (Conversion) of the First Amended Complaint. (Id.) The Court
denied the motion as to Count One (Patent Infringement), Count Three
(Preliminary and Permanent Injunction), Count Four (Accounting), Five (Breach of
Contract), and Six (Intentional Interference with Contractual Relationships). (Id.)
Approximately six years later, on February 27, 2013, Defendants filed
a second Motion for Summary Judgment, contending that “the record is ripe for
4

summary judgment on the remaining counts of the complaint.” (Doc. # 312 at 2.)
On April 12, 2013, Plaintiffs filed a Motion to Defer Defendants’ Motion for
Summary Judgment pursuant to Federal Rule of Civil Procedure 56(d) to allow
time to complete discovery. (Doc. # 323.) Plaintiffs also filed a Preliminary
Response to Defendants’ Motion for Summary Judgment Motion. (Doc. # 324.)
On May 17, 2013, Defendants filed a reply in support of their Motion for Summary
Judgment. (Doc. # 328.)
STANDARD OF REVIEW
Summary judgment is granted under Federal Rule of Civil Procedure
56 when “the pleadings, the discovery and disclosure materials on file, and any
affidavits show that there is no genuine issue as to any material fact and that the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); see also
Porter v. Cal. Dep’t of Corr., 419 F.3d 885, 891 (9th Cir. 2005); Addisu v. Fred
Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000). A main purpose of summary
judgment is to dispose of factually unsupported claims and defenses. Celotex
Corp. v. Catrett, 477 U.S. 317, 323–24 (1986).
Summary judgment must be granted against a party that fails to
demonstrate facts to establish what will be an essential element at trial. See id. at
323. A moving party without the ultimate burden of persuasion at trial—usually,
5

but not always, the defendant—has both the initial burden of production and the
ultimate burden of persuasion on a motion for summary judgment. Nissan Fire &
Marine Ins. Co. v. Fritz Co., 210 F.3d 1099, 1102 (9th Cir. 2000). The burden
initially falls upon the moving party to identify for the court those “portions of the
materials on file that it believes demonstrate the absence of any genuine issue of
material fact.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d
626, 630 (9th Cir. 1987) (citing Celotex Corp., 477 U.S. at 323).
Once the moving party has carried its burden under Rule 56, the
nonmoving party “must set forth specific facts showing that there is a genuine
issue for trial” and may not rely on the mere allegations in the pleadings. Porter,
419 F.3d at 891 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256
(1986)). In setting forth “specific facts,” the nonmoving party may not meet its
burden on a summary judgment motion by making general references to evidence
without page or line numbers. S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885,
889 (9th Cir. 2003). “[A]t least some ‘significant probative evidence’” must be
produced. T.W. Elec. Serv., 809 F.2d at 630 (quoting First Nat’l Bank of Ariz. v.
Cities Serv. Co., 391 U.S. 253, 290 (1968)). “A scintilla of evidence or evidence
that is merely colorable or not significantly probative does not present a genuine
issue of material fact.” Addisu, 198 F.3d at 1134. Further, the Ninth Circuit has
6

“refused to find a ‘genuine issue’ where the only evidence presented is
‘uncorroborated and self-serving’ testimony.” Villiarimo v. Aloha Island Air, Inc.,
281 F.3d 1054, 1061 (9th Cir. 2002) (citing Kennedy v. Applause, Inc., 90 F.3d
1477, 1481 (9th Cir. 1996)). “Conclusory allegations unsupported by factual data
cannot defeat summary judgment.” Rivera v. Nat’l R.R. Passenger Corp., 331 F.3d
1074, 1078 (9th Cir. 2003).
When “direct evidence” produced by the moving party conflicts with
“direct evidence” produced by the party opposing summary judgment, “the judge
must assume the truth of the evidence set forth by the nonmoving party with
respect to that fact.” T.W. Elec. Serv., 809 F.2d at 631. In other words, evidence
and inferences must be construed in the light most favorable to the nonmoving
party. Porter, 419 F.3d at 891. The court does not make credibility determinations
or weigh conflicting evidence at the summary judgment stage. Id.; see also Nelson
v. City of Davis, 571 F.3d 924 (9th Cir. 2009) (“[C]redibility determinations, the
weighing of the evidence, and the drawing of legitimate inferences from the facts
are jury functions, not those of a judge.”) (citations omitted). However, inferences
may be drawn from underlying facts not in dispute, as well as from disputed facts
that the judge is required to resolve in favor of the nonmoving party. T.W. Elec.
Serv., 809 F.2d at 631.
7

DISCUSSION
I.

Motion for Summary Judgment
A.

Patent Infringement Claim
In their previous Motion for Summary Judgment (doc. # 111),

Defendants argued that Plaintiffs’ claim for patent infringement failed as a matter
of law because CWC had a license to use the Method Patent. In its March 30, 2007
Order Granting in Part and Denying in Part Summary Judgment, the Court
observed that, even if the license were a complete defense to use of the Method
Patent, it would not necessarily preclude other theories of infringement—namely,
infringement of the patentee’s exclusive right to import, make, sell, or offer to sell
the patented method and inducement of such infringement under 35 U.S.C.
§ 271(b). (Doc. # 143.) Noting that such infringement theories were novel, the
Court left it to Plaintiffs to show, following further factual development, whether
such claims might legally proceed. (Id. at 13.)
In the instant Motion for Summary Judgment, Defendants make two
new arguments. They contend that they are not liable for patent infringement
because (1) Defendants never used the Method Patent in the United States; and (2)
the Method Patent does not cover “bingo, keno, lottery or sports betting” under the
doctrine of file wrapper estoppel. (Doc. # 312.) Each argument is discussed in
8

turn.
i.

No Infringement Due to Use Outside the United States
1.

Claim Construction

In patent infringement litigation, the Court first determines the scope
and meaning of the patent claims asserted. Cybor Corp. v. FAS Techs., Inc., 138
F.3d 1448, 1454 (Fed. Cir. 1998) (en banc) (citing Markman v. Westview
Instruments, Inc., 517 U.S. 370, 388–89 (1996)). In construing a claim, the court
generally limits itself to the construction of only those terms “that are in
controversy, and only to the extent necessary to resolve the controversy.” Vivid
Techs., Inc. v. Am. Sci. & Eng’g, Inc., 200 F.3d 795, 803 (Fed. Cir. 1999).
To determine the scope and meaning of disputed claim terms, the
court “look[s] to the words of the claims themselves, the written description, the
prosecution history, and, finally, any relevant extrinsic evidence.” Zircon Corp. v.
Stanley Black & Decker, Inc., 452 F. App’x 966, 972 (9th Cir. 2011) (citing
Phillips v. AWH Corp., 415 F.3d 1303, 1312–19 (Fed. Cir. 2005) (en banc)). The
court’s analysis generally begins with the language of the claim itself. See
Vitriolics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582 (Fed. Cir. 1996). The
words of a patent claim “are generally given their ordinary and customary
meaning.” Id. The ordinary and customary meaning of a claim term is the
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meaning that the term would have to a person of ordinary skill in the art in question
at the time of the invention. Phillips, 415 F.3d at 1313. Additionally, “[i]t is . . .
entirely appropriate for a court, when conducting claim construction, to rely
heavily on the written description for guidance as to the meaning of the claims.”
Id. at 1317. The final piece of intrinsic evidence which the court may consider is
the prosecution or file history. Zircon, 452 F. App’x at 972. The prosecution
history “consists of all express representations made by or on behalf of the
applicant to the [patent] examiner to induce a patent grant.” Howmedica Osteonics
Corp. v. Wright Med. Tech., Inc., 540 F.3d 1337, 1346 (Fed. Cir. 2008) (citation
omitted) (internal quotation marks omitted).
In this case, the Method Patent contains three independent claims. On
March 13, 1997, during patent prosecution, Plaintiffs’ counsel stated the following
in the “Remarks” section of Plaintiffs’ “Amendment” to the Method Patent:
Also at the interview the examiner and the undersigned reached
agreement to incorporate player interaction into the remaining
independent claims 21, 24 and 39 . . . . The remainder of the pending
claims depend directly or indirectly from allowable claims 21, 34, and
39.
(Doc. # 24, Ex. F at 132.) Claim 21 became renumbered Claim 1 of the Method
Patent issued; Claim 34 became Claim 14; and Claim 39 became Claim 19. (Id. at
120, 123, 126.) As the above quote demonstrates, the three independent claims of
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the Method Patent all incorporate “player interaction,” and the Court’s analysis as
to Claim 1 applies with equal force to each of the independent claims.
Relevant to this case, “Step ix” of Claim 1 provides:
(ix) the player over the first information line interacting with the
casino to control the play of the game until an outcome is
obtained . . . .
(Doc. # 312-1 at col. 8:44–46.) In other words, this step requires the player to use
his computer to perform whatever actions are necessary over the internet to
advance play of the game taking place at the live casino. For example, in a game
of blackjack, the player uses his computer to indicate over the internet to the live
casino that he wishes to hit (be dealt an additional card) or stand, until the game
ends. Under the plain language of the claim, “interacting with the casino” means
that something has to happen at the casino, wherever the casino is located.
Claim 1 also includes a step in which the party hosting the online
casino game determines whether a player’s bet was won or lost, and the player
views the outcome of the frame as it occurred at the live casino to confirm the
result. “Step x” of Claim 1 provides:
(x) determining from the outcome whether the player’s bet is won or
lost, said player viewing the live play of the game at the display to
confirm the outcome . . . .
(Doc. # 312-1 at col. 8:47–49.) This method step requires action at the live casino
11

because someone, or some mechanism, has to determine whether the player’s bet
was won or lost, and then indicate this to the web servers. In short, to infringe the
Method Patent, there must be activity at the Live Casino. Indeed, this is clear from
the very title of the Method Patent, “Method of Participating in a Live Casino
Game from a Remote Location.” (See Doc. # 312-1.)
2.

Infringement Analysis

As described above, the Method Patent requires players to interact
with the live webcam casino. Defendants maintain that, because the Live Casino
and CWC’s computer servers were located in Costa Rica, and thus not all of the
method steps were performed in the United States, they cannot be liable for patent
infringement.
In NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir.
2005), the Federal Circuit held that a method patent cannot be infringed unless all
of the method steps are performed in the United States. Id. at 1318 (holding that “a
process cannot be used ‘within’ the United States as required by section 271(a)
unless each of the steps is performed within this country”) (emphasis added). The
defendant in that case, Research In Motion, Ltd. (“RIM”), was the maker and
provider of BLACKBERRY® cellular phones and services to customers in the
United States. See id. at 1289–90. The method at issue involved the transmission
12

of messages from sender to recipient, which, in the case of BLACKBERRY
phones, typically involved senders and recipients who were both located in the
United States. See id. at 1317. All steps occurred in the United States except for
one, which involved the transmission of all messages through a relay in Canada.
Id. at 1318. Since one of the steps of the patented method was performed outside
the United States, the Federal Circuit held there could be no liability imposed for
“use” of the method patent under 35 U.S.C. § 271(a). Id. The court also held that
the method was not sold or offered for sale within the meaning of § 271(a) because
“RIM’s performance of at least some of the recited steps of the asserted method
claims as a service for its customers cannot be considered to be selling or offering
to sell the invention covered by the asserted method claims.” Id. at 1321.
There is no dispute that the Live Casino—and the computer servers
making it available to players around the world through the internet—were located
in Costa Rica at all relevant times. (See Piche Decl. ¶ 4; FAC ¶ 89 (“Defendants
and each of them have attempted to evade liability for their infringement of
Plaintiffs’ patented method by locating portions of their operations offshore . . . .
”).) The players had to interact with the Live Casino to have their wagers
processed, etc., through CWC’s facilities in Costa Rica. Thus, at no point was
every step of Plaintiffs’ method practiced in the United States. Accordingly,
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Defendants did not “use” the Method Patent in the United States within the
meaning of 35 U.S.C. § 271(a) and cannot be liable for infringement on that basis.
Likewise, there can be no liability for the “sale” of the Method Patent
in this case under 35 U.S.C. § 271(a). In NTP, the Federal Circuit explained:
“[T]he legislative history of section 271(a) indicates Congress’s understanding that
method claims could only be directly infringed by use.” NTP, 418 F.3d at 1320.
However, the NTP court expressly declined to decide whether method claims may
be infringed under the “sells” or “offers to sell” prongs of § 271(a). Id. at
1320–21. Nevertheless, just as in NTP, the fact that Defendants sold their services
to online players located in the United States does not create liability for the “sale”
of the patented method, because CWC’s activities at the Live Casino were
performed as “a service for its customers.” See id. at 1321. Moreover, as a matter
of law, “[a] method claim is directly infringed only by one practicing the patented
method.” Joy Tech. v. Flakt, Inc., 6 F.3d 770, 775 (Fed. Cir. 1993); accord BMC
Resources, Inc. v. Paymentech, L.P., 498 F.3d 1373, 1378 (Fed. Cir. 2007)
(“Direct infringement requires a party to perform or use each and every step or
element of a claimed method or product.”). “Merely selling a product that requires
the seller to practice only some of the steps of the claimed method as a service to
the buyer is not enough” to impose liability for direct infringement. Transamerica
14

Life Ins. Co. v. Lincoln Nat’l Life Ins. Co., 597 F. Supp. 2d 897, 925 (N.D. Iowa
2009) (citing NTP, 418 F.3d at 1320–21). Thus, there is no liability for direct
infringement on the part of Defendants in this case for selling or offering to sell the
Method Patent.
Additionally, liability under 35 U.S.C. § 271(g) cannot be imposed
upon Defendants in this case. Section 271(g) prohibits a person from importing
into the United States or offering to sell, selling or using within the United States
“a product which is made by a process patented in the United States.” 35 U.S.C.
§ 271(g). The NTP court explained that § 271(g) “does not cover the production of
intangible items” and held that the “transmission of information”—namely, “email
packets”— to the RIM server in Canada did not entail the manufacturing of a
product. 418 F.3d at 1323. The NTP court concluded that, as a matter of law,
§ 271(g) was inapplicable to the asserted method claims. Id. at 1324. Similarly,
CWC’s live webcam casino services never involved the manufacture of a physical
product, but rather the transmission of information. Accordingly, § 271(g) is
inapplicable in this case.
Plaintiffs essentially concede that their claims under 35 U.S.C.

15

§ 271(a) and § 271(g) fail,1 instead arguing only that Defendants are liable for
inducement of infringement 35 U.S.C. § 271(b). “In order to succeed on a claim of
inducement, the patentee must show, first that there has been direct infringement,
and second, that the alleged infringer knowingly induced infringement and
possessed specific intent to encourage another’s infringement.” MEMC Elec.
Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1378 (Fed.
Cir. 2005) (citation omitted) (internal quotation marks omitted).
Plaintiffs contend that the Federal Circuit’s en banc opinion in
Akamai Techs., Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012),
is controlling in this case. In Akamai, the Federal Circuit held:
If a party has knowingly induced others to commit the acts necessary
to infringe the plaintiffs’ patent and those others commit those acts,
there is no reason to immunize the inducer from liability for indirect
infringement because the parties have structured their conduct so that
no single defendant has committed all the acts necessary to give rise
to liability for direct infringement.
Id. at 1309. In other words, while all the acts necessary to give rise to liability for
direct infringement must be committed, it is not necessary to prove that all the

1

Since the Court’s March 30, 2007 Order, the Federal Circuit has held that
liability under 35 U.S.C. § 271(f) does not apply to method patents as a matter of
law. Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 576 F.3d 1348, 1364 (Fed.
Cir. 2009). Accordingly, Plaintiffs’ claim under 35 U.S.C. § 271(f) fails as a
matter of law.
16

steps were committed by a single entity. See id. at 1308–09; Move, Inc. v. Real
Estate Alliance Ltd., 709 F.3d 1117, 1123 (Fed. Cir. 2013).
Plaintiffs’ reliance upon Akamai is misplaced, because not all of the
necessary acts for infringement have been committed, either singly or collectively
by any combination of actors. As described above, there is no liability for direct
infringement under 35 U.S.C. § 271(a), because at least one of the method steps
was performed outside the United States. Plaintiffs do not argue that CWC’s Live
Casino and servers were located anywhere other than Costa Rica or that interaction
with the Live Casino and servers was not a necessary step in carrying out the
Method Patent. Thus, to the extent Plaintiffs assert that “Defendants have, in
instances where users in the United States have gambled online using the CWC
system, induced parties to collectively perform all of the steps of the claimed
method in the United States,” this statement is not supported by the evidence. (See
Doc. # 323 at 12.) Conclusory allegations unsupported by factual data cannot
defeat summary judgment. Rivera v. Nat’l R.R. Passenger Corp., 331 F.3d 1074,
1078 (9th Cir. 2003). Regardless of where a player may have been located, CWC’s
Live Casino and computer servers were always located in Costa Rica, and thus key
method steps occurred outside of the United States.
Moreover, to the extent Plaintiffs contend that acts of inducement may
17

be performed outside the United States, this argument is unavailing in this case
because there is no collection of acts leading to direct infringement. Accordingly,
there can be no liability for inducement to infringement. See Akamai, 692 F.3d at
1308 (“An important limitation on the scope of induced infringement is that
inducement gives rise to liability only if the inducement leads to actual
infringement.”).
Plaintiffs also contend that Defendants induced infringement of the
Method Patent through their licensees (as opposed to players) “who operate on-line
gambling sites that engage in sporting events, bingo, keno, and/or lottery.” (Doc. #
143 at 18.) The Court previously declined to grant Defendants summary judgment
on this claim, finding that a genuine issue of material fact existed with respect to
whether CWC exceeded the scope of its license agreement with Plaintiffs by
providing hyperlinks to CWC’s licensees’ websites, thus enabling infringing
gaming activities. (Id. at 19–20.)
The record now indicates that CWC never provided hyperlinks
offering live webcam casino gaming at any location apart from the Live Casino
located in Costa Rica. CWC only linked to licensees who offered live webcam
casino gaming through a “skin” (i.e., a private label brand), and the experience of
players at licensee websites was always the same as the experience of players at
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CWC’s website—namely, they interacted with the Live Casino in Costa Rica.
Consequently, live webcam casino gambling, even if done through a CWC
licensee’s website, also required at least one step occurring outside the United
States. Accordingly, it could not, as a matter of law, constitute infringement of the
Method Patent; and where there is no infringement of a patent, there can be no
inducement to infringe the patent. See Akamai, 692 F.3d at 1308.
To the extent that CWC’s licensees may have offered games claimed
to be contractually prohibited by means other than live webcam casino gaming,
Plaintiffs have no claim on such activity since their patent covers only live webcam
casino gaming. In sum, there is no infringement of the Method Patent by any
CWC licensee, and no inducement to infringement by Defendants.
ii.

The Method Patent Does Not Cover Bingo, Keno, Lottery or
Sports Betting

Plaintiffs’ entire action is premised on the allegation that Defendants
infringed the Method Patent through their operation of an online gambling website
that included sports betting, lottery, keno, and bingo games and through the
distribution of online gambling software that also included sports betting, lottery,
keno, and bingo games. (FAC ¶¶ 88–89.) Defendants argue, however, that the
Method Patent cannot be infringed through the performance of non-interactive
19

games—namely, sports betting, lottery, keno, and bingo2—because these were
given up by the inventor, Molnick, during the course of patent prosecution. As
such, Defendants contend that the doctrine of “file wrapper estoppel,” also known
as “prosecution history estoppel,” applies in this case.
However, the doctrine Defendants actually invoke is that of
“prosecution history disclaimer.” The Federal Circuit recently distinguished the
doctrines of “prosecution history estoppel” and “prosecution history disclaimer.”
See Trading Techs. Int’l, Inc. v. Open E Cry, LLC, No. 2012-1583, --- F.3d ----,
2013 WL 4610693, at *10 (Fed. Cir. 2013). On the one hand, the court explained
that “[p]rosecution history estoppel applies as part of an infringement analysis to
prevent a patentee from using the doctrine of equivalents to recapture subject
matter surrendered from the literal scope of a claim during prosecution.” Id.
(citing Pall Corp. v. Hemasure Inc., 181 F.3d 1305, 1311 (Fed. Cir. 1999)). On the
other hand, explained the court, prosecution disclaimer “affects claim construction

2

Bingo, lottery, keno, and sports betting are non-interactive games, because
the player cannot control the outcome of the game. (Doc. # 312 at 20.) For
example, in sports betting, the player has no control over the horses running a race.
(Id.) His role is entirely passive, and he can do no more than bet on an outcome
over which he has no control. (Id.) By contrast, blackjack is an example of an
interactive casino game. (Id.) In blackjack, a player interacts with the dealer,
indicating, for example, whether he wishes to receive an additional card (hit) or
stay with the cards he has already been dealt (stand). (Id.)
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and applies where an applicant’s actions during prosecution prospectively narrow
the literal scope of an otherwise more expansive claim limitation.” Id. (citing
Omega Eng’g, Inc. v. Raytek Corp., 334 F.3d 1314, 1323–24 (Fed. Cir. 2003)).
Here, Plaintiffs make no argument for infringement under the doctrine of
equivalents. Instead, Defendants argue that Plaintiffs’ method claims exclude noninteractive games based on the amendment history of the Method Patent.
Accordingly, Defendants are, in effect, invoking the doctrine of prosecution history
disclaimer.
When the patentee unequivocally and unambiguously disavows a
certain meaning to obtain a patent, the doctrine of prosecution history disclaimer
narrows the meaning of the claim consistent with the scope of the claim
surrendered. Biogen Idec, Inc. v. GlaxoSmithKline LLC, 713 F.3d 1090, 1095
(Fed. Cir. 2013). “[B]y distinguishing the claimed invention over the prior art, an
applicant is indicating what the claims do not cover, [and] he is by implication
surrendering such protection.” Ekchian v. Home Depot, Inc., 104 F.3d 1299, 1304
(Fed. Cir. 1997). Amendments made during prosecution to overcome prior art can
serve to narrow claim construction because “[t]he public has a right to rely on such
definitive statements made during prosecution.” See Digital Biometrics, Inc. v.
Identix, Inc., 149 F.3d 1335, 1347 (Fed. Cir. 1998).
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Here, publically available records show that all of the claims of the
Method Patent, as originally filed, were rejected by the United States Patent and
Trademark Office (“PTO”) in an Office Action dated January 10, 1997. (See Doc.
# 24 at 117.) More specifically, the PTO rejected Molnick’s claims under 35
U.S.C. § 102(b) because they were anticipated by a prior patent issued to “Hedges
et al.” in 1982 as Patent No. 4,339,798 (the “Hedges Patent”). (Id.; see also Doc.
# 312-3.) Despite the overlap between the two patent methods, the Hedges Patent
did not appear to provide for the possibility of interactive casino games—i.e.,
games where the player does not just wager on the outcome of a game but the
player also participates in the game. Rather than oppose the examiner’s finding
that the Hedges Patent anticipated his invention, Molnick limited his claims by
way of amendment. (Doc. # 24 at 117.) In amending the patent claims, Molnick’s
patent counsel wrote:
Also at the interview the examiner and the undersigned reached
agreement to incorporate player interaction into the remaining
independent claims 21, 34 and 39. Accordingly applicant submits
herewith these new claims reciting a player interaction step to control
the play of the game. (Claim 21, step (ix), claim 34, step (x) and
claim 39, step (xi)).
(Doc. # 24 at 132 (emphasis added).) With the new step (ix)3 and its equivalent in
3

Step (ix) of Plaintiffs’ Method Patent provides: “(ix) the player over the
(continued...)
22

the other independent claims, Plaintiffs’ Method Patent was issued by the PTO.
(See Doc. # 312-3.)
Accordingly, the Court finds that, by limiting his claims to interactive
casino games, Molnick gave up rights to non-interactive games. Lottery, keno,
bingo, and sports betting do not involve player interaction, but rather passive
betting on random number draws players do not control. It follows that
Defendants could not infringe the Method Patent by operating a website and
licensing software that permitted sports betting, lottery, keno, and bingo games
because these activities are excluded from the Method Patent. Additionally,
because Defendants’ underlying activities were not infringing, it makes no
difference whether “CWC ‘refer[red]’ end users to websites of affiliates through
hyperlinks for the purpose of ‘enabling’ such . . . activities” (see doc. # 143) nor
whether the parties intended to encompass such referrals in the HGN Contract.
Accordingly, the Court grants Defendants summary judgment on
Plaintiffs’ claims for patent infringement.
B.

Preliminary and Permanent Injunction
Plaintiffs seek a preliminary and permanent injunction preventing

3

(...continued)
first information line interacting with the casino to control the play of the game
until an outcome is obtained . . . .” (See Doc. # 312-3 at col. 8:44–46.)
23

Defendants “from infringing upon Plaintiffs’ Method Patent.” (FAC ¶¶ 106–08.)
Previously, the Court declined to dismiss Plaintiffs’ request for a
permanent injunction on ground that Plaintiffs’ patent infringement claim was not
being dismissed. (Id. at 23.) However, because the Court now dismisses
Plaintiffs’ patent infringement claim in its entirety, Plaintiffs’ claim for injunctive
relief fails as a matter of law.
C.

Claim for Accounting
Plaintiffs also “respectfully request that each Defendant be required to

provide a verified accounting of all transactions processed by them through their
Live Casinos from the date of their inception through the present date.” (FAC ¶
110.)
The Court previously declined to dismiss Plaintiffs’ cause of action
for an accounting on ground that Plaintiffs’ patent infringement claims were not
being dismissed. (Doc. # 143 at 23.) Because the Court now dismisses Plaintiffs’
patent infringement claims, Plaintiffs’ cause of action for an accounting is also
dismissed. Additionally, the Court notes that, since the information sought by
Plaintiffs is contained in the database produced to Plaintiffs, Plaintiffs’ request for
an accounting appears to be moot.
D.

Breach of Contract Claim
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Plaintiffs contend that Defendants breached the HGN Contract by
sublicensing the CWC Software to CWC licensees without excluding bingo, keno,
lottery or sporting events. (FAC ¶ 114–15.)
A careful reading of the HGN Contract reveals that it does not prevent
CWC from licensing the CWC Software to third parties for bingo, keno, lottery or
sporting events. The contract merely defines “CWC Software” as “any software
owned or licensed by CWC, which CWC makes generally available to its
customers, and which enables CWC and CWC Licensees to provide any games
over computer networks to end users, excluding Bingo, Keno, Lottery and all
sporting events.” (HGN Contract § 1.4.) There is no contractual provision of the
HGN Contract imposing an affirmative duty upon Defendants not to allow, enable
or induce third parties to use the CWC Software for bingo, keno, lottery or sports
betting. Rather, the HGN Contract is a straightforward license agreement that
provides CWC protection from a patent infringement lawsuit to the extent of its
subject matter. (See id. § 2.1 (granting CWC “a perpetual, exclusive, royalty-free
worldwide license to use the Licensed Technology” and the right “to grant
sublicenses therein to CWC Resellers, CWC Licensees, and End Users”).)
Thus, insofar as Plaintiffs allege that Defendants impermissibly
licensed CWC Software for bingo, keno, lottery or sports betting, Defendants did
25

so, at most, without the protection of the HGN Contract. Consequently, if
Defendants’ conduct was wrongful, as alleged, then it was wrongful as
contributory patent infringement, or inducement to infringe, or some other tort.
The HGN Contract expressly provides that Plaintiffs “retain[ed]” all rights not
covered by the agreement (id. § 2.1), and Plaintiffs have in fact exercised such
rights by suing Defendants for patent infringement.
Moreover, even assuming that the HGN Contract prohibits the use of
the Method Patent with respect to “bingo, keno, lottery and sporting events,”
Plaintiffs’ breach of contract claim fails under the doctrine of patent misuse.
Patent misuse occurs when a patentee tries to “impermissibly broaden[] the
‘physical or temporal scope’ of the patent grant with anticompetitive effect.” Va.
Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868 (Fed. Cir. 1997) (quoting
Windsurfing Int’l, Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed. Cir. 1986)). The
“patent misuse doctrine is an extension of the equitable doctrine of unclean hands,
whereby a court of equity will not lend its support to enforcement of a patent that
has been misused.” B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419, 1427
(Fed. Cir. 1997).
The Supreme Court has described the patent misuse doctrine as it
applies to patent licensing agreements as follows:
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[T]here are established limits which the patentee must not exceed in
employing the leverage of his patent to control or limit the operations
of the licensee. Among other restrictions upon him, he may not
condition the right to use his patent on the licensee’s agreement to
purchase, use, or sell, or not to purchase, use, or sell, another article of
commerce not within the scope of his patent monopoly.
Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 136 (1969). The
Federal Circuit has held that “[w]hen the patentee has used restrictive conditions
on licenses or sales to broaden the scope of the patent grant,” the accused infringer
“may invoke the doctrine of patent misuse to defeat the patentee’s claim.” Princo
Corp. v. Int’l Trade Comm’n, 616 F.3d 1318, 1328 (Fed. Cir. 2010). When patent
misuse occurs, “as in the case of price-fixing conditions and tying restraints,” the
patentee “loses its right to sue for infringement or breach of contract.” See id.; see
also Avocent Redmond Corp. v. Raritan Americas, Inc., No. 10 Civ. 6100, 2012
WL 3114855, at *13 (S.D.N.Y. July 31, 2012) (“If a party seeks to enforce an
invalid or unenforceable patent or attempts to use its market position to secure
license payments on products that are not within the scope of its patents, patent
misuse will be a defense to breach of contract.”); Cohn v. Compax Corp., 451
N.Y.S.2d 171, 175 (2d Dep’t 1982) (holding that patent misuse can serve as a
defense to breach of contract).
Here, in order to obtain a patent, Molnick struck a bargain with the

27

PTO to limit his method claims to interactive games. No sooner had Molnick
obtained his patent, however, than he sought to “broaden[] the physical or temporal
scope of the patent” by negotiating a license agreement with CWC excluding the
“patented” method for sports betting, lottery, keno, and bingo—despite the fact
that this was subject matter he had specifically and knowingly given up in the
course of patent prosecution. At his deposition, Molnick testified that he did not
license non-interactive games under the Method Patent “to keep them for myself
for the right time.” (See Doc. # 312-4 (“Molnick Dep.”) at 281:6–7.) Molnick
later testified that he licensed sports betting to a third party for a paid license fee
(id. at 295:19, 296:15–16) and declined an offer from Ladbrokes, an online gaming
company, to license sports betting because it did not offer enough money (id. at
293:8, 294:10–14). In other words, Plaintiffs purposefully attempted to exclude
subject matter that was beyond the scope of the Method Patent from the license
granted to CWC, so that they could license that subject matter to others for money.
Accordingly, if Plaintiffs’ interpretation of the HGN Contract is
correct, they improperly sought to keep CWC out of a market that it had every
right to enter. Because Plaintiffs bring a claim for breach of contract to enforce
provisions of a license agreement that impermissibly encompasses subject matter
they affirmatively surrendered during the course of patent prosecution, the doctrine
28

of patent misuse bars their claim. Thus, the Court finds that Defendants are
entitled to judgment as a matter of law on Plaintiffs’ breach of contract claim.
E.

Claim for Intentional Interference with Contractual Relationships
Plaintiffs allege that certain of Defendants’ licensees knowingly

“encourag[ed]” Defendants to provide sublicensed CWC Software that did not
exclude “Bingo, Keno, Lottery and all sporting events” in violation of the HGN
Contract. (FAC ¶¶ 118–20.)
As explained above, the HGN Contract did not actually cover bingo,
keno, lottery, and sports betting. Accordingly, no claim for interference with
contractual relations can be premised on it as a matter of law. See J.J. Indus., LLC
v. Bennett, 71 P.3d 1264, 1267 (Nev. 2003) (explaining that a plaintiff must show
“intentional acts intended or designed to disrupt the contractual relationship” and
“actual disruption of the contract” to prevail on a claim for contractual
interference).
Moreover, insofar as Plaintiffs’ intentional interference with
contractual relations claim is against Defendants, who are not sublicensees of the
HGN Contract, it fails. “In Nevada, a party cannot, as a matter of law, tortiously
interfere with his own contract.” Blanck v. Hager, 360 F. Supp. 2d 1137, 1154 (D.
Nev. 2005) (citing Bartsas Realty, Inc. v. Nash, 402 P.2d 650, 651 (Nev. 1965)).
29

Moreover, “agents acting within the scope of their employment, i.e. the principal’s
interest, do not constitute intervening third parties, and therefore cannot tortiously
interfere with a contract to which the principal is a party.” Id.
Here, CWC entered into the HGN Contract with Plaintiffs, and Piche
and Eyeball Networks acted as CWC’s agents by assisting it in licensing the
webcam casino software. (See FAC ¶ 37 (“Defendants Piche, Eyeball Network
Games, . . . and CWC have licensed its webcam casino software and services.”).)
Accordingly, because Defendants are not “third parties” in relation to the HGN
Contract, Plaintiffs’ intentional interference with contract claim against them fails.
The Court, therefore, grants Defendants summary judgment on this claim.
II.

Motion to Defer Motion for Summary Judgment
Plaintiffs have filed a motion pursuant to Federal Rule of Civil

Procedure 56(d) to defer Defendants’ Motion for Summary Judgment in order to
“allow time to complete discovery.” (Doc. # 323.) However, it is clear that
additional discovery will not alter the outcome of this case. Plaintiffs assert that
“[d]iscovery is need to prove instances of infringement that occurred in the United
States.” (Id. at 13.) However, as set forth above, even if Plaintiffs were able to
prove that players in the United States gambled online at the Live Casino in Costa
Rica, at least some of the steps of the claimed method would have necessarily
30

occurred outside the United States. Similarly, facts in the public record indicate
that interactive games are not covered under the Method Patent under the doctrine
of prosecution history disclaimer.
Further, this case has been pending for nearly eight years. Plaintiffs
have already obtained substantial discovery, including lists of blocked IP
addresses, Defendants’ software for running their system, thousands of pages of
web-page information and advertising, and days of deposition of Chris Piche.
Moreover, to the extent Plaintiffs complain that Defendants have caused years of
delay by withholding relevant discovery, Magistrate Judge Ferenbach found
otherwise in his February 14, 2013 Report and Recommendation, which this Court
adopted.
CONCLUSION
For the reasons stated above, the Court GRANTS Defendants’
Motion for Summary Judgment (Doc. # 312) and DENIES Plaintiffs’ Motion to
Defer Defendants’ Motion for Summary Judgment (Doc. # 323).
IT IS SO ORDERED.
DATED: Las Vegas, Nevada, September 30, 2013.

31

_____________________________
David Alan Ezra
Senior United States District Judge