10/01/2009 11:00PM

Court rules against TVG in patent case

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Patents held by Television Games Network on its wagering technologies are limited to betting through television devices and do not apply to wagering over the Internet, a U.S. Circuit Court has ruled in a patent infringement case TVG filed against a competitor.

The ruling, which serves to define the scope of TVG's patents if the case proceeds any further, strikes down a critical claim that TVG has sought to enforce among its account- wagering competitors. In 2007, the company filed a patent-infringement lawsuit accusing XpressBet, the account-wagering company owned by Magna Entertainment Corp., based on the claim, and TVG had also earlier reached deals with two other competitors, Youbet.com and AmericaTab, that required the two companies to pay licensing fees to TVG based on the patents. (AmericaTab was later bought by Churchill Downs Inc.)

In addition, the ruling removes a tactical tool that TVG has used when negotiating with competitors over the rights to racetrack signals, according to officials from competing companies. In those negotiations, TVG has used the threat of a lawsuit over the patents as one of its bargaining tools.

TVG has always claimed that its patents covered bets made over the Internet, the dominant form of account wagering today. The court, however, said that the proper interpretation of the company's patents limited its exclusive technology to betting through a television. TVG applied for the majority of the patents listed in the suit in 1995 while operating as ODS Technologies and seeking to develop an interactive television wagering system that was shelved after the Internet quickly evolved into a much more cost-efficient means of taking horse-race bets.

"The consistency with which the patentees described their invention as reliant on existing television distribution systems, and the absence of any reference to alternative distribution methods (i.e., methods that rely on some medium other than cable, satellite, or broadcast television), persuades the court that the patentees intended the disputed claim to refer to a television distribution medium, different in kind from internet-based video and data distribution," the ruling said.

TVG officials would not comment about the court ruling.

Scott Daruty, the president of TrackNet, a company that negotiates with account-wagering companies for the rights to the signals controlled by Magna and Churchill Downs Inc., said that he believed TVG would drop its lawsuit against XpressBet because of the ruling.

"We believe it will be impossible for TVG to prove that XpressBet is infringing on any patents now," Daruty said.

Earlier this year, TrackNet reached a deal with TVG that allowed the two companies to share the wagering rights to the signals the two companies exclusively controlled, an agreement that ended a two-year stalemate between the two competitors. As part of that deal, the companies agreed to seek an amicable end to the lawsuit TVG filed against XpressBet, but those negotiations were not successful.

The deal between the two companies expires at the end of October, and negotiations on a renewal are expected to begin soon.

It is unclear what impact the ruling will have on the licensing deal Youbet.com had earlier reached with TVG. Officials for Youbet.com did not return phone calls.