TCS John Huxley America, Inc. v. Scientific Games Corporation

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

TCS JOHN HUXLEY AMERICA, INC.,

et al.,

Plaintiffs, Case No. 19-CV-01846

v.

SCIENTIFIC GAMES CORP., et al., Judge John Robert Blakey

Defendants.

MEMORANDUM OPINION AND ORDER

This case arises from alleged sham patent litigation involving automatic card

shufflers. Plaintiffs claim Defendants committed fraud on the Patent Office and

pursued sham litigation to maintain their monopoly on the market, thereby violating

§ 2 of the Sherman Act. See [32]. Defendants moved to dismiss, arguing that

Plaintiffs’ claim fell outside the statute of limitations and that Plaintiffs lacked

standing to bring an antitrust claim. See [35]. The Court denied the motion, finding

that Plaintiffs had standing and finding that the record failed to conclusively

demonstrate that Plaintiffs filed their claim too late. See [43]. Following discovery,

Defendants now move for summary judgment, arguing again that Plaintiffs’ claim

falls outside the four-year statute of limitations. [100]. For the reasons set forth

below, the Court finds that genuine issues of material fact remain concerning

timeliness and, accordingly, denies the motion.

I. Background1

Plaintiff Taiwan Fulgent (TF) is a Taiwanese corporation which manufactures

a card shuffling device known as the A-Plus Shuffler. [102] at ¶¶ 4, 5. Plaintiffs TCS

John Huxley Europe Limited, Asia Limited, and America, Inc. are subsidiaries of the

TCS John Huxley Group (TCS), the exclusive worldwide distributor for the A-Plus

Shuffler. Id. at ¶¶ 7–9. Defendants Scientific Games2 and SG Gaming, Inc. are

Nevada corporations that invent, design, manufacture, and sell casino products,

including automatic card shufflers. Id. at ¶¶ 11–13. SG Gaming, Inc. was formerly

known as Bally Gaming, Inc. Id. at ¶ 12. In 2013, Bally Technologies acquired SHFL

Entertainment, Inc., formerly known as Shuffle Master, the original entity engaged

in the invention, design, manufacture, and sale of automatic card shufflers. Id. at ¶¶

14, 15.

In November 2009, Shuffle Master sued TF for patent infringement based upon

the A-Plus Shuffler. Id. at ¶¶ 6, 18. TF retained Alston & Bird LLP, an international

law firm, to represent it in the litigation. Id. at ¶ 20. David Ho, the owner and

primary decision maker at TF, advised the attorneys he wanted the case resolved

“expeditiously and efficiently.” [108] at ¶ II.A.1. In December, TF’s counsel sent a

letter3 raising possible issues with the pre-filing investigation of Shuffle Master’s

patents, claiming that Shuffle Master lacked a Rule 11 basis for claiming

1 This Court takes the following facts from Defendants’ Rule 56.1 Statement of Material Facts,

Plaintiffs’ Statement of Material Facts, and Defendants’ Response to Plaintiff’s Statement of Material

Facts [102], [108], [119].

2 Scientific Games formerly operated a technology campus in Chicago, Illinois. [102] at ¶ 12.

3 Plaintiffs characterize this letter as a settlement letter, Defendants characterize it as a Rule 11 letter.

infringement and also suggesting the case could be settled outside of litigation as TF

was not yet selling the shuffler. Id. at ¶¶ II.A.2,1. Counsel raised Rule 11 concerns

on the mistaken belief that Shuffle Master had not accessed the inner workings of

the accused shuffler to conduct a proper pre-filing investigation. Id. ¶ II.A.4. The

litigation continued, however, and TF filed an answer and counterclaim, which

included what Plaintiffs characterize as standard language regarding §§ 102, 103,

and 112 defenses and counterclaims, as well as a standard request for a finding that

the case was “exceptional” under § 285, to preserve the option of seeking attorney

fees. Id. at ¶¶ 27, II.A.16. Plaintiffs represent that none of the claims or defenses

they asserted in that prior litigation reflected allegations of inequitable conduct or

fraud. Id. at ¶ II.A.16. The parties settled the 2009 litigation in February of 2010.

[102] at ¶ 32. As part of the settlement agreement, both parties agreed to “release[]

the other for all claims, liabilities and damages of any kind that either has or may

have against the other, as of the date of this Agreement, whether known or unknown,

asserted or unasserted, or accrued or unaccrued.” Id. at ¶ 35.

After the litigation was settled, TF challenged the patentability of two of the

asserted patents (the ‘344 patent and the ‘751 patent) at the U.S. Patent Office. [108]

at ¶ II.B.19. As of the filing of the reexaminations in August 2010, TF believed both

these patents were invalid. [102] at ¶ 43. Plaintiffs claim the challenge was based

solely on prior art patents, rather than any other publications. [108] at II.B.20. They

claim the prior art that Defendants withheld was hidden on CDs and DVDs that were

submitted as “other publications.” Id.

In late 2009 or early 2010, TF and TCS began negotiations for a distributorship

agreement for TF’s A-Plus Shuffler. [102] at ¶ 57. During its diligence for the

arrangement, TCS expressed some concerns about Shuffle Master, asked TF for

indemnity if Shuffle Master sued, and suggested that Shuffle Master would act

aggressively, even illegally, to keep its monopoly advantage in the shuffler market.

Id. at ¶¶ 59–63, 65. In fact, in September 2012, Shuffle Master sued TCS John

Huxley based upon its distribution and display of the A-Plus Shuffler. Id. at ¶¶ 10,

66. Notably, in the suit against TCS (in contrast to the 2009 suit against TF), Shuffle

Master did not allege infringement of either the ‘344 patent or the ‘576 patent. [108]

at ¶ II.C.23. Plaintiffs believed this was because the PTO had by that time rejected

the claims of the ‘344 patent as unpatentable, and the ‘576 patent was closely related

and similar in scope. Id. TCS’ primary patent litigation counsel was in the middle of

his prior art review when the litigation settled. Id. at ¶ II.C.24.

On March 20, 2015, a TCS employee, Jonathon Pettemerides, learned that two

TCS investors had uncovered patent fraud by Shuffle Master and planned to take

legal action in the coming weeks. Id. at ¶ II.C.27. Mr. Pettemerides emailed three

other TCS employees, including the then-Managing Director of Asia, to tell them

about the patent fraud. Id. at ¶ II.C.28.

TF and TCS filed this antitrust complaint on March 15, 2019. Id. at ¶ II.C.30.

II. Legal Standard

A Court may properly enter summary judgment when there remains “no

dispute as to any material fact and the movant is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(a). A genuine dispute as to any material fact exists if “the

evidence is such that a reasonable jury could return a verdict for the nonmoving

party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). When ruling on a

motion for summary judgment, the Court “views the record in the light most favorable

to the non-moving party and draws all inferences in its favor.” Shuffle Tech Int’l LLC

v. Sci. Games Corp., No. 15 C 3702, 2017 WL 3838096, at *5 (N.D. Ill. Sept. 1, 2017)

(citing Estate of Simpson v. Gorbett, 863 F.3d 740, 745 (7th Cir. 2017)).

III. Analysis

Defendants argue that they are entitled to summary judgment for two reasons:

(1) the four-year statute of limitations bars Plaintiff’s claims; and (2) TF released its

claims as part of a settlement agreement in 2010. 15 U.S.C. § 15b; [100]. When

Defendants raised these arguments in their motion to dismiss, the Court determined

that the record did not definitively set forth when Plaintiffs’ claim accrued. On this

issue, the Court held as follows:

Although Plaintiffs contend that their cause of action accrued on March

8, 2019, their complaint includes allegations suggesting that they may

have known something was amiss long before this date. For example,

Plaintiffs allege that, in 2009, after reviewing SHFL’s complaint, TF’s

counsel advised SHFL’s counsel (on December 12, 2009), that he

believed SHFL had failed to conduct a proper pre-filing investigation to

confirm that the infringement allegations were valid. [32] at ¶ 120.

Although SHFL responded that, in its view, its pre-filing investigation

satisfied Rule 11, id. at ¶ 121, the fact remains that, as early as

December 2009, TF may have had a factual and legal basis to conclude

that the asserted patents were invalid and unenforceable, and thus TF

knew or should have known that the infringement suit was groundless.

The complaint, however, fails to explain the basis for counsel’s assertion

that SHFL failed to conduct a proper pre-filing investigation. Did

counsel have reason to know when he challenged the complaint that the

patents were procured by fraud or that the patents were invalid as

anticipated by prior art, which SHFL had withheld? If so, Plaintiffs’

cause of action may have accrued by that date. If, on the other hand,

counsel’s assertion stemmed from simple adversarial posturing, which

would only seem prescient in hindsight, it may not have triggered the

running of the statute of limitations.

TF’s initiation of reexamination proceedings on the asserted ‘751

patent may also be significant to the timeliness analysis. For example,

if TF initiated reexamination because it knew or had reason to know at

that time that the patentee had fraudulently withheld prior art, its

discovery rule arguments would fail. But the complaint’s allegations do

not explain why TF requested reexamination. As such, the allegations

do not definitively show that Plaintiffs’ claim had expired when they

filed this case on March 15, 2019.

Having said that, the current record also undermines Plaintiffs’

claim that its cause of action accrued on March 8, 2019. Given

DigiDeal’s antitrust lawsuit, in the exercise of due diligence, Plaintiffs

should have been wondering about their antitrust injury long before

they had a post-verdict conversation with DigiDeal’s lawyers. Plaintiff’s

assertion of a March 8, 2019 accrual date appears to be as unreasonable

as Defendants’ assertion that the cause of action necessarily accrued

when SHFL filed the underlying patent infringement lawsuits.

[43] at 12–13. Now, with the benefit of discovery and evidence, Defendants attempt

to prove the points they argued at the motion to dismiss stage. But, as discussed

below, genuine issues of material fact remain as to when Plaintiffs knew (or

reasonably should have known) they had a Walker Process claim, and thus the record

even at this stage precludes the requested ruling on timeliness and the validity of

TF’s release of any claim.

A key question in this case remains: when did Plaintiffs know or have reason

to know that they had suffered an antitrust injury? Defendants argue that Plaintiffs

knew as early as 2009, and thus their claim is barred both under the applicable four-

year statute of limitations and under the release executed in 2010. 15 U.S.C. § 15b;

[100]. Plaintiffs claim the earliest date they could have known was March 20, 2015,

just inside the four-year statute of limitations; they also claim that the release cannot

be enforced as to the current claim. [107] at 13.

A. Statute of Limitations

The Sherman Act’s four-year statute of limitations applies to Plaintiffs’

antitrust claim. 15 U.S.C. §15b. This statute of limitations generally begins to run

“when a defendant commits an act that injures a plaintiff’s business,” but, as here, it

can be “qualified by the discovery rule,” which tolls the beginning of the period until

the date when the Plaintiff discovers the injury. Cada v. Baxter Healthcare Corp.,

920 F.2d 446, 450 (7th Cir. 1990); Saunders v. Nat’l Basketball Ass’n, 348 F. Supp.

649, 652 (N.D. Ill. 1972). Accrual occurs “when the plaintiff discovers that ‘he has

been injured and who caused the injury.’” In re Copper Antitrust Litig., 436 F.3d 782,

789 (7th Cir. 2006) (quoting Barry Aviation, Inc. v. Land O'Lakes Mun. Airport

Comm’n, 377 F.3d 682, 688 (7th Cir. 2004)). Here, Plaintiffs’ injury—exclusion from

the market—occurred when Shuffle Master sued them in 2009 and 2012. But when

they knew or should have known that this exclusion amounted to an antitrust injury

is a separate question.

A patent infringement suit is not necessarily an antitrust injury. In fact, the

Noerr-Pennington doctrine provides immunity from antitrust claims to patent

holders. Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1067–68 (Fed.

Cir. 1998). To overcome such immunity, a plaintiff must show the patent holder

obtained the patent through intentional fraud or brought the case in bad faith, with

knowledge that the asserted patent was invalid, unenforceable, or not infringed. See

Professional Real Estate Inv’rs, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49

(1993); Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965).

Thus, to know they had suffered an antitrust injury, Plaintiffs needed to know, or

have reason to know, Defendants had intentionally engaged in fraud to obtain the

asserted patent or brought sham litigation to keep TF from competing in the market.

Defendants argue that TF’s litigation strategy and preparation, the initiation

of reexamination proceedings challenging the validity of two of Shuffle Master’s

patents, and the discussions with TCS prior to the TF/TCS distributor agreement, all

show Plaintiffs knew or had reason to know they had been injured. And, indeed, the

Court flagged this issue when it noted that TF may have had a factual and legal basis

to conclude that the asserted patents were invalid and unenforceable in December

2009, when it challenged Shuffle Master’s pre-suit investigation. But discovery has

now revealed that TF’s Rule 11 challenge stemmed not from any knowledge or belief

about the validity or enforceability of the asserted patents, but from the belief that

Shuffle Master sued without accessing the inner workings of the accused shufflers.

See [108] at II.A.3.

TF’s counsel at the time, Helen Su, testified that, after reviewing the 2009

complaint, she reviewed the asserted patents’ claims and looked at the client’s

product to see whether they could develop noninfringement defenses. [111] at 18.

She testified that, although she sometimes reviews the documents and other

publications cited in the patent, she did not do so here because she knew the client

wanted to settle the case quickly, without incurring unnecessary expenses. Id. at 18–

19. She also testified that she understood that Shuffle Master “failed to conduct a

very preliminary test of investigating our client’s product” before filing suit. Id. at

22–23. She testified that the whole point of the letter described above was not to

disclose any knowledge of fraud or invalidity, but to lay the groundwork for a quick

settlement. Id. at 23, 46. She testified that TF wanted to settle quickly because “the

cost of defense is so expensive, that [TF] simply could not afford [it].” Id. at 34. Su

also explained that she commonly included invalidity and noninfringement defenses

based upon a cursory review of the patents to preserve such claims for trial, id. at 27–

28; and may have used boilerplate language because the client just wanted to settle

as soon as possible without incurring legal fees, id. at 49. This testimony undermines

Defendants’ claim that TF’s answer and counterclaim in the 2009 litigation

necessarily reflected knowledge of invalidity, unenforceability, or fraud. Su also

testified that she typically also preserved the right to seek attorneys’ fees later in the

case by claiming at the outset that the case was “exceptional,” id. at 30, undermining

any claim that the exceptional case allegation in TF’s responsive pleading similarly

reflected knowledge of antitrust injury.

Elizabeth Rader, who represented TF along with Helen Su in the Shuffle

Master lawsuit, testified that she challenged Shuffle Master’s pre-suit investigation

because TF was not “doing anything that would constitute infringement,” [110] at 46;

TF was not even selling the accused product in the United States, id., and,

additionally, Rader had reviewed the claims of the asserted patents and knew that

TF’s product did not “work like that,” id. at 47. She testified that TF believed that

filing the lawsuit without really understanding the nature of the accused product

violated Rule 11. Id. at 50. She also testified that, although the asserted patents

may have identified prior art sources, she did not request any of those sources because

her client elected to settle the case a month after the complaint was filed. Id. at 55.

Rader testified that her client instructed her that it “was not interested in engaging

in U.S. patent litigation” and “wanted the lawsuit to be resolved expeditiously and

efficiently.” Id. at 72.

Based upon this evidence, a reasonable jury could find that TF challenged

Shuffle Master’s lawsuit not because it knew the asserted patents were invalid, but

because it wanted to settle the matter quickly, without incurring the significant

expense involved in litigating the matter. A jury could also reasonably find that,

given the mandate from her client to settle quickly, Rader acted reasonably by not

ordering all of the prior art CDs referenced in the asserted patents.

Defendants also argue that TF’s initiation of reexamination proceedings

reflected knowledge of its antitrust injury. But Andrew Spence, the attorney who

initiated the reexamination proceedings on behalf of TF, testified that he never

reviewed Shuffle Master’s litigation history and did not consider any litigation of the

asserted patents, [114] at 39; he testified that he would not have investigated in

connection with the reexamination whether Shuffle Master had previously been

accused of inequitable conduct; that information would serve no purpose in the

reexamination proceeding, as it was irrelevant to the PTO, id. at 45. Spence testified

that, in August of 2011, about a year into the reexamination proceeding, he was

continuing to assess potential prior art to be used in the reexam; and he admitted

that, in February of 2011, he considered ordering, at some point in the future, the file

history of art proposed for rejection of claims. Id. at 51. He also admitted that his

billing records reflect that, on May 2, 2011, he spoke with the patent examiner

regarding obtaining a copy of the file history of Roblejo, one of the prior art references

cited in Defendants’ patent; he testified that this likely reflected his effort to obtain

non-patent literature relating to this reference. Id. at 51–52.

But Spence also testified that issues like inequitable conduct, fraud, and

Walker Process fraud simply are not issues raised in a reexamination proceeding. Id.

at 55. He testified that TF hired him to address whether the claims in the asserted

patents could be canceled over the prior art on obviousness or anticipation grounds.

Id. To the extent Defendants argue that Spence should have uncovered any hidden

references or exposed secreted prior art, Spence’s testimony undermines that

argument: he testified that he would not have “thought much of” “other publications”

cited in the patents because they would not have been available as prior art. Id. at

56. He testified that he has never submitted DVDs to the PTO, has never ordered

DVDs from the PTO, and has never seen a DVD under the “other publications” section

in a patent. Id. In other words, he did not discover any fraud related to references

hidden on DVDs, and would not, in the exercise of reasonable diligence, have

discovered such fraud. He also testified that, if the patentee submitted a CD with a

bunch of shuffler prior art on it, it would be impossible to tell which of the references

on that CD had been considered by the patent examiner. As a result, he testified, it

would be highly unusual for a patentee to submit prior art in this manner. Id. at 57.

Spence testified, in short, that proceedings on reexamination are limited, and as a

result, he reasonably limited his investigation and efforts to prior art references

relied upon by the examiner, rather than hunting down lawsuits and reviewing

docket sheets. Id. at 58, 71.

Beyond undermining Defendants’ arguments about when they knew about

their antitrust injury, Plaintiffs offer evidence to show that they first learned of

Shuffle Master’s patent fraud when TCS’ Jonathan Pettemerides spoke to investors

on March 20, 2015 and then emailed other TCS employees to pass along the

information. [117] at 7–8. Pettemerides testified that, prior to March 20, 2015, he

had no knowledge of any patent fraud or improper litigation by Shuffle Master; nor

did he have any awareness of any such knowledge across the company (TCS). Id. at

11. If this were the case (and a reasonable jury could find that it is), this lawsuit,

filed March 15, 2019, is timely.

Ultimately, the statute of limitations question turns on the same factual issues

as Plaintiffs’ Walker Process claim; the latter asks whether Defendants knew, when

they sued Plaintiffs in 2009 and 2012, the asserted patents were invalid or otherwise

unenforceable, see e.g., C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1371 (Fed. Cir.

1998) (“to violate the antitrust law there must be an improper use of the patent right,

‘coupled with violations of § 2.’”) (emphasis added) (quoting Walker Process, 382 U.S.

at 177–78); the former asks whether (and when) Plaintiffs knew as much. The Court

simply cannot resolve these issues on the current, disputed record. Certainly, the

record does not allow the Court to definitively rule that Plaintiffs knew they had

suffered an antitrust injury before March 15, 2015, which is what Defendants need

to prove to obtain a summary judgment based upon the statute of limitations.

Accordingly, the Court denies Defendants’ motion for summary judgment based upon

timeliness under the Sherman Act’s statute of limitations.

B. The 2010 Release

Defendants also argue that TF’s current claim is barred by the release included

in the settlement agreement the parties executed to resolve the 2009 litigation. The

parties’ agreement provided “except for each party’s undertakings and obligations

under [the Settlement] Agreement, each party hereby generally releases the other for

all claims, liabilities and damages of any kind that either has or may have against

the other, as of the date of this Agreement, whether known or unknown, asserted or

unasserted, or accrued or unaccrued.” [103] at 441. Initially, consistent with the

Court’s findings above, the record fails to establish, as a matter of law, that TF had a

Walker Process claim “as of the date of” the Settlement Agreement. And if it did not,

then the current claim falls outside the scope of the release.

Additionally, such a broad release is valid only if it is entered into knowingly

and voluntarily. See Wagner v. NutraSweet Co., 95 F.3d 527, 533 (7th Cir. 1996). A

waiver signed under the “advice of independent counsel” is presumed knowing and

voluntary “absent claims of fraud.” Riley v. Am. Fam. Mut. Ins. Co., 881 F.2d 368,

373 (7th Cir. 1989). But “[e]ven where the parties intend to release a specific claim,

the release of that claim will not be enforced if there has been fraud, duress, mutual

mistake, or, at least in some cases, unconscionability.” Fed. Deposit Ins. Corp. v.

FBOP Corp., No. 14 CV 4307, 2017 WL 5891033, at *12 (N.D. Ill. Nov. 27, 2017)

(quoting Carlile v. Snap-on Tools, 648 N.E.2d 317, 322 (Ill. Ct. App. 1995)). Further,

“[a]n exculpatory clause cannot protect persons from the results of their willful and

wanton misconduct. Such a contractual shield is illegal.” Time Warner Sports Merch.

v. Chicagoland Processing Corp., 974 F.Supp. 1163, 1175 (N.D. Ill. 1997) (quoting

Zimmerman v. Northfield Real Estate. Inc., 510 N.E.2d 409, 415 (Ill. App. Ct. 1986)).

Here, Defendants emphasize that sophisticated counsel represented TF during

settlement, suggesting that TF made a knowing and voluntary waiver.4 But TF’s

counsel testified that, when she represented TF during those settlement negotiations,

she had no knowledge that TF might have a claim against Defendants for inequitable

conduct, fraud, or sham litigation. [110] at 98. She testified that, although she had

worked on cases where inequitable conduct allegations were a huge deal and the

subject of discovery, this was not such a case. On the contrary, this case settled before

it really even got started and before she spent any time considering invalidity. Id.

Additionally, TF argues that Defendants’ attorney misled TF during those

negotiations, thereby preventing TF from realizing it incurred an antitrust injury.

Kimball Anderson, the attorney representing Shuffle Master in the 2009 litigation,

represented to Elizabeth Rader (TF’s counsel) that he had reviewed Shuffle Master’s

4 Defendants also repeat their arguments that TF knew about the potential antitrust claims when it

released its claims. But, as explained above, issues of material fact remain as to whether Plaintiffs

were aware of these claims.

documentation of its pre-filing investigation and was “completely satisfied that your

client’s A-Plus Shuffler infringes Shuffle Master’s patents and that your client has

violated the United States Patent Act by, among other things, making an offer to sell

the infringing product at the Global Gaming Expo.” [109] at 177. And Attorney Rader

testified that she did not believe TF had a basis at the time of the settlement to allege

inequitable conduct. [109] at 34. Similarly, she testified that, at the time of the

settlement, TF had no reason to believe Shuffle Master had committed any kind of

fraud on the patent office; she testified that TF was reviewing validity and analyzing

prior art and just never discussed anything about Shuffle Master withholding

material prior art from the PTO at that time. Id. at 42; [110] at 94–95.

Based upon this evidence, a jury could reasonably find that Shuffle Master

fraudulently induced TF to settle the 2009 lawsuit and sign the broad release by

doubling down on its infringement claim, knowing that the asserted patents were

invalid or procured by fraud. Fraudulent inducement is a “classic example of an issue

of fact,” generally not appropriate for summary judgment. Dopke v. Stavriotis, No.

87 C 1069, 1987 WL 30979, at *4 (N.D. Ill. Dec. 10, 1987). Given the existence of

questions of fact concerning whether TF’s Walker Process claim existed in 2010 when

the parties executed the settlement agreement, the Court declines to enter summary

judgment in Defendants’ favor based upon the release.

IV. Conclusion

For the reasons explained above, the Court finds that issues of fact remain as

to whether Plaintiffs knew, or in the exercise of reasonable diligence should have

known, before March 15, 2015, that they suffered an antitrust injury. As a result,

summary judgment based upon the statute of limitations or the parties’ 2010

settlement agreement is inappropriate, and the Court, accordingly, denies

Defendants’ motion for summary judgment [100].

Dated: September 20, 2021 Entered:

7 ohn Robert Blakey Z

United States District Judge

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