WMS lawsuit could affect Bally at G2E

25 October 2010

LAS VEGAS, Nevada -- Timing is everything.

Still a patent infringement lawsuit between rival slot machine manufacturers is not an earth-shattering story. Much of the gambling equipment sector has spent the past decade in federal courtrooms arguing over intellectual property matters covering casino game technology.

But what's unique about a lawsuit filed in U.S. District Court in Illinois by WMS Industries against Bally Technologies is the timing, coming just a few weeks before next month's Global Gaming Expo in Las Vegas.

WMS claims that Bally infringed on its technology patent covering slot machines that use superimposed video images, known as transmissive technology, on its spinning reels.

Janney Montgomery Scott gaming analyst Brian McGill said the lawsuit could force Bally to remove some products it had been planning to display on its G2E trade show floor.

"In the past, WMS has not been that aggressive heading to the courts to try to enforce intellectual property," McGill told investors, "We think it could suggest Bally is developing additional product based on transmissive technology that would potentially take share from WMS products."

The lawsuit covers several popular Bally slot machines, analysts say, including Cash Spin, Dragon Dynasty, Twin Tigers and Sky Spirits.

Roth Capital Markets gaming analyst Todd Eilers said Bally's Cash Spin slot machine accounts for about 1,000 games in various markets and could reach 2,000 by June. He said the game could be worth $50 million in annual lease revenue to the company and another $40 million in annual gross profit.

"The lawsuit against Bally is not surprising as Bally's technology looks similar to WMS' transmissive reels product," Eilers said. "However, we are not patent experts and would highlight that Bally has done very well with regards to patent litigation over the last several years."

Bally and slot machine giant International Game Technology have filed lawsuits and counterlawsuits against each other going back 10 years, mainly over competing spinning wheel features on different slot machines.

Jefferies & Co. gaming analyst David Katz said the lawsuit could weigh heavier on shares of Bally, which has had more of a history in patent-infringement cases.

"Although our view is that these conflicts have historically been a common occurrence, the importance of the products involved for both companies suggests that the suit is not insignificant," Katz said.

When WMS introduced the slot machines, it was the only company using the technology.

Sterne Agee gaming analyst David Bain told investors that the lawsuit could affect other companies in the gaming equipment sector.

"While the outcome of the lawsuit may give additional clarity to the supplier industry for future technological advances, it will most likely take several years and several million dollars to resolve," Bain told investors. "Unfortunately, we do not view a victory for either company in the near-term."

Related Links
Global Gaming Expo (G2E) 2010
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