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Jockeying for Dollars: Kentucky Downs Faces Two Lawsuits over Betting Machines

And they're off ... to the United States District Court for the Western District of Kentucky.  One of the country's premier racetracks, Kentucky Downs faces two lawsuits surrounding its use of historical horse race betting machines. On April 2nd, AmTote International Inc., a betting machine company, sued Kentucky Downs racetrack, three of its senior executives and Encore Gaming, LLC ("Defendants"), alleging that Defendants misappropriated proprietary trade secrets relating to its pari-mutuel betting system and breached the parties' agreement prohibiting reverse engineering of AmTote's proprietary betting technology.  (AmTote International Inc. v. Kentucky Downs, LLC, No. 1:15-CV-47-GNS (W.D. Ky., filed Apr. 2, 2015)).  Not horsing around either, RaceTech, a company that produces pari-mutuel "historical racing" betting machines, filed suit on April 30th, claiming that Kentucky Downs' historical racing betting machines infringe its patents. (RaceTech, LLC v. Kentucky Downs, LLC, No. 1:15-CV-59-GNS (W.D. Ky., Amended Complaint filed June 19, 2015)).

As the name indicates, historical racing involves betting on previously run races.  The slot-like machines randomly select a race from a video library of thousands of previously run races and remove all identifying information (e.g., identity of horse race, racetrack name and participating horses), providing gamblers with only general data from the Daily Racing Form as it existed on the day of the original race. After betting, players are shown a video clip of the race and its official results.  The outcomes are taken from the actual race shown, thus differentiating historical race betting from random games of chance.   Under Kentucky law established in the Appalachian Racing decision, bets on horse races must be based on a pari-mutuel system, in which the track is not directly involved in the wager.  Gamblers bet against each other, and the odds are determined by the size of the wagering pool.  The track does, however, end up "in the money," as it receives a commission.

Historical horse racing galloped onto the scene in Kentucky in July 2010 after the Kentucky Horse Racing Commission amended its regulations under Kentucky Administrative Regulations 1:120 to allow it.  This change "stirrup-ed" gambling activity in the state. Following a Franklin Circuit Court decision in late December 2010 upholding the regulatory amendment, Kentucky Downs placed historical racing machines on its grounds in September 2011.  The revenue generated by the new betting machines has allowed Kentucky Downs to offer the country's most lucrative purses.  The track's one-month record for historical wagers trots in at nearly $32 million.

Kentucky Downs opened in 1990 in Franklin, Kentucky and the track's 1 3/8-mile-long turf course has three turns.  Located next to the border with Tennessee, the track was originally known as the Dueling Grounds Racetrack, because historically it was the site of frequent duels among Tennesseans.  Fortunately, aggrieved parties no longer take the Burr-Hamilton approach to problem solving and instead typically seek out the best legal counsel.

The lawsuits against Kentucky Downs stem from the track's decision, in April 2015, to replace AmTote's betting machines with machines provided by Encore Gaming (a company founded in 2013 by a Kentucky Downs executive and a Defendant in the action). In its complaint, AmTote claims: "Encore could not have feasibly developed these [betting machine] products and services using available time and resources except with reference to and reliance on AmTote's confidential and proprietary information."  AmTote asserts that Encore misappropriated information provided during betting machine training sessions with Kentucky Downs personnel, and also learned about its proprietary technology by obtaining access to daily machine system reports. AmTote asks the court to award it $75,000 in compensatory damages and enjoin Defendants from using the Encore betting machines. 

Kentucky Downs, keeping pace with AmTote, quickly filed a motion to dismiss, declaring that it developed its machines separately and that the two machines are different, since Encore's machines are only used for historical betting while AmTote's machines also are used to bet on live races.  Kentucky Downs also stated that even if it had wanted to reverse engineer AmTote's machines it could not, because it had no access to AmTote's source code, which AmTote admits is housed securely in a facility in Maryland.  In its June 2nd response in opposition to Kentucky Downs' motion to dismiss, AmTote asserts that its complaint provided sufficient factual allegations to meet the lower pleading standard for trade secret cases, which takes into account the need to protect against disclosure. 

Following just a few lengths behind AmTote, RaceTech sued Kentucky Downs for multiple counts of patent infringement.  RaceTech alleges that the parties had "entered into a contract for Kentucky Downs to be the exclusive provider of RaceTech's Parimutuel [sic] Historical Gaming Systems," but Kentucky Downs terminated the contract and subsequently began working with Encore Gaming.   As a result of their relationship, RaceTech claims that Kentucky Downs had knowledge of its historical racing machine system patents and that the track "work[ed] with Encore Gaming to make, use, offer for sale, and sell infringing systems."  Kentucky Downs responded by filing a motion to dismiss, asserting that RaceTech's patents are invalid under 35 U.S.C. § 101 because "they claim the invention of an abstract idea or the implementation of an abstract idea with generic computer equipment." RaceTech then amended its complaint to include two additional counts of patent infringement based on one additional patent.   

The two lawsuits have only reached the starting post of the legal process.  The homestretch lays furlongs away on a track that may be muddied by the daily double of motions and lengthy discovery.  Perhaps one party will pull up and settle.  Or, the end might be a photo finish.    

© 2022 Proskauer Rose LLP. National Law Review, Volume V, Number 181
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L. Robert Batterman, Labor, Management, Sports, Attorney, Proskauer, Law Firm
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A partner since 1974, Bob Batterman has considerable experience representing both individual employers and multi-employer groups in union relations and collective bargaining. Much of Bob’s time is spent in day-to-day contact with clients, often in “crisis” situations where a rapid resolution of union-related problems is vital.

Bob is a senior member of our nationally recognized Sports Law Group, serving as labor counsel to the National Hockey League, Major League Soccer and the National Football League. He has extensive experience in collective...

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Michael A. Cardozo is a Partner in Proskauer’s Litigation Department and the former Corporation Counsel for the City of New York. As the city's 77th and longest serving Corporation Counsel, he was the city’s chief legal officer, headed the city's Law Department of more than 700 lawyers, and served from 2002 through 2013 as legal counsel to Mayor Michael Bloomberg, elected officials, the city and its agencies.

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Robert E. Freeman is a Partner in the Corporate Department and a member of the Sports Law Group and Technology, Media & Communications Group.

Rob began his career as an intellectual property litigator before shifting the focus of his practice to intellectual property-related transactions. Today, he helps lead a team of media, sports and entertainment attorneys representing clients such as Time Warner Cable, Discovery Communications, the WTA, the Orlando Magic, Scripps Networks, Armstrong Cable, the PAC-12, Insight Communications and CBS Sports. Rob’s work for these clients...

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Wayne D. Katz is a Partner in the Corporate Department, specializing in the sports industry.

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