Igt v. Alliance Gaming Corp. , 702 F.3d 1338 ( 2012 )

United States Court of Appeals
for the Federal Circuit
__________________________
IGT,
Plaintiff-Appellee,
v.
ALLIANCE GAMING CORPORATION, BALLY
GAMING INTERNATIONAL, INC.,
AND BALLY GAMING, INC. (DOING BUSINESS AS BALLY
GAMING & SYSTEMS),
Defendants-Appellants.
__________________________
2011-1166
__________________________
Appeal from the United States District Court for the
District of Nevada in case no. 04-CV-1676, Judge Robert
C. Jones.
__________________________
Decided: December 17, 2012
__________________________
DEANNE E. MAYNARD, Morrison & Foerster LLP, of
Washington, DC, argued for plaintiff-appellee. With her
on the brief were ALEXANDER J. HADJIS, BRIAN R. MATSUI
and MARC A. HEARRON. Of counsel on the brief was
BRETT J. WILLIAMSON, O’Melveny & Myers LLP, of New-
port Beach, California.
IGT v. ALLIANCE GAMING 2
JENNIFER A. KASH, Quinn Emanuel Urquhart & Sulli-
van, LLP, of San Francisco, California, argued for defen-
dants-appellants. With her on the brief were CHARLES K.
VERHOEVEN and KEVIN A. SMITH.
__________________________
Before BRYSON, LINN, and REYNA, Circuit Judges.
Opinion for the court filed by Circuit Judge REYNA.
Dissenting opinion filed by Circuit Judge BRYSON.
REYNA, Circuit Judge.
IGT owns several patents related to “wheel games,” a
type of casino gaming machine containing a secondary
bonus game incorporating a spinning wheel. IGT sued
Alliance Gaming Corp., Bally Gaming International, Inc.,
and Bally Gaming, Inc. (collectively, “Bally”) for infringe-
ment of these patents, and Bally counterclaimed under
state and federal antitrust laws. The district court denied
the motions for summary judgment on the antitrust
issues, granted the motions that the patents were invalid
and not infringed, and certified the patent issues for
interlocutory appeal. This court affirmed. On remand,
the district court granted summary judgment against
Bally on its antitrust counterclaims. Because the undis-
puted facts are insufficient to establish the existence of a
relevant antitrust market in wheel games, we affirm.
BACKGROUND
IGT specializes in the design, development, manufac-
turing, distribution, and sales of computerized gaming
machines and systems. One of IGT’s most popular and
successful games was “Wheel of Fortune,” a wheel game.
In the mid-1990s, IGT applied for and obtained patents
related to the wheel feature of the Wheel of Fortune
game. At about the same time, Anchor Gaming (Anchor)
3 IGT v. ALLIANCE GAMING
developed a wheel game called “Wheel of Gold” and ob-
tained a patent on it. Anchor was eventually acquired by
IGT.
Bally, one of IGT’s chief competitors, designs, manu-
factures, operates, and distributes gaming machines,
owns and operates a significant number of gaming ma-
chines, and owns and operates a casino. Bally began
selling wheel games in 2002. Because IGT and Anchor
had successfully used their patents to drive competitors
out of the wheel game market, Bally became IGT’s only
wheel game competitor. IGT sued Bally for infringement
of its wheel game patents, and Bally responded that the
patents were invalid and not infringed. In addition, Bally
counterclaimed, alleging that the infringement lawsuit
was an attempt to monopolize the wheel game market by
asserting patents that IGT knew to be invalid, unenforce-
able, and not infringed.
In March 2007, the district court granted partial
summary judgment on Bally’s antitrust counterclaims.
The court granted summary judgment against Bally as to
the larger market of all gaming machines, reasoning that
“Bally ha[d] not presented any evidence as to the gaming
machine market as a whole,” but instead had only pre-
sented evidence related to the narrower wheel game
market. The court then denied summary judgment with
respect to the narrower wheel game market, finding that
disputed issues of material fact existed. The court did not
analyze the definition of the relevant market, but instead
simply assumed the relevant market to be wheel games.
Following the partial denial of IGT’s summary judg-
ment motion, the parties served expert reports and de-
posed opposing expert witnesses. As part of its patent
damages theory, IGT argued that there were no non-
infringing substitutes for its wheel games. IGT’s patent
IGT v. ALLIANCE GAMING 4
damages expert, Richard Troxel, opined that IGT would
have leased one of its wheel games for every Bally wheel
game a casino bought or leased. Troxel based his opinion
on the premise that “the wheel has such a demand and
drawing power for consumers.” Thus, Troxel reasoned,
every sale of a Bally wheel game must represent a ca-
sino’s desire to purchase a wheel game. Troxel does not
appear to have analyzed whether any non-infringing
alternatives existed. Instead, Troxel simply assumed that
any substitute would necessarily be an infringing wheel
game. This assumption appears to have been based on
IGT and Bally’s assertions that there were no other wheel
game suppliers. Troxel had not been asked to opine on
the relevant antitrust market, and had not examined
price elasticity.
Both parties provided expert testimony regarding the
definition of the relevant antitrust market. Bally’s ex-
pert, Dr. Adams, concluded that a relevant market in
wheel games existed. Dr. Adams based this largely on
IGT’s assertion that “the entry of Bally into the supplying
of wheel games has caused IGT to have to lower its price
for wheel games.” J.A. 8287. He also asserted that the
resources IGT expended acquiring and enforcing intellec-
tual property rights related to wheel games established
that wheel games are a relevant market. Finally, he
addressed the Brown Shoe factors.1 Dr. Adams identified
the “peculiar characteristic” of the product as its wheel-
shaped bonus feature. He stated that wheel games were
recognized as a separate economic activity because inter-
nal IGT materials sometimes discussed wheel games
separately. Dr. Adams also observed that there were no
1 In Brown Shoe Co. v. United States, 370 U.S. 294(1962), the Supreme Court established several factors
helpful in determining whether a submarket exists. See
discussion infra Part II.C.
5 IGT v. ALLIANCE GAMING
unique production facilities or customers for wheel games.
Subsequently, after receiving price data, Dr. Adams
updated his report, concluding that evidence of price
erosion showed that the relevant market was wheel
games because “[i]f the entry of [Bally] caused the price of
wheel games to fall, then wheel games are, by definition,
a relevant antitrust product market.” J.A. 25056.
IGT’s antitrust expert, Professor Ordover, concluded
that wheel games were not a relevant market. Ordover
described gaming machines as a differentiated market,
meaning that “any given machine will embody various
characteristics that affect the appeal of the machine to
players.” J.A. 8088. He explained that gaming machines
are “differentiated by such factors as type of display,
theme, cabinet design, denomination, progressive vs. non-
progressive, and bonus features.” J.A. 8108. Wheel
games are one of many bonus types; other types include
ladders, reels, elevators, and bouncing balls. Ordover
stated that casinos offer a variety of gaming machines in
order to attract and retain customers. He elaborated that
the mix of machines on the floor is driven by profitability,
and that each game competes for space on the gaming
floor. In Ordover’s opinion, the price erosion experienced
by IGT after Bally introduced its wheel games was “the
inevitable result of competition among differentiated
products following the entry of a substitute to the product
at issue.” J.A. 8108.
On October 16, 2008, the court granted Bally’s motion
for summary judgment of non-infringement of the wheel
game patents and granted summary judgment that two of
the patents were invalid. In the same order, the court
denied IGT’s motion for summary judgment on the anti-
trust issues. The court noted that the definition of the
relevant market was a question of fact and that a sub-
market may be relevant if it meets the Brown Shoe fac-
IGT v. ALLIANCE GAMING 6
tors. After summarizing evidence related to these factors,
the district court concluded that there were genuine
issues of material fact about whether wheel games were a
relevant market and whether wheel games were a sub-
market under Brown Shoe. The parties appealed the
ruling on the patent issues to this court and we affirmed.
See IGT v. Alliance Gaming Corp., 334 F. App’x 329 (Fed.
Cir. 2009).
On remand, IGT moved for reconsideration of the de-
nial of its summary judgment motion on the antitrust
counterclaims. It argued that a market definition of
gaming machines with wheel-shaped bonuses was too
narrow, pointing to evidence that “casinos mix and match
different games on their floor space in order to maximize
overall revenues.” J.A. 24444. It also pointed to state-
ments from both antitrust experts that gaming machines
are differentiated products, meaning that “the products
reflect a spectrum of price and quality differences.” J.A.
24446. Changing course from its previous rulings, the
district court ruled that wheel games were not a relevant
market. The court noted that Bally had conceded that
there is competition between wheel and non-wheel games.
It stated that “it is undisputed that casinos mix and
match products to maximize floor-space revenue genera-
tion.” It therefore concluded that “[b]ecause all gaming
machines compete, wheel games are not an economically
distinct relevant market,” and awarded summary judg-
ment against Bally on its antitrust claims.
Bally appeals. This court has jurisdiction under 28
U.S.C. § 1295(a)(1).
DISCUSSION
To prevail in this appeal, Bally must show that the
district court erred when it granted summary judgment
that wheel games are not a relevant antitrust market.
7 IGT v. ALLIANCE GAMING
Bally offers three arguments why this is so: (1) that the
district court improperly resolved disputed facts when it
determined that wheel games were not a relevant market
because wheel games competed with all gaming machines;
(2) that the district court erred in concluding that the
existence of some substitution between wheel and non-
wheel games foreclosed the existence of a wheel game
market; and (3) that the district court improperly focused
on functional, rather than economic, substitution.
I
When reviewing a district court’s conclusion as to the
relevant market under antitrust law, this court applies
the law of the regional circuit. See Nobelpharma AB v.
Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir.
1998). We also “review[] the district court’s grant or
denial of summary judgment under the law of the re-
gional circuit.” MicroStrategy Inc. v. Bus. Objects, S.A.,
429 F.3d 1344, 1349 (Fed. Cir. 2005). We therefore apply
Ninth Circuit law to both issues in this case.
Summary judgment is appropriate when there are no
genuine issues of material fact and the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P.
56. The Ninth Circuit “review[s] de novo the district
court’s grant of summary judgment to determine whether,
viewing all evidence in the light most favorable to the
nonmoving party, there are any genuine issues of mate-
rial fact and whether the district court correctly applied
the relevant substantive law.” Whitman v. Mineta, 541
F.3d 929, 931 (9th Cir. 2008). “The party opposing sum-
mary judgment must demonstrate that the fact in conten-
tion is material, i.e., a fact that might affect the outcome
of the suit under the governing law, and that the dispute
is genuine, i.e., the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Lindahl
IGT v. ALLIANCE GAMING 8
v. Air France, 930 F.2d 1434, 1436 (9th Cir. 1991) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49
(1986)). “Factual disputes that are irrelevant or unneces-
sary will not be counted.” Anderson, 477 U.S. at 248.
II
As a threshold issue in any monopolization claim, the
court must identify the relevant market.2 M.A.P. Oil Co.
v. Texaco Inc., 691 F.2d 1303, 1306 (9th Cir. 1982). “The
relevant market is the field in which meaningful competi-
tion is said to exist.” Image Technical Servs., Inc. v.
Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997).
“Market definition can be broadly characterized in terms
of the ‘cross-elasticity of demand’ for or ‘reasonable inter-
changeability’ of a given set of products or services.”
M.A.P. Oil, 691 F.2d at 1306 (quoting United States v. E.I.
du Pont de Nemours, 351 U.S. 377, 395 (1956)). Defini-
tion of the relevant market is a question of fact. Theme
Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991,
1002 (9th Cir. 2008).
A. Wheel Games Compete with All Gaming Machines
Bally does not dispute the district court’s conclusion
that wheel games compete with all gaming machines.
Nor does it argue for or against the existence of a relevant
market in gaming machines, a position it has abandoned.
Nevertheless, Bally contends that the relevant market is
a disputed question of fact that the district court improp-
erly decided on summary judgment. We therefore begin
by examining the district court’s conclusion that wheel
games compete with all gaming machines in order to
2Two types of relevant markets must be identified:
geographic market and product market. M.A.P. Oil, 691
F.2d at 1306. Geographic market is not at issue in this
case.
9 IGT v. ALLIANCE GAMING
ensure that it did not improperly resolve disputed facts
and to provide background for the discussion of whether
wheel games are a relevant market or submarket.
Both Bally and IGT provided extensive evidence that
wheel games compete in the broader gaming machine
market. Mr. Isaacs, Bally’s corporate designee on the
wheel game market, stated that he thought “just about
anything may have potentially displaced the Bally wheel
game.” J.A. 6176. Bally’s former Vice President of Busi-
ness Development explained that Bally’s wheel game
“compete[d] with everything that’s on the floor. The way
it works is that you sell a machine and it competes
against everything there.” J.A. 6240. Bally’s Senior Vice
President of Domestic Sales provided similar statements,
and IGT’s Senior Vice President of Product Development
stated that “generally speaking, operators will keep on
their floor what earns the most.” J.A. 6514.
Bally did not rebut this evidence. As Bally has failed
to produce evidence to show there is a genuine issue of
material fact that wheel games compete with all gaming
machines, the district court did not resolve a disputed
factual issue. See Rebel Oil Co. v. Atl. Richfield Co., 51
F.3d 1421, 1435 (9th Cir. 1995) (citing Celotex Corp. v.
Catrett, 477 U.S. 317, 324 (1986)). Indeed, absent addi-
tional facts suggesting otherwise, the district court could
conceivably have gone one step farther and concluded that
the relevant market was all gaming machines. But Bally
does present additional facts, and relied on arguments
that evidence that its wheel games forced IGT to lower its
prices shows that wheel games are a distinct market. We
therefore turn next to whether a relevant market of wheel
games exists.
IGT v. ALLIANCE GAMING 10
B. Wheel Games Are Not a Relevant Market
The district court rejected wheel games as a relevant
market because a market limited to wheel games would
not encompass all economic substitutes. Focusing on the
same undisputed evidence that supported its conclusion
that wheel games compete with all gaming machines—
specifically, that “casinos mix and match products to
maximize floor-space revenue generation”—the court
reasoned that “the relevant market is significantly
broader than ‘wheel games’ because there is ample evi-
dence that non-wheel games compete with wheel games.”
The court rejected Bally’s argument that this competition
does not prevent wheel games from being a relevant
market, concluding that “[b]ecause all gaming machines
compete, wheel games are not an economically distinct
submarket.” Bally argues this was error because (1) the
existence of some substitution does not preclude wheel
games from being a submarket, and (2) the analysis
focused on functional, rather than economic, substitution.
We address each point in turn.
As discussed above, Bally does not dispute that wheel
games compete with all gaming machines. Bally does
argue, however, that it was error for the district court to
conclude that this competition prevented wheel games
from being a relevant market. As authority for this
argument, Bally points to Unitherm Food Sys., Inc. v.
Swift-Eckrich, Inc., in which this court, applying Tenth
Circuit law, said: “For every product, substitutes exist.
But a relevant market cannot meaningfully encompass
that infinite range.” 375 F.3d 1341, 1364 (Fed. Cir. 2004)
(quoting Times-Picayune Publ’g Co. v. United States, 345
U.S. 594, 613 n.31 (1953)), rev’d on other grounds, 546
U.S. 394 (2006). The truth of this proposition is evident,
as is the question it suggests: where should the courts
draw the line? The remainder of the quotation from
11 IGT v. ALLIANCE GAMING
Times-Picayune suggests an answer: “The circle must be
drawn narrowly to exclude any other product to which,
within reasonable variations in price, only a limited
number of buyers will turn; in technical terms, products
whose cross-elasticities of demand are small.” Times-
Picayune, 345 U.S. at 613, n.31. This simply refers to the
well-settled relevant market inquiry focusing on economic
substitution.
Bally argues that it has shown a lack of economic sub-
stitution by satisfying what is known as the small but
significant and non-transitory increase in price test
(“SSNIP”). Under this test, Bally argues that the relevant
question is “whether the degree of substitutability be-
tween the two products is sufficiently great that it would
restrain a hypothetical monopolist from profitably impos-
ing a substantial price increase.” Appellant’s Br. 57.
Even assuming that SSNIP by itself is the proper test,3
Bally has not alleged facts that would satisfy it. Bally
contends that introduction of wheel games forced IGT to
lower its prices. From this assertion, Bally argues that
IGT’s prior prices were supracompetitive. We accept both
of these assertions as true. But Bally next asserts that
these supracompetitive prices represented a SSNIP. With
this we cannot agree. Bally has not explained what the
3 As support for its assertion that SSNIP is the con-
trolling test, Bally cites Theme Promotions, which did
allow that “[d]etermining the relevant market can in-
volve” an SSNIP analysis, among other things. 546 F.3d
at 1002. But the discussion of SSNIP in Theme Promo-
tions was premised on United States v. Oracle Corp., 331
F. Supp. 2d 1098 (N.D. Cal. 2004), which in turn was
elaborating on the Department of Justice’s Horizontal
Merger Guidelines (“the Guidelines”). The Ninth Circuit
has stated that the Guidelines are not binding on the
courts. See Olin Corp. v. FTC, 986 F.2d 1295, 1300 (9th
Cir. 1993).
IGT v. ALLIANCE GAMING 12
baseline price for wheel games was from which IGT
imposed a SSNIP. Although Bally implies that the base-
line price should be similar to non-wheel games, no evi-
dence supports this. Indeed, in a differentiated market,
one would expect the prices for two differentiated prod-
ucts to be different. Having failed to establish such a
baseline, Bally cannot successfully argue that IGT im-
posed a SSNIP. Furthermore, if we regard the supracom-
petitive prices as a baseline, Bally has shown that the
prices decreased, not that they increased. Thus, even if
the Guidelines test governs here, Bally has failed to put
forth evidence that would satisfy it.
We also reject Bally’s argument that the district court
improperly focused on technological substitutions. The
basis for this argument is the district court’s statement
that “it is undisputed that the relevant functionality of
gaming machines is revenue generation.” The court made
this statement in the context of its description of the
differentiated market of gaming machines in which wheel
games compete. We hold that the court based its ultimate
conclusion on competition, not on functionality, and that
its recognition of meaningful competition was not error.
C. Wheel Games Are Not a Submarket
In addition to its argument that wheel games is a
relevant market, Bally also contends that the Brown Shoe
factors establish wheel games as a submarket.4
“[A]lthough the general market must include all economic
substitutes, it is legally permissible to premise antitrust
allegations on a submarket.” Newcal Indus., Inc. v. Ikon
Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008);
Thurman Indus., Inc. v. Pay ’N Pak Stores, Inc., 875 F.2d
4We assume, although Bally does not explicitly say
so, that Bally’s argument is that wheel games are a
submarket of all gaming machines.
13 IGT v. ALLIANCE GAMING
1369, 1374 (9th Cir. 1989) (“In limited settings . . . the
relevant product market may be narrowed beyond the
boundaries of physical interchangeability and cross-price
elasticity to account for identifiable submarkets . . . .”).
To the extent that the standard for defining a submarket
differs from the standard for defining a market, it is
embodied in the Brown Shoe factors.5 In Brown Shoe, the
Supreme Court listed several “practical indicia” of an
economically distinct submarket: “industry or public
recognition of the submarket as a separate economic
entity, the product’s peculiar characteristics and uses,
unique production facilities, distinct customers, distinct
prices, sensitivity to price changes, and specialized ven-
dors.” 370 U.S. at 325. “[T]he Brown Shoe indicia are
practical aids for identifying the areas of actual or poten-
tial competition and . . . their presence or absence does
not decide automatically the submarket issue.” Thurman,
875 F.2d at 1375. “Whether isolating a submarket is
justified turns ultimately upon whether the factors used
to define the submarket are ‘economically significant.’”
Id. (quoting Int’l Tel. & Tel. Corp. v. General Tel. & Elec.
Corp., 518 F.2d 913, 932 (9th Cir. 1975)).
5 A leading antitrust treatise suggests that the two
inquiries are the same. See IIB Phillip E. Areeda, John
L. Solow & Herbert Hovenkamp, Antitrust Law ¶ 533c (3d
ed. 2007) [hereinafter Areeda]. Although at least one
district court in the Ninth Circuit has adopted this posi-
tion, see United States v. Oracle Corp., 331 F. Supp. 2d
1098, 1118-19 (N.D. Cal. 2009), we are aware of no Ninth
Circuit case that has done so. See Newcal, 513 F.3d at
1045 (identifying the Brown Shoe factors as one way of
showing that a submarket is economically distinct). In
any event, we have already determined that Bally did not
meet its burden to show that there was a relevant market
in wheel games.
IGT v. ALLIANCE GAMING 14
The undisputed facts, however, are insufficient to es-
tablish the existence of a submarket under the Brown
Shoe factors. By definition, the “peculiar characteristic”
distinguishing wheel games from other games is the
wheel-shaped secondary bonus. It is undisputed that
there are no unique production facilities or specialized
vendors for wheel games versus ordinary gaming ma-
chines; one can just as easily produce a gaming machine
with a square bonus as one with a circular bonus. This
factor is particularly important in this case. See Brown
Shoe, 370 U.S. at 325 n.42 (“The cross-elasticity of pro-
duction facilities may also be an important factor in
defining a product market.”); Rebel Oil, 51 F.3d at 1436(“[D]efining a market on the basis of demand considera-
tions alone is erroneous.”); Calnetics Corp. v. Volkswagen
of Am., Inc., 532 F.2d 674, 691 (9th Cir. 1976) (“[F]ailure
to consider production cross-elasticity [i]s inconsistent
with the views of the Supreme Court and of this circuit.”);
see generally Areeda ¶ 561, at 360-64. It is also undis-
puted that there are no distinct customers: wheel games,
like all gaming machines, are purchased by casinos.
Bally’s antitrust expert, Dr. Adams, conceded these
points.
Bally’s argument rests entirely on a single Brown
Shoe factor: that “there is substantial evidence that game
players, casinos, and IGT all view wheel games as a
separate economic activity from non-wheel games.” Bally
bases this argument primarily on evidence that some
players prefer wheel games and that, accordingly, casinos
allocate a specific percentages of their floor space to
different types of games, including to wheel games. But
evidence of player preference for wheel games says noth-
ing about whether there is a public or industry perception
that wheel games constitute a separate market; to the
contrary, it is in harmony with the rest of the evidence
15 IGT v. ALLIANCE GAMING
that gaming machines are a differentiated market and
that wheel games compete with all gaming machines to
accommodate the spectrum of player preferences.
D. The Disputed Facts Are Not Material
In addition to its market definition arguments, Bally
contends that the district court erred by resolving factual
disputes on summary judgment. In particular, Bally
contends that IGT and its experts “have repeatedly and
consistently testified that non-wheel games are not sub-
stitutes for wheel games.” Appellant’s Br. 56. Although
Bally provides no further explanation, we understand this
argument to refer to statements IGT and its experts made
in support of its patent damages theory.
To prove its patent damages, IGT chose to seek lost
profits under the Panduit test. Under the Panduit fac-
tors, IGT was required to prove the absence of acceptable
non-infringing substitutes. See Rite-Hite Corp. v. Kelly
Co., 56 F.3d 1538, 1545 (Fed. Cir. 1995) (en banc) (citing
Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d
1152 (6th Cir. 1978)). By claiming that the wheel feature
was critical, IGT was able to argue that there were no
non-infringing substitutes for its wheel game, and that
every infringing game sold represented a loss of profits to
IGT. According to Bally, by making this argument, “IGT
has admitted that there are no substitutes for wheel
games and that non-wheel games are not in the same
market as wheel games.” Appellant’s Br. 39-40. We
disagree.
Even under the summary judgment standard, Troxel’s
opinion that there were no non-infringing technological
substitutes cannot be read to mean that there were no
economic substitutes. To do so, Troxel’s opinion would
need to be able to support a reasonable inference that no
economic substitution existed. But, as Bally acknowl-
IGT v. ALLIANCE GAMING 16
edges, Troxel simply “relied on Bally’s assertion that
wheel games are an antitrust market.” Appellant’s Reply
Br. 5. Because Troxel simply assumed that the market
was co-extensive with the patent, however, such an infer-
ence would be unreasonable. See Rebel Oil, 51 F.3d at
1435 (“In the context of antitrust law, if there are undis-
puted facts about the structure of the market that render
the inference economically unreasonable, the expert
opinion is insufficient to support a jury verdict.”). And, as
discussed above, even if wheel games are a relevant
market, the high supply elasticity rendered demand
elasticity immaterial. Id. at 1436 (holding that excessive
supply elasticity rendered it “immaterial that consumers
do not regard the products as substitutes, that a price
differential exists, or that the prices are not closely corre-
lated.”). We therefore conclude that the district court’s
order did not resolve disputed issues of material fact.
CONCLUSION
The undisputed facts in this case show that meaning-
ful competition exists between wheel games and all gam-
ing machines. Furthermore, even viewing all evidence in
the light most favorable to Bally, the Brown Shoe factors
do not support a conclusion that wheel games should be
considered a separate submarket. The district court
correctly granted summary judgment that a wheel game
market did not exist, and the decision is hereby
AFFIRMED
United States Court of Appeals
for the Federal Circuit
__________________________
IGT,
Plaintiff-Appellee,
v.
ALLIANCE GAMING CORPORATION, BALLY
GAMING INTERNATIONAL, INC.,
AND BALLY GAMING, INC. (DOING BUSINESS AS BALLY
GAMING & SYSTEMS),
Defendants-Appellants.
__________________________
2011-1166
__________________________
Appeal from the United States District Court for the
District of Nevada in Case No. 04-CV-1676, Judge Robert
C. Jones.
__________________________
BRYSON, Circuit Judge, dissenting.
In my judgment the appellants have presented suffi-
cient evidence to establish the existence of a genuine
issue of material fact on the relevant market issue.
However counterintuitive it may be to those who are not
habitués of gambling establishments, the appellants’
evidence raises a triable question of fact as to whether
there is a separate market for slot machines that include
a secondary bonus game with a spinning wheel, machines
IGT v. ALLIANCE GAMING 2
that are referred to as “wheel games” in the gaming
industry.
Bally has shown that IGT was charging supra-
competitive prices before Bally entered the wheel game
market and that Bally’s entrance into the market pres-
sured IGT to lower its prices to a competitive level. Ron
Rivera, IGT’s Senior Vice President of Sales, testified that
IGT successfully rebuffed calls for discounts on its wheel
games before Bally began manufacturing wheel games,
but that it was forced to acquiesce in those demands when
customers were able to buy Bally’s wheel games. IGT
admits that the discounts were the direct and sole result
of Bally introducing its wheel games into the market. The
fact that IGT’s wheel games were subject to price pres-
sure only when other wheel games entered the market
indicates that consumers were willing to incur monopolis-
tic pricing without shifting demand to non-wheel games,
i.e., that there was very little, if any, cross-elasticity of
demand between wheel games and non-wheel games.
IGT’s own expert, Richard Troxel, admitted that he
saw no need to calculate cross-elasticity of demand be-
cause there was such strong demand for wheel games
independent of demand for non-wheel games: “[T]he
wheel has such a demand and drawing power for consum-
ers that . . . it seemed to me that the price elasticity was
not the issue. Price elasticity occurs when you have
products that are of a nature that price is going to make a
difference to the consumer, and whether or not they
would move to a different type of product or not. In this
case the wheel was what they wanted.” That evidence
indicates that there was demand for wheel games sepa-
rate from casino gaming machines generally and that
consumers would rather bear a small but significant non-
3 IGT v. ALLIANCE GAMING
transitory increase in price than switch to non-wheel
games.
That analysis is consistent with the evidence from
Bally’s expert, Gregory Adams. While referring to IGT’s
economic data, he stated that the margin and profit per
unit for wheel games is higher than for non-wheel games
and that “the demand for wheel games appears to differ
from the demand for non-wheel games, even when con-
trolling for [all other variables].” Those statements and
the economic data underlying them provide further sup-
port for Bally’s contention that wheel games form a
separate product market.
IGT asserts that Bally was required to calculate cross-
elasticity of demand and that Bally’s failure to do so is
fatal to its claim. The case law, however, does not man-
date such a showing by an antitrust plaintiff. See, e.g.,
Knutson v. Daily Review, Inc., 548 F.2d 795, 804 (9th Cir.
1976) (plaintiffs did not have to “produce a numerical
value of the cross-elasticity of demand” to prove a rele-
vant market; “[p]roofs of the [Brown Shoe] factors . . .
would have sufficed”); FTC v. PPG Indus., Inc., 798 F.2d
1500, 1504-06 (D.C. Cir. 1986) (using as relevant factors
consumer and manufacturer perceptions and conduct); In
re Live Concert Antitrust Litig., 863 F. Supp. 2d 966, 984-
86 (C.D. Cal. 2012) (collecting cases standing for the
proposition that “while calculating the cross-elasticity of
demand (and supply) is the preferred methodology, it is
not an absolute requirement”); see also Ericsson, Inc. v.
Harris Corp., 352 F.3d 1369, 1376-78 (Fed. Cir. 2003)
(crediting expert who purportedly “failed to calculate the
cross-elasticities of demand” and finding that the “failure
to present all of the economic evidence that Harris now
identifies does not mean that Ericsson failed to present
sound economic evidence”). Bally’s evidence indicates a
IGT v. ALLIANCE GAMING 4
clear absence of cross-elasticity of demand between wheel
and non-wheel games that obviates the need to quantify
the degree of the elasticity.
The majority contends that Bally’s relevant market
argument fails because it has not offered evidence as to
the baseline prices for wheel games from which IGT
obtained a premium based on its allegedly monopolistic
practices. But Bally offered evidence that, when it intro-
duced wheel games into the market, IGT was required to
reduce its prices, and that evidence included the amount
by which those prices were reduced when competitive
wheel games became available. That is precisely the kind
of evidence that shows the effect of the allegedly monopo-
listic conduct on the market. See 2B Philip E. Areeda et
al., Antitrust Law: An Analysis of Antitrust Principles and
Their Application §§ 533b, 563a (3d ed. 2007) (“Areeda”).
IGT’s evidence of lost profits due to patent infringe-
ment provides a further indication that the relevant
market is limited to wheel games. See Panduit Corp. v.
Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir.
1978). In making its case for damages in the form of lost
profits, IGT asserted that there were no acceptable non-
infringing substitutes for its wheel games. Mr. Troxel
testified that there were no non-wheel game substitutes
and that Bally’s wheel games replaced IGT’s wheel games
on a one-for-one basis. Because “Panduit’s second factor,
properly applied, ensures that any proffered alternative
competes in the same market for the same customers as
the infringer’s product[,]” BIC Leisure Prods., Inc. v.
Windsurfing Int’l, Inc., 1 F.3d 1214, 1219 (Fed. Cir. 1993),
the lack of any acceptable non-infringing alternatives
strongly suggests that the market consisted of only IGT’s
and Bally’s wheel games. In other words, IGT’s evidence
that there were no alternatives to which consumers could
5 IGT v. ALLIANCE GAMING
shift their demand other than Bally’s products is evidence
that the relevant market was limited to wheel games.
IGT’s higher prices and profit margins on wheel
games cannot be attributed simply to normal economic
performance in a differentiated product market that
includes wheel and non-wheel games. The court in
United States v. Oracle Corp., 331 F. Supp. 2d 1098, 1116
(N.D. Cal. 2004), addressed that issue persuasively,
explaining why monopolistic rents do not survive in a
differentiated market lacking barriers to entry:
Like a seller in a perfect competitive market,
however, sellers in a “competitive” differentiated
products market do not obtain monopoly rents. In
differentiated product markets with few barriers
to entry, firms will introduce products that are in-
creasingly close, although not perfect substitutes,
for the other products in the market. The intro-
duction of additional products causes the demand
curve faced by each seller to shift downward and
leftward until, at long run equilibrium, the de-
mand curve intersects the average cost curve of
the seller (defined as economists define costs to
include a reasonable profit) eliminating the mo-
nopolistic rent . . . .
Although close substitutes, such as reel bonus games and
tower bonus games, had been introduced, casinos still
sought out wheel games despite the higher prices for
those products, indicating the existence of a separate
market for wheel games. If a product is priced higher
than similar competing products, rational cost-
minimizing consumers will shift to the lower-priced
similar products, even if the lower-priced products differ
somewhat from the preferred product. If, instead, there
IGT v. ALLIANCE GAMING 6
are no similar or acceptable alternatives (as occurs in a
monopolized market or where patent protection bars the
introduction of competitive alternatives), consumers will
bear the increased price for the preferred product because
there are no satisfactory alternatives to which demand
can be shifted.
Because IGT’s patents barred potential competitors
from marketing wheel games, the majority’s reference to
supply elasticity is beside the point.1 The majority argues
that the fact that there are no unique production facilities
or specialized vendors for wheel games indicates that
there is production cross-elasticity and thus elasticity of
supply. But the existence of IGT’s patents barred com-
petitors from producing wheel games regardless of how
easy it would have been to do so. The whole point of IGT’s
obtaining patent protection for wheel games was to limit
the economic effects of supply elasticity.
Bally’s evidence was sufficient to create a genuine is-
sue of material fact as to whether IGT used its patents to
maintain a monopoly in a market that was sufficiently
separate from the market for other slot machines that
IGT was able to demand monopolistic prices over an
extended period of time. It is not enough to say that
1 Supply elasticity is a theory that neither party
advanced. In fact, IGT argued that “the critical question
in determining an antitrust product market is the ‘“cross-
elasticity” of demand’ between products. . . . Stated
differently, the relevant antitrust market is the smallest
group of products for which a hypothetical monopolist
could profitably impose a ‘small but significant and non-
transitory increase in price’ (SSNIP).” The majority not
only assigns weight to the allegedly high supply elasticity
for wheel games but, in discussing demand elasticity,
disparages the same test that IGT believed to be “the
critical question” in resolving this issue.
7 IGT v. ALLIANCE GAMING
IGT’s wheel games competed with other bonus games or
other slot machines in general. It could equally be said
that IGT’s machines competed with other casino games or
even with entertainment activities generally. But that
does not overcome Bally’s showing that there was a
discrete market for wheel games within the overall slot
machine, gaming, and entertainment markets, as demon-
strated by the persistent monopolistic prices that resulted
from the patent-based curtailment of supply and the
customer-preference driven specificity of demand. See
Areeda § 533c, at 255.2
In light of the record evidence summarized above, I
conclude that Bally has presented sufficient evidence for a
reasonable finder of fact to find that the relevant product
market is limited to wheel games. The relevant market
inquiry seeks to determine the scope of the market in
which a monopolist can exert market power over buyers.
2 Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d
1421 (9th Cir. 1995), on which the majority relies, stands
for the unremarkable proposition that a high degree of
supply elasticity can bear on the relevant market inquiry
and may even be determinative in some cases. In that
case the court found that full-serve gas stations were
potential competitors of self-serve stations—and thus
belonged in the relevant market—because full-serve
stations could “easily convert their full-serve pumps, at
virtually no cost, into self-serve, cash-only pumps, ex-
panding output and thus constraining any attempt by
[the alleged monopolist] to charge supracompetitive prices
for self-serve gasoline.” Id. at 1436. Critically, however,
nothing prevented the full-serve stations from making
that change to their business in order to deter or rein in
potentially monopolistic pricing by self-serve stations.
Here, by contrast, potential suppliers were discouraged
from entering the wheel game market by vigorous en-
forcement of the very patents that are being attacked as
unlawful.
IGT v. ALLIANCE GAMING 8
Bally alleges, and has introduced evidence to prove, that
IGT had market power over buyers in supplying wheel
games. I therefore respectfully dissent.