A Patent Troll Loses

In startups, you never know where the ball will bounce.  I mean, you generally have an idea of a direction but as the company progresses things reveal themselves.  It can be like a big mystery novel.  While there are similarities with each startup, they are all indeed different.

Exits can look very different too.  Sometimes they are acquisitions by another company.  Sometimes acquisition by a family office or a PE firm.  Sometimes they are IPOs.  Sometimes, the company just operates as a going concern and throws off dividends.  Sometimes they fail.

Sometimes they win lawsuits.  I had that happen today.

When we started Hyde Park Angels three of us, Rick, Ryan and me, invested in a company called Shuffletech.  We invested right around May of 2007.  At the time, there were only seven of us, all from the same MBA class at Chicago Booth.

One of our co-founders, Rick Schultz, brought the deal to us and was so enamored with it he wanted to be the CEO.  Rick was in our MBA class at Chicago.  By the way, at the same time we tried to get into another classmates deal, Braintree, but Bryan didn’t take outside capital and bootstrapped.  We also tried to get into Groupon but they didn’t take outside capital either.  It was an inside deal.  Would have been a pretty auspicious start to HPA if we were able to grab that trifecta!  But, it was not to be.

Ironically, one of HPA’s next deals was UICO and Ryan led that deal and went to work for the company.  That deal came out of the same MBA class.  UICO is still in business.  That’s a story for a different day but one of HPA’s early members I recruited off the trading floor, Doug Monieson, has done yeoman’s work on that deal.  Someone should talk to him about it someday.

Shuffletech was attacking the at home poker game. It was a card shuffler that totally randomized the deck.  It made games at home go a lot faster.  If you have ever played a real Texas Hold ‘Em poker game at home you know what I am talking about.  Rounds and rounds with lots of shuffling.  It was a nice gadget, and it could even mount neatly under a table.

They ran into the typical issues that a consumer startup would run into.  Customer acquisition, manufacturing, shipping, and returns.  Rick also had to manage the people like any CEO.

Along the way, new opportunities availed themselves to the company.  In casinos, they often use machine shufflers to shuffle decks.  Back in the day, we searched and found that casinos were spending hundreds, and sometimes even thousands on mechanical card shufflers for gaming tables.  On eBay, you used to be able to buy refurbished ones for your home and they would run almost $1000.

Shuffletech started looking at that market.

To make a very long story short, their effort ended in a lawsuit against Scientific Games.  Last summer, they won that lawsuit.  In a jury trial, Scientific Games was ordered to pay $105MM to Shuffletech.  Because of the nature of the lawsuit, the treble damages amounted to $315MM.  Here is the essence of the lawsuit.  We hear about patent trolls often in startups where large corporates engage in legal machinations to shut down innovation.  In this case, the patent trolls lost.

Shuffle Tech and two other companies, Aces Up Gaming Inc and Poydras-Talrick Holdings LLC, collaborated in 2012 on an automatic card shuffler intended to compete with Scientific Games’ products.

Scientific Games filed a lawsuit in 2012 alleging that Shuffle Tech was using its patented technology without authorization.

Shuffle Tech, Aces Up, and Poydras-Talrick responded with an antitrust lawsuit in 2015, claiming Scientific Games obtained overly broad, invalid patents by misleading the U.S. Patent and Trademark Office and engaged in “sham patent litigation against any competitor that dared to market competitive card shufflers.”

Here is the press release today from Scientific Games: