CAFC Affirms PTAB Ruling That DraftKings Failed to Prove Unpatentability of Gaming Patent Claim

The U.S. Court of Appeals for the Federal Circuit (CAFC) issued a decision today in DK Crown Holdings Inc. v. AG 18, LLC, affirming a final written decision of the Patent Trial and Appeal Board (PTAB) and holding that DK Crown Holdings Inc., formerly known as DraftKings, Inc. (DK), failed to prove that claim 18 of U.S. Patent No. 9,978,205 was unpatentable during inter partes review (IPR).

AG 18, LLC owns the ‘205 patent, which is titled “Location Based Restrictions on Networked Gaming” and covers peer-to-peer gaming systems that restrict a player’s online wagering activity based on geographic location. DK filed an IPR petition before the PTAB challenging claims 1 through 30 of the patent. The PTAB ultimately found claims 1 through 17 and 19 through 30 unpatentable as either anticipated by or obvious over the asserted prior art. Claim 18 was the only claim at issue on appeal, and it survived.

The claim 18 challenge depends on independent claim 12 through dependent claims 15, 16, and 17, and is directed to a gaming system in which wagering limits convert to non-monetary wagering and any player winnings are similarly non-monetary. In its petition, DK challenged claim 18 only under Grounds 1 and 2, both of which relied solely on a prior art patent of Bryson, U.S. Patent No. 8,460,109. The Ground 3 challenge was directed exclusively at claims 15 through 17 in the petition.

After the PTAB instituted the IPR, DK included a footnote in its petitioner’s reply requesting that the Board analyze claim 18 under Ground 3, the Bryson-plus-Schlottmann combination, rather than under Grounds 1 and 2. The PTAB declined, finding that DK improperly sought to introduce Schlottmann as a new prior art reference against claim 18 to fill a gap in the original petition. Since claims 15 through 17 are necessarily incorporated as limitations of claim 18, and DK’s original petition never argued that Bryson alone taught or suggested those limitations with respect to claim 18, the Board found that DK had not carried its burden of proof. DK then sought Director Review, which was denied, before appealing to the CAFC.

On appeal, DK argued the Board “abused its discretion” by refusing to analyze claim 18 under Ground 3. DK characterized the omission as a “clerical error” and contended it was “obvious” that DK intended to assert Ground 3 against claim 18; however, Judge Chen rejected that argument. The CAFC agreed “with the Board that DK asserted a new ground of unpatentability in its Reply footnote against claim 18 by seeking to add Schlottmann to its challenge.” The court emphasized that its case law prohibits the Board from entertaining theories that were absent from the petition and found that the late-raised footnote did not respond to any argument in AG 18’s patent owner response. DK also did not move to amend its petition to correct the asserted oversight, and further argued that the decision should stand on the basis of Voice Tech Corporation v. Unified Patents, LLC, which involved typographical errors in a petition where the substantive argument was nonetheless identifiable through cross-reference. The CAFC found Voice Tech inapplicable, concluding that, unlike the petition in that case, DK’s petition contained no cross-reference or indication anywhere that Ground 3 or Schlottmann was intended to apply to claim 18.

Furthermore, DK contended that claim 18 should be deemed unpatentable under collateral estoppel because the PTAB had already invalidated claims 10, 12, 15, 16, and 17, which together contain all of the limitations found in claim 18. The CAFC rejected this theory outright, finding that DK’s analysis failed to satisfy the burden required under Ohio Willow Wood Co. v. Alps South to prove that collateral estoppel applies based on claim 18’s similarity to an already-invalidated claim. The court also noted that it had “never applied collateral estoppel in the manner DK suggests,” specifically by “cobbling together” limitations from disparate claims to replicate another claim, and found no persuasive reason to do so. Ultimately, the CAFC affirmed the PTAB’s decision, thereby upholding the validity of claim 18 of the ‘205 patent.

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