Summary
In this episode, Nick and Don catch-up with Konami’s Jay Bertsch (SVP & Chief Commercial Officer), Chris Rowe (VP of North American Game Sales), and Stephanie Lau (VP of Sales Enablement). Hear the team’s thoughts on G2E ’24, as well as upcoming rollouts in systems, cabinets, and games. Also in this episode, Aristocrat, Light & Wonder, and the Dragon Train dispute.
Transcript
Nick Hogan:
Morning, Don. How are things in Southern Illinois this morning?
Don Retzlaff:
It’s great, beautiful fall day. How’s things in Netherlands?
Nick Hogan:
Gray, cold and wet. This is on par for standard late October. So, bummer, but so be it. So Don, another G2E in the tank, and we’ll get to the highlights after we hit this month’s big news item, which was without question the show’s central conversation piece. And that was the legal dispute engulfing Aristocrat and Light & Wonder. Now for anybody who missed this. In Q1 of this year, Aristocrat filed suit against Light & Wonder alleging trade secret misappropriation and copyright infringement related to L&W’s Dragon Train product.
So during the course of that discovery, it was determined that a L&W employee who’d formerly worked for Aristocrat, had brought with her and used elements of Aristocrat mathematical modeling in designing Dragon Train. So then in late September, about two weeks prior to G2E, the US District Court for the District of Nevada granted Aristocrat a preliminary injunction on the trade secret portion. The ruling barred L&W from, “Any continued or planned sale, leasing or other commercialization of Dragon Train.”
So this kicked off pretty much a mad scramble at L&W, which in addition to being forced to scrap Dragon Train’s big G2E launch, had to convert or swap by late October roughly 2,200 Dragon Train units. So without question, pretty much the definition of a four-alarm fire. As might be expected, absolutely everybody at G2E was talking about this, and comments really range from tip of the iceberg all the way to tempest in a teapot. And truly, Don, when I rewind these conversations and consider the degree of substantiation in them, I have to say that I’m more of the latter view, and feel that this will likely blow over with fairly limited impact.
Now, naturally I haven’t spoken with a single Aristocrat or L&W employee about this matter, but I have spoken with a few independent IP attorneys, as well as a few financial folks who have, let’s just say, highly material reasons to get to the bottom of this. So of the substantiated stuff, here is what I gleaned thumbnail. So first, as I understand it, L&W actually runs a very tight ship on the IP front. Apparently, upon starting with L&W, designers must pledge that they’re not bringing with them any third-party IP, and that they’ll not under any circumstances utilize third-party IP in developing products at L&W.
Second, again, as I understand it, the employee in question who’s since been terminated, worked on no product other than Dragon Train. And that this boils down to an isolated and extensively contained case of employee misconduct and malpractice. And third, my understanding is that Aristocrat’s copyright claims have been dismissed, and that punitive damages are not applicable in trade secret misappropriation disputes. So in all likelihood, financial damages will be limited to a value roughly approximating whatever it is that Aristocrat ultimately quantifies. Now, could all this be wrong? Sure. I have zero in the way of inside knowledge, and at the end of the day, I too, am just working with hearsay and speculation.
However, in terms of passing the smell test, I guess what I just ran down really struck me as the most plausible version. So assuming this stuff is correct, longer term, I guess my biggest concern here is the internal reaction formation at L&W. Often, such disputes result in procedural over-corrections and whatnot that constrain creativity, and just otherwise gum up the works. And time will certainly tell on that one. So grand scheme, Aristocrat naturally has every right to be furious about this and to litigate it. And based upon what we’ve seen from the courts thus far, odds appear pretty good that Aristocrat will be compensated at levels deemed appropriate and fair under US law. So Don, any additional thoughts on this one?
Don Retzlaff:
Just that L&W has a nice library of lease games. They should be fine in the short term. I guess the key is going to be, see what happens like the second quarter of next year after this run of replacements runs its course.
Nick Hogan:
Yeah.
Don Retzlaff:
See what they have in the replacement cycle coming up in 2025. That’ll be the key for them.
Nick Hogan:
Yeah, I agree with you. Okay, cool. Well, we can move on from there into our listener question this month. Before I read it, let me just say we love to tackle any questions that anybody listening may have. If you have a question about what we’re presenting or something you’d like us to present, please drop us an email at reelcast@reelmetrics.com. Again, that’s reelcast@reelmetrics.com. Our policy is to keep all questions anonymous, so please speak directly, and don’t worry about us revealing your identity. That’s not something we do. So Don, from an operator on the Las Vegas Strip, we have, “Hi guys, love the show. I’m very curious to hear about anything that caught your eye at this year’s G2E.” So Don, that is smack-dab in the middle of your wheelhouse.
Don Retzlaff:
This is my 26th G2E, so I tend to look at G2E as a little bit differently knowing that 75% of the things that we see out there aren’t going to work in real life on the casino floors. So I’m looking for trends, talking to people, trying to get ideas. On the ideas and people front, it was so encouraging to talk to the operators out there that are taking next level ideas to their slot floor. You talk to people like Michael DeJong at Wynn, and some of the ideas that he has on how to position machines. You talk to people like Dan Cherry, and Mike Babinski, and Michael Carruthers about their ideas. And it’s just an education being out there. Still being in this business for 33 years, I’m
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