DraftKings Patent Battle: Cash-Out Wagering ‘Unpatentable Concept,’ Judge Agrees

Posted on: August 30, 2022, 10:14h. 

Last updated on: August 30, 2022, 07:23h.

DraftKings believes the ability to “cash out” of a wager early is an abstract concept related to financial hedging that is unpatentable. A federal court, at least partially, agrees. But the sportsbook giant won’t be ducking out of this game before the final whistle. It will have to wait a little longer to see if it can dodge a patent infringement lawsuit brought by UK-based betting outfit Colossus Bets.

Abstract concept or abstracted concept? Colossus Bets claims DraftKings is cashing in on its cash-out idea. (Image: FT)

The London-based tech supplier sued DraftKings in the US District Court in Delaware in December 2021. Colossus Bets claims the technology used in the US company’s cash-out function infringes on its intellectual property in the US. Colossus Bets cites eight patents issued by the US Patent Office from 2014 onwards.

What’s a Cash-Out Bet?

A cash-out function allows gamblers to get money back on bets anytime during an event. For example, with 20 minutes to play in a soccer match, the score is as you predicted, but you have a feeling more goals will come in the game. You can choose to take the money and run, although you will win a smaller sum than if you had seen the game through and the score had remained the same.

The concept was first used in the UK by the Betfair Betting Exchange in 2011 and was rolled out on its fixed-odds sports book in 2013.

Colossus Bets argues in its lawsuit it created “technological improvements to technological problems” that were “neither conventional nor generic at the time of their invention, but rather required novel and nonobvious solutions to problems and shortcomings in the art at the time.”

Colossus was issued new US patents as it updated this technology. All told, the eight asserted patents have 376 claims, 31 of which are specifically asserted in the complaint.

Legal Battle

Claim 1 of Colossus Bet’s first patent describes a system where “one or more players is presented with at least one of a buy-out offer and a partial buy-out offer before completion of all of the defined number of legs.”

Lawyers for DraftKings argued that this merely describes the “abstract idea of hedging financial risk in connection with a wager.” An abstract idea is one of three “ineligible concepts” that cannot be patented (along with laws of nature and natural phenomena).

DraftKing’s lawyers assert that since all of Colossus Bet’s claims are “substantially similar and linked” to the same abstract idea as Claim 1, all should be dismissed.

Dismissal Granted in Part

On Friday, US District Judge Maryellen Noreika agreed with US Magistrate Judge Christopher Burke’s July recommendation that hedging financial risk as described in Claim 1 of the first patent is an abstract concept.

The claim was related to “the abstract idea of risk hedging itself, and in that [in] computeriz[ing] risk hedging, or performing risk hedging in the online context, the claim does not in any way improve how computers function or override the routine or conventional ways that computers can be used.”

But, she also agreed that DraftKings failed to demonstrate that Claim 1 was representative of all Colossus Bet’s patent claims and that this issue requires further consideration.

The case continues.