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SYSTEM OPERATIONS v. SCIENTIFIC GAMES DEV. CORP.

January 12, 1977

SYSTEM OPERATIONS, INC., a Delaware Corporation, and Mathematica, Inc., a New Jersey Corporation, Plaintiffs,
v.
SCIENTIFIC GAMES DEVELOPMENT CORPORATION, a Michigan Corporation, and Dittler Brothers, Inc., a Georgia Corporation, Defendants



The opinion of the court was delivered by: FISHER

 This matter comes before the Court on plaintiffs' motion for a preliminary injunction enjoining interference with contractual relations and was heard on the return day of an order requiring the defendant Scientific Games Development Corporation (hereinafter "Scientific Games"), to show cause why such relief should not be granted. A temporary restraining order was entered against the defendant. As will be seen, this order was complied with and the defendant agreed to be bound by it until a decision by this Court on plaintiffs' motion for preliminary relief. This opinion must be read in light of a previous decision by this Court in this matter, Systems Operations v. Scientific Games Dev. Corp., 414 F. Supp. 750 (D.N.J.1976) appeal pending U.S. Court of Appeals for the Third Circuit.

 FINDINGS OF FACT

 On June 15, 1976 the State of Ohio began its first instant lottery game with plaintiffs' instant tickets. Over the next few weeks, Scientific Games, along with Dittler Brothers, Inc., who is not a defendant for purposes of the instant motion, developed a technique with which it tested the plaintiffs' Ohio tickets. *fn1" This technique, generally stated, involved the removal of the coating which covers the ticket's numbers in such a way as to reveal the numbers to a careful observer but not to the over-the-counter consumer. See discussion in 414 F. Supp. 750, 755 regarding the "breaking" of an instant ticket. Scientific Games felt that this technique successfully broke the plaintiffs' Ohio instant ticket and apparently contemplated what to do with this information in light of this Court's previous preliminary injunction.

 On July 9, 1976 S.O.I. executives were meeting with lottery officials about a second instant game and various details regarding game design and prize structure as well as advertising were discussed. A program plan was subsequently prepared for submission to and approval by the Ohio Lottery Commission. There is testimony which suggests that Ohio may have been preparing to exercise its option under its first contract with the plaintiffs; however, it is also clear that plaintiffs had no firm commitment regarding the option or any contract at all for the running of a second instant lottery in Ohio. In addition, it appears from the testimony that at all times Scientific Games knew that S.O.I. was under contract with Ohio to operate an instant game; that Scientific Games took the action it did while the game was still in progress; and that it was very interested in obtaining the contract for the second instant lottery game in Ohio through competitive bidding. *fn2" Scientific Games did not know of the various meetings between S.O.I. and lottery officials regarding a second instant or any other lottery game.

 On July 13 or 14, 1976 Scientific Games sent a letter to Mr. Gerald Patronite, the Director of the Ohio State Lottery and to Mr. David Leahy, the Chairman of the State Lottery Commission. (Exh. P-1). This letter, which will be examined in greater detail later, informs the Director and Commissioner that Scientific Games has become aware of "certain information" which it believes is "vitally important" to the lottery in progress in Ohio. The letter seeks an opportunity to demonstrate "the clear significance of our discovery", in the belief that it "will assist you in the service you are conscientiously attempting to render to the State of Ohio". The letter is accompanied by a two page "explanation" of this Court's previous decision, with references to the guidelines allegedly put forth by the Court *fn3" and references to the "insecurity of the competitor's product".

 Some time between July 16th and 23rd Scientific Games received a telephone call from a Mr. Prososki, an auditor with the Ohio Lottery, who apparently made some vague references to some problems which he thought the lottery was having. He asked if Scientific Games knew anything. *fn4" The reply was to the effect that Scientific Games had "a method of reading the numbers". The auditor was also informed that a formal request for the information or demonstration would be necessary. Less than a week after this call, the auditor called again and requested a meeting and demonstration at the State Auditor's office before a Mr. Blum.

 On July 26, 1976 the plaintiffs appeared before this Court seeking an order to show cause and a temporary restraining order. Plaintiffs presented the Court with a copy of the defendant's letter to Mr. Patronite, the Ohio Lottery Director, and asserted that same constituted interference with a contractual relationship. The Court granted a temporary restraining order under which Scientific Games could conduct its demonstration or test, but not under the two conditions which were contained in its letter. (Exh. P-1). The defendant could not require the Lottery Director to choose a certified public accountant to witness the demonstration and report back to the Director; nor could it require that the Lottery Director or other Commission officials witnessing the test not make the information regarding the particulars of the demonstration and the results known to any competitor.

 On July 29, 1976, Mr. Stephen Parisi, Legal Counsel to the Ohio Lottery, responded to the defendant's original letter (P-1). Noting the difficulty in determining exactly what it was that Scientific Games wished to bring to the attention of the Ohio Lottery and acknowledging the Commission wished "to obtain any legitimate information available to it in order to continuously examine the operating procedures of the Ohio Lottery", (Exh. P-2), the defendant's offer, vague though it was, was accepted. A date of August 2nd was initially suggested, however, that date was not convenient for all parties.

 On July 30, 1976, Mr. Dan Bower of Scientific Games and a Mr. Banner of Dittler Brothers, Inc. demonstrated their technique for breaking the plaintiffs' Ohio instant ticket before Mr. Blum and Mr. Prososki, the state auditors in Columbus. On August 7, 1976, Mr. Bower conducted the same test before the Ohio Lottery Commission. From all that appears, the Commission reached no conclusions at this meeting, but took what it had seen under consideration. Three days later, S.O.I.'s president and vice-president were before the Ohio Commission to observe the demonstration performed by the lottery auditor, Prososki. By plaintiffs' own admission, the Commission was seriously considering stopping all sales statewide. After the S.O.I. officers and the lottery officials discussed the test results and their significance, however, it appears as if the Commission's concerns were quieted. In any event, on August 12, 1976 an independent laboratory report was submitted at the Commission's request, and the game apparently concluded without incident.

 CONCLUSIONS OF LAW

 A.

 The first point for the Court to consider is whether any of the defendant's actions violated the terms of the March 22nd preliminary injunction as modified. The plaintiffs contend that defendant's letter to the Ohio Lottery Director is disparaging by implication. Whether such is the case this Court need not decide, for in any event the defendant has complied with the latter portion of the Court's preliminary injunction in making a full disclosure. Systems Operations, supra at 764-765.

 The only other action by the defendant which presents a problem under the March 22nd order involves the communications with Mr. Prososki, a state auditor assigned to the lottery commission. The Court's order specifically refers to a "lottery director" and, although the terms of the order were specifically followed with regard to Mr. Patronite, the Ohio Director, the defendant also pursued a similar course with the state auditor's office. There is little evidence to suggest that Mr. Prososki was acting at the direction of the Ohio Lottery Director when he called the defendant, or when he arranged for a demonstration before Mr. Blum of the auditor's office. These actions went on quite apart from the defendant's dealings with the Director. Although a written request was obtained, the March 22nd order was not technically complied with when the aforesaid activities between Scientific Games and the state auditors were undertaken. While this Court does not feel that there was any willful attempt on the part of the defendant to circumvent the latter portion of the preliminary injunction (Scientific Games probably believing it applicable to lottery officials), the Court cautions the defendant that it must strictly comply with the latter portion of the preliminary injunction if it is to avoid scrutiny by this Court as to whether it violated the first part of the March 22nd order regarding "false and disparaging" statements. As should be clear from the original opinion in this ...


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