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Deep in the heart of Harrah’s Entertainment Inc. are dossiers on 25 million gamblers — and counting. The profiles, kept in a national networked database, get instantly updated every time those customers present a Harrah’s card to gamble, dine, shop or lodge in one of the company’s 25 casinos. The cards can tell the gaming giant that the housewife sitting at a blackjack table at Harrah’s Las Vegas usually gambles at the company’s riverboat in Maryland Heights, Ind., spends several hundred dollars on slot machines each visit and drinks tequila. Offer to “comp” her hotel bill, and she will typically spend even more money. This customer-recognition program, called Total Rewards, is the Las Vegas-based company’s not-so-secret weapon. It has helped Harrah’s grow into the third-largest casino operator and the biggest riverboat gambling owner in the United States, with 10 boats. In 2001 alone, Harrah’s total revenue jumped 11 percent over the previous year, to $3.7 billion. Total Rewards cardholders contributed about 70 percent of the 2001 revenue. “Judicious use of a marketing system can be a better investment than putting money into amenities,” says gaming analyst Brian Egger of New York-based Credit Suisse First Boston. GOING TO THE MATTRESSES Competitors have also recognized the value of customer loyalty programs and created their own. But when their marketing tactics seemed too much like Harrah’s, GC Stephen Brammell started filing patent suits last spring. First on Brammell’s list was a suit against Las Vegas-based Stratosphere Corp. last April. He went after Station Casinos Inc. in July 2001. Other suits may follow. If anyone treads too close to Total Rewards, Brammell says, he is ready to go to the mattresses. Patent claims can cost millions to take to trial, notes Norman Beamer. He’s in the Palo Alto, Calif., office of New York’s Fish & Neave, the firm that Harrah’s hired for both the Stratosphere and Station cases. But the 44-year-old Brammell says that the customer-recognition program “is fundamental to our business interests because it underlies everything we do.” The GC, a Louisiana native, joined the 65-year-old casino company (then part of Holiday Inns Inc.) in 1984. He started as a staff attorney and rose up through the ranks, assuming the top in-house spot in 1999. INNOVATION Many casinos issue cards that track a player’s spending on games and services at a single location. But in 1997 Harrah’s became the first company to link data from all of its properties across the country to a single card. “There’s no question that they have been a leader in that regard,” says Brian Larson, general counsel of competing casino operator Boyd Gaming Corporation, which runs a dozen casinos, including riverboats and Las Vegas hotels. Other casino companies are playing catch-up. A few industry leaders launched similar customer-tracking programs recently; others have plans to do so. MGM Mirage, the world’s second-largest casino company (after Park Place Entertainment Corp.), says it expects to kick off its new customer cards this month at its Mirage hotel in Las Vegas. The industry’s fourth-largest company, Mandalay Resort Group, is already pushing a similar program, a “One Club Card” that combines all of a player’s gaming data from most of the company’s properties. And Larson is promising that Boyd’s “players’ card system will be linked soon.” Brammell and his 14-lawyer in-house team at Harrah’s are watching those developments closely. Other casinos can certainly implement their own customer-reward campaigns. But what distinguishes his company’s patented program, Brammell says, is that it goes much further than most customer-loyalty programs. Total Rewards can systematically estimate in real time how much each customer may be worth to Harrah’s. WAKE-UP CALL The stakes in these suits are high. Brammell’s case against Stratosphere, financier Carl Icahn’s Las Vegas property, was the first time that one casino operator sued another over business method patents. Litigation between casino rivals is relatively rare, says Larson of Boyd Gaming. Stratosphere counsel Mark Tratos, of Las Vegas IP firm Quirk & Tratos, says the case against his company served as “a wake-up call” to the entire casino industry. “Publicly traded gaming corporations recognize that in order to maintain their shareholder value,” Tratos says, “they have to be very diligent in securing as much intellectual property protection as they can.” Harrah’s beef against Stratosphere was over a promotion that the rival used to sign up new cardholders by refunding losses from a customer’s first half-hour of slot play. Stratosphere countersued in July. In January the suit settled, and, while the terms are confidential, court records show that the parties agreed that Harrah’s held a valid patent on a “bet guarantee” promotion. This program “reimburses” patrons for losses incurred during select periods; customers get vouchers redeemable on their next visit to a Harrah’s casino. Stratosphere has since altered its own cash-back program to distinguish it from Harrah’s. Brammell is now bearing down on Station, a Las Vegas-based chain that has a “Boarding Pass,” that tracks patrons’ gambling at many of its properties. Station countersued in October 2001, claiming that the Harrah’s patents at issue were invalid. This is a common strategy in patent litigation, says Mark Rowland of Fish & Neave. At press time the suits were in the discovery stage. Station declined to comment while the litigation was pending. PATENT PORTFOLIO Harrah’s has 16 patents, covering hardware, software and business methods. Three are being disputed in the Station litigation. The earliest, issued in 1998, lays claim to “a computer-implemented method for rewarding patronage” at any of Harrah’s casino properties. The patent outlines various steps, including using a “theoretical win profile for subsequently determining complimentaries or services.” (A win profile predicts how much each patron might lose to the house, by factoring his wagering behavior into the odds of the games he favors.) A 2001 version of that patent updates it to include “special status” customers who spend the most money at Harrah’s casinos and are rewarded with “distinguished service.” Station alleges that Harrah’s misled the U.S. Patent and Trademark Office to secure these patents. Harrah’s knew, Station charges, that since “at least the early 1990s, [a] ‘theoretical win profile’ has been widely used in the gaming industry for tracking and determining the value of customers for a variety of purposes, including accurately determining the level of complimentaries or services to award a customer.” Harrah’s denies the charges. EVERY MOVE YOU MAKE Harrah’s began paving its path to the courthouse in the mid-1990s by patenting technology and business methods that tracked customers’ spending. The company created a central database that analyzes the input from plastic cards — which are inserted into slot machines and recorded by the “pit bosses” who monitor table games — to create the win profiles. Harrah’s employees can also use this information to give customers the kind of personalized and complimentary services that help build brand loyalty. As players spend more money at Harrah’s casinos, their cards get upgraded and the customers receive more lavish amenities. This strategy helped the company power through the challenging fourth quarter of 2001. Revenue at many Las Vegas casinos softened after September’s terrorist attacks. But customers’ anxieties over flying turned out to be a boon for riverboats, which typically attract patrons from within a 300-mile driving distance. In the fourth quarter, Harrah’s riverboats took in 31 percent more revenue than during the previous year. The riverboats contributed about $1.71 billion, or 46 percent, of the company’s 2001 revenue. Aggressive promotions also helped woo Harrah’s riverboat customers to Nevada. Harrah’s fourth-quarter 2001 sales rose 17 percent (over 2000 figures) to $960 million. The company dug deeper into its database last fall, offering more valuable comps to riverboat customers whose level of play may have warranted nothing more than free meals in the past. Direct-mail promotions dangled free suites at Harrah’s hotels, including the Rio — a swanky skyscraper resort. “Let me sweeten the pot a little,” the general manager of the Rio cajoled in a letter that went out to some riverboat customers. Attached were coupons for complimentary room nights, show tickets and a check redeemable for $70 cash at the Las Vegas casino. Harrah’s competitors hope their customer loyalty programs will be as successful. But as more casino operators place a greater value on tracking their customers, they’ll have to tighten their grip on the technology and business methods needed to watch over their patrons. “Casino operators will acquire patents at an increasing rate,” says Alan Fisch of Washington, D.C.’s Howrey Simon Arnold & White, who represented Stratosphere in its litigation with Harrah’s. “Patent litigation between casino operators should swell.”

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