Wednesday, February 14, 2007

Anatomy of a Cybersquatter, Part IV: The Lawyers Always Get Theirs

If Federico Schiavio had previously thought that Harrah's was an evil, false-speaking corporate beast, by the middle of 2004 those opinions were set in stone. Harrah's had acquired the "Horseshoe" brand name and the World Series of Poker, but it'd sure be a lot easier for them if a short-term deal could be worked out, bringing Schiavio on long enough to train other Harrah's staff. 

The problem was that the World Series of Poker software at Binion's was Schiavio's personal baby, and despite the fact that the data itself would have to transfer to the evil empire, Harrah's, Schiavio despised this predatory outsider. Besides that, Schaivio had an ace up his sleeve -- he now owned the domain. 

But here's an oddity: Schiavio had picked up the domain months earlier, back in May of 2003, and then done nothing with it until the end of November. Why on earth would Schiavio, a loyal Behnen employee, acquire this property and leave the faux porn site detailed in Part I of this report untouched? 

The answer is that Dan Albrecht was still alive, and Schiavio didn't want to pull down the previous content and alert anyone -- Albrecht, the Jack Binion camp, or Harrah's -- that he'd picked up this potential goldmine on the cheap. Schiavio knew that Harrah's attempting to acquire the Horseshoe, and the outstanding, in-default note that Jack Binion still held on the casino was also public knowledge, certainly known by Behnen's management. 

Albrecht died in October, almost the perfect timing for Schiavio's needs. By November's end, Schiavio had started placing his own content on the site, the better to strengthen his own assertive claim to the domain. Harrah's has a policy of not offering direct commentary on active litigation, so it's not clear exactly when they discovered that Schiavio had indeed acquired the lapsed domain. 

This is where arguments concerning due diligence reach their anti-Harrah's extreme: The argument, well-thought out on several levels, states that if Harrah's had been doing proper research into a property that it wanted to buy, it should have been looking into all things connected to Binion's, including the "Horseshoe" brand and the World Series of Poker. 

It's a key point. Harrah's should long have known that the existing web presence for the WSOP was rolled up within the web site, and if they had no intent on retaining the Binion's Horseshoe property or continuing the presence, then they should have been exploring alternate domain names for the WSOP, with and being among the most obvious possibilities. Harrah's did, in fact, register a less logical domain name for backup purposes -- -- but it's clear that better names were in others' possession.

The arguments continue regarding issues such as trademark registration and protection. Shouldn't Harrah's have been doing research into the sum total of intellectual properties owned by Binion's Horseshoe Casino? It appears that Harrah's did not learn about the gaps in Becky Behnen's intellectual-property holdings until -- at the earliest -- the second week of January, 2004. That said, the deal between Harrah's and Behnen would not be finalized until March, meaning that during this time frame Harrah's may well have become aware of the problem, but wouldn't have had clear ownership anyway.

There is, however, one hidden catch. Behnen had no willful intent to sell the old family casino and she had repelled all of Harrah's previous advances. It was only when the federal agents raided Binion's Horseshoe, seizing a million or more from the cashier's cages and tables, that Behnen realized there was no longer a choice. (The delay, the failure to heed the writing on the wall, likely cost her millions.) 

In this light, and prior to Harrah's acquisition of Jack Binion's properties only a few weeks earlier, Behnen would certainly never have responded to an inquiry about exactly what intellectual properties Binion's Horseshoe possessed. And with an unwilling seller and the Jack Binion deal still not confirmed, the acquisition of the Horseshoe brand and the WSOP would've seemed unlikely, a reason why Harrah's may not have pursued deeper knowledge as to the intellectual properties owned by Binion's Horseshoe.

All that changed in early January, 2004, when the two-month process of finalizing the deal began. The major issues had been decided but innumerable fine points remained, including things such as Schiavio's own contracted consulting services to Binion's Horseshoe. Back in Part 2, we reproduced part of an important January 19, 2004 e-mail from James Laura to Schiavio. Let's reprise the first paragraph from that telling communication:

"Your working with Harrah's was brought up in the negotiations and they gave a name of someone for you to contact regarding the performing the job for the year end for Harrah's. Angie should have the name of the person to contact."

Schiavio's existing consultant contract with Binion's would not have transferred to Harrah's, but he was the guy who wrote the existing WSOP computer application and worked with at least some portions of the web site, certainly knowledge that Harrah's could make use of for a time. 

Schiavio and Harrah's set up a meeting for February, as detailed in Schiavio's own words here:"Harrah's asked to meet with me in early February 2004 about my consulting for Harrah's and helping with the transition of the business from Binion's to Harrah's. We were not able to agree on terms, and I later found out that Harrah's just wanted to use me and discard me when I was no longer needed."

Is that quite the way it happened? It is likely that sometime between January 19 and February 23, when Harrah's and Schiavio had their meeting, Harrah's discovered that Schiavio had registered the property under his own name, in roughly the same time frame as their discovering that "WSOP" was not protected property within Binion's. 

This discovery likely followed another, even more treacherous stumbling block: It turned out that the World Series of Poker itself had been sub-licensed to Becky Behnen's husband, Nick, meaning that a sizeable amount of the income generated by the WSOP at the end of the "Becky years" never made its way into the Binion's Horseshoe coffers itself -- pension-fund payments were skipped, tax bills ignored, service contracts allowed to lapse... all while the WSOP itself grew.

Someone did well off the World Series of Poker in the Becky Years, but in the long run, the hard work of 1800 casino employees went for naught -- the operation was being gutted from within. Harrah's and Schiavio had their February meet, and the transference of to Harrah's ownership was almost certainly one of the sticking points in the discussion, a mandatory issue if Schiavio was to do any work for Harrah's. Here's some of the evidence that Schiavio cites as Harrah's bad-faith negotiations, as captured from internal Harrah's executive e-mails:

"FS" stands for Federico Schiavio, "SOW" for Standard Order for Work, and all these instances were obtained by Schiavio in the course of his own battle with Harrah's. 

But here's something to consider: All of the evidence Schiavio cites (including the excerpts above) date from February 9, 2004 or later, when it became clear to Harrah's representatives that Schiavio had interests other than what was expected. Federico Schiavio filed his trademark application for "WSOP" on January 28, 2004, prior to his own meeting with Harrah's. 

So who was dealing with whom in bad faith? At that point, Harrah's could not apply for any sort of legal recognition or protection of "WSOP" in its name, because until the deal was sealed in early March, Harrah's was not the party of interest. And Schiavio, technically a consultant but still loyal to Behnen, used that two-month lag to file his own trademark application, based entirely on his surreptitious purchase of the domain name and a small amount of content he had uploaded to that site as of that date.

During this same time frame, Schiavio recognized that a phrase such as "Infodomini’s First Annual WSOP Poker" would be unlikely to pass a court challenge, so the "World's Standard of Online Poker" moniker was created. It's not clear exactly when Schiavio came up with the "World's Standard of Online Poker," but web archives show it in place as of April 1st, 2004:

However, the site itself is content barren, with little except the online-casino banner ad at the right. He'd do better. First, though, it was "Game on!" in the land of the lawyers, since Schiavio wasn't about to give up his insurance policy for cheap. For Becky Behnen, he'd worked for $60 an hour, but the number he pitched to Harrah's in a later offer was $120/hour... and that was just a start. Schiavio also wanted to bring on two additional consultants, Schiavio associates Tong Yi and Mike Curtis, with Yi to receive $40/hr and Curtis $80/hr. But it didn't stop there. 

Schiavio also wanted to extract a licensing fee for his WSOP tournament software. His first attempts to attract a huge one-time fee went for naught, so he instead asked for 1% of the entry fee for each player.It's a staggering amount, when one considers that the current entry fee for the WSOP Main Event is technically not $10,000, but $10,600. This difference --- the "juice," as it's called --- varies, based on the event, but it's rare indeed for any tournament to charge juice in excess of nine or ten percent of the true event fee, that amount being added into the prize pool. 

Irrespective of advertising revenues and other income streams, the juice is what pays for the tournament itself to be run, covering the officials, the dealers, the cards and chips, event advertising... even an allowance for the tournament space itself. Tournament fees are reminiscent of the old "the film's for show, the food's for the dough" line regarding theatres; casinos offering card tournaments really make their nut from the overall increase in casino traffic, not the tournament itself.

But a slice as large as Schiavio wanted wasn't just impossible, it was obscene. Schiavio must have thought that his computer software was some hot shit, but he also thought that he'd earned himself a lasting piece of the World Series of Poker pie. Given how the WSOP itself was being funneled through Becky's husband Nick, such sweetheart deals seem to be one of the lasting legacies of the Becky years itself. Harrah's said no to the extra consultants and no to licensing Federico's software, even if some higher hourly rate for Schiavio himself, perhaps $80 or $100 per, might have been in play. Even that, though, would have meant the surrender of the domain rights from Schiavio to Harrah's.

It meant no deal. Had Schiavio signed up with Harrah's for a transition period of a year, as was originally pitched by Behnen, Schiavio could have earned between $100,000 and $200,000. He was aware as anyone, however, of the spike in interest caused by Chris Moneymaker's 2003 WSOP Main Event win amid the rapid growth of poker and its World Series in general. Remember, too, that the casual or new poker fans, the newbies to the scene, would be the ones most likely to fire up the computer and type "" into their browser window, just to see what was there. No doubt Schiavio could track the increased hits in his own website statistics, despite its lack of any significant content.

What was Schiavio's asking price? Neither side will say, though figures of a million and higher are rumored. It was certainly high enough and inflexible enough to make Harrah's not want to bother with paying a normal squatter's fee for making the problem go away, while Schiavio had his own schemes to make that WSOP-intended web traffic drop some money into his coffers on the way. Those plans involved the creation of an online poker room connected to his burgeoning multi-level-marketing scheme. We'll come back to this part of the tale, concerning "WSOP's All In Poker," in Part 5, but there's more lawyerly stuff to dispense with here.

Within two weeks of closing the deal with Becky Behnen, Harrah's attorneys served Schiavio with a cease-and-desist letter concerning his usage of the site. Harrah's demanded that Schiavio abandon a WSOP logo that was clearly a knockoff of one of the World Series of Poker's symbols. They alo demanded that he turn the site over to Harrah's. Schiavio did abandon his first imitative logo -- and hence, had to modify his initial trademark application -- but he hired his own lawyer to aggressively defend his play for the WSOP mark and the ownership of The sides have been at war ever since.

Harrah's wasted little time once the ink was dry on the Binion's Horseshoe acquisition to begin a two-pronged attack on Schiavio. Schiavio's trademark application for "WSOP" represented the greatest immediate threat, and Harrah's immediately filed protests against the already-pending approval of the mark, while filing their own subsequent trademark application for "WSOP" rights in late April of 2004. 

However, since Schiavio filed first, Harrah's own application had to be suspended until the matter could be resolved. At this moment, no trademark exists for the mark "WSOP," which isn't to say that Schiavio hasn't tried to infer it amid his own protests and pleas for donations. Schiavio was, however, successful in registering the mark "World's Standard of Poker".

One thing about lawyers, though -- they're predictable. Even if they can't find the right evidence to support their client's cause, one can sleep soundly knowing that, hourly billing rates secure, they will grab huge piles of something and fling it at the wall to see what sticks. Harrah's lawyers, somehow unaware of the presence of the earlier site, still dug through the evidence they could corral, finding numerous examples to illustrate that "WSOP" was indeed used interchangeably with "World Series of Poker," and in the eyes of the serious poker player they were one and the same. 

Schiavio's lawyer did even better, somehow managing to submit with a straight face the supposition that "WSOP" wasn't even unique in general terms to the World Series of Poker. After all, there was evidence that the same letters had also been used to identify such common conversation topics as the West Sak Oil Pool, the Worst irredundant Sum-Of-Products expression (if the conversing parties were engineers), a Verizon billing-statement phrase called Working Service On Premise, and let's not forget those WSOPs, which everyone really knew were Weapons System Operators in the United Kingdom's Royal Air Force. Schiavio's lawyer even tossed in examples of "W.S.O.P." being used, reasoning that it wasn't even an acronym, it was just a set of initials. Here's the visual example of this that Schiavio and his lawyer cite:

It's absolutely irrefutable -- it is indeed shown here as "W.S.O.P." But never chalk up to true widespread usage that which can be better explained by hideous spelling and punctuation skills. After all, as this larger, separate image shows, the person who designed this flyer and related text was wholly unsuited to the task, not even able to spell correct the famous downtown Las Vegas street that fronted Binion's Horseshoe Casino itself:

It's Fremont St., not "Freemont," rendering this piece of evidence redikulous years before it resurfaced here. But one needed really to look no further than this text segment, a bit higher on the page, to realize that for the person doing the typing, the "." sign was a weapon of war:

* * * * * * * * *

Hundreds of pages of legal documents and exhibits flew, first in the battle over the competing trademark applications and protests, and then, much later (in 2006), in the arbitration process overseen by ICANN as Schiavio fought to retain control over the domain name. Schiavio subsequently proclaimed on his website about how Harrah's domain-name protest was dismissed, but a more careful examination shows that it was dismissed on a technicality, that being the ongoing trademark dispute. Should Harrah's prevail in that matter, then a new protest within the ICANN framework concerning the domain name is a surety.

The above seems to indicate that only Schiavio's side was the one stretching things to establish a point, but Harrah's lawyers did their own grasping-at-straws routine. Probably the silliest exercise was sending a pre-worded statement of declaration off to Becky Behnen, hoping that she would disavow the "you keep it" reply Schiavio says Behnen uttered when he made his offer to turn the name over to her control. Whether the statement was true or not, or was even uttered at all, was hardly the point -- Schiavio had a couple of the old Behnen cronies to back him up and Harrah's had no proof to the contrary.

Harrah's attorneys, however, overreached, trying for a grand slam in a situation where they were unlikely to even reach first base. The 16-point declaration they created for Behnen, in the off hopes she might sign it, went well beyond what they would have needed to undermine Schiavio's claims. In light of Behnen's own existing history with the site, and the widely-known disorder in the last days of her casino ownership, it's clear there's no way she could or would sign the thing. Your author reproduces it here, because in the greater historical perspective, it's a moment of high comedy:

1. My name is Becky Binion Behnen. I am over the age of eighteen (18) years and am competent in all ways to give this Declaration. I have personal knowledge of the facts stated in this Declaration and know them to be true and correct.2. From 1998 to January 2004, I was the President and Chief Executive Officer of Horseshoe Club Operating Company, owner of Binion's Horseshoe Hotel & Casino in Las Vegas, Nevada (hereinafter referred to collectively as "Binion's").3. My father, Benny Binion, founded Binion's.4. In 1970, my father founded the famous World Series of Poker tournament. Since that time, the tournament has been hosted at, and has been an integral part of, Binion's.<5. Since its inception, the tournament has been identified by the mark WORLD SERIES OF POKER.6. For years, Binion's employees have referred both internally and externally to the WORLD SERIES OF POKER mark by the acronym WSOP.7. WSOP is well known within the poker playing world and beyond as identifying the World Series of Poker tournament.8. Federico Schiavio ("Schiavio") was employed by Binion's for approximately three years as its IT director. In this capacity, Schiavio had familiarity with the World Series of Poker and the Binion's web site.9. Given the widespread use of the mark WSOP by Binion's and its employees, Schiavio would certainly have been familiar with the mark and its use by Binions and its employees to identify the World Series of Poker tournament.10. I did not know until being informed recently by an employee of Harrah's Operating Company, Inc. ("Harrah's") that Schiavio had registered the domain name .

11. Schiavio never sought or received my permission to register or use the domain name.12. To my knowledge, Schiavio has not at any time offered to sell or turn over the domain name to Binion's.13. I had no knowledge until my recent conversation with the employee from Harrah's that Schiavio, while employed by Binion's, was alledgedly pursuing the development of an online poker business unconnected with Binion's or that he intends to use the marks WSOP or WORLD'S STANDARD OF POKER to identify that business.14. At no time did Schiavio ask for or receive my permission, expresss or implied, to use the mark WSOP in connection with any business not associated with or owned by Binion's, and I have never acquiesced in Schiavio's use of the mark WSOP to identify any goods or services not offered by Binion's.15. If Schiavio had asked me if he could register the domain name and use it for his own business, I would not have permitted him to do so.16. The WSOP and WORLD SERIES OF POKER marks were valuable assets of Binion's. While Schiavio was employed by Binion's, I was the only person at Binion's who had authority to grant any rights in, or to acquiesce in the use in, the WSOP or WORLD SERIES OF POKER marks by any third party. I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge.Executed this _____ day of April, 2005(unsigned)____________________________________

It was a wasted exercise on Harrah's part. No matter what, Becky Binion simply could never admit to having given away the rights to the domain without knowing that she was potentially damaging the value of the World Series of Poker. 

Yet if things weren't complicated enough, then one of those unusual coincidences would stir the pot even more: The legal firm handling the Harrah's side of this battle bought the legal firm where Schiavio's lawyer worked. It meant a delay in all matters while Schiavio brought new legal representation up to speed.It also meant that somewhere in the greater firm now representing Harrah's, a legal construct called a "Chinese wall" had to be set in place; the attorney's and company's notes coming from the Schiavio side were sealed and could not be used directly by the Harrah's side, nor could the attorney or any of the staff previously working on the matter for Schiavio even discuss the matter with the Harrah's staff now assigned the case.

When legal-firm mergers and acquisitions occur, such Chinese-wall setups are a matter of course. In most instances they become a moot point -- discovery normally brings all the relevant evidence into sight for both parties. But Schiavio's former attorney likely knew what Schiavio himself did, that being the real origins of the domain, and that meant the notification from Schiavio's new attorney that a Chinese wall be implemented wasn't then just a formality; it was mandatory.

When and where will the legal actions resolve? It's still too soon to tell. In recent months each party has filed a lawsuit against the other, although again Schiavio beat Harrah's to the punch, filing his case in August 2006 in Los Angeles (Schiavio is actually a resident of Marina del Ray, CA) just weeks before Harrah's lawyers filed their own action in Vegas, the reasons for which will become clear in Part VI. 

In this case the "first to file" rules mean that Harrah's Vegas action may be dismissed and re-introduced as a counter-complaint to Schiavio's own suit, but the lawyers, at last report, are still hashing that one out. Besides, there's more of the greater tale to share, that being exactly what Federico Schiavio's plans were for the coveted domain.

Next: Part V -- One for All and All for One

© 2007, Haley L. Hintze. All Rights Reserved.
Creative Commons Rights Superceded on this Material.

Link to Introduction
Link to Part 1
Link to Part 2
Link to Part 3
Link to Part 4
Link to Part 5
Link to Part 6


April said...

Keep it comin'! This is great reading my dear.

Anonymous said...

Nice stuff! Great work Haley!

StB said...

Sounds like F.S. isn't the brightest guy around. As a consultant, he should be fully aware that Harrahs would assess how long he would be needed before offering him a consulting job. If he wanted to be with Harrahs on a permanent basis, he would have taken the job and gone for a chance for be offered a job.

Let echo the others...great stuff here!