Lincoln National Life Insurance Company v. Transamerica Life Insurance Company et al (CAFC 2009-1403, -1491) precedential

Annuities are a risky racket run by insurance companies, specialists in risky rackets. The risk comes with the prudence, or lack thereof, that an insurance company uses in investing customer funds.

Although a number of different types of annuities exist, the annuities relevant to this case are variable deferred annuities. Administration of a deferred annuity begins with an "accumulation phase," during which the annuity owner deposits money into an account controlled by the insurer. Id. col.1 ll.36-42. For variable annuities, the deposits are invested in one or more funds representing a particular asset class, such as U.S. corporate bonds or money market instruments. Id. col.2 ll.10-20. The overall account value varies according to the performance of the funds in which the deposits are invested. Id. col.2 ll.22-26. The accumulation phase is followed by a "distribution phase," during which the insurer uses the account to periodically make benefit payments to the annuitant. The dollar amount of each benefit payment depends on the current value of the account and, consequently, also varies according to the performance of the underlying funds. Id. col.3 ll.18-33. Thus, given sufficiently poor fund performance, the dollar amount of an annuitant's benefit payments could theoretically decrease to zero under a variable annuity option. Id. col.3 ll.43-44.

'201 goes to a trust that goes bust.

The uncertainty associated with these benefit payments may cause an annuitant to be apprehensive about choosing a variable benefit option, even if a variable option is in his long-term best interest. Id. col.3 ll.41-43. The '201 patent discloses that insurers may therefore find it valuable to offer annuitants a minimum benefit feature that guarantees a minimum payment regardless of market activity. Id. col.3 ll.41-51. The asserted claims of the '201 patent are directed to computerized methods for administering a variable annuity plan that has such a guaranteed minimum payment feature.

The claim in dispute, 35, had exhaustion as its final step:

e) periodically paying the scheduled payment to the owner for the period of benefit payments, even if the account value is exhausted before all payments have been made.

The applicants added the final "even if" clause during prosecution to overcome a rejection over the prior art.

Based upon Figure 6 in the spec...

The court explained that Figure 6 was "consistent with the court's suggested reading of [step (e)] as claiming, first and foremost, a guarantee that the scheduled payment will be made for the period of benefit payments in question." Claim Construction Order at 966. The court construed step (e) to mean "[a]t the regular intervals required by the plan, paying the scheduled payment to the owner for the period of benefit payments, even if the account value is less than the scheduled payment amount or zero before the payments guaranteed under the plan have been made." Id. at 967. Prior to trial, the court clarified that step (e) does not require actual exhaustion of the account value; as explained in its claim construction order, the "even if" clause simply recites one of the circumstances in which the guaranteed payment must still be made, "not a requirement that the account value be exhausted." Transamerica Life Ins. Co. v. Lincoln Nat'l Life Ins. Co., 597 F. Supp. 2d 897, 912-13 (N.D. Iowa 2009).

Bilski walked on field before the third quarter kickoff.

On October 30, 2008, Transamerica informed the court of the Federal Circuit's en banc decision in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008), which issued that day. The court asked the parties to file statements addressing the impact of Bilski on the case, if any, and both parties filed statements on November 18, 2008. On November 25, 2008, Transamerica filed a motion to amend its complaint to assert a claim under 35 U.S.C. § 101. The district court denied Transamerica's motion, finding that Transamerica had not diligently pursued its claim under 35 U.S.C. § 101 and thus lacked good cause for untimely asserting the claim.

A jury found the patent "infringed and not invalid." The judge slapped a permanent injunction on Transamerica. Whereupon Transamerica appealed.

Transamerica argues that it does not perform step (e), in particular, for two reasons. First, Transamerica asserts that none of its policy owners has ever had an exhausted account and, therefore, that it has never made payments after an "account value is exhausted." Second, Transamerica asserts that it has not yet implemented a computer system that will make a payment in the event an account becomes exhausted.

But the claim doesn't require account exhaustion, only "periodically paying the scheduled payment" "even if the account value is exhausted."

We agree with Lincoln that Transamerica's first argument is directly contrary to the district court's construction of step (e). The court explained that step (e) does not require actual exhaustion; rather, step (e) recites making a guaranteed payment regardless of the account value.

As to the second argument -

Transamerica administers its GMWB riders using a computerized variable annuity administration system called "Vantage."

It was undisputed that Vantage "stops making scheduled payments when an account becomes exhausted" and terminates the policy. The final check is cut manually. The manual check drafting leads to noninfringement.

Claim 35 is not directed to the concept of guaranteed minimum payment variable annuities, but to a computerized method of administering the same.

Performance trumps contract.

"The law of this circuit is axiomatic that a method claim is directly infringed only if each step of the claimed method is performed." Muniauction, 532 F.3d at 1328 (emphasis added). A contractual obligation to perform an act is not performance; indeed, a party could avoid infringement simply by breaching its contract. To the extent the court's instruction to the jury implied that Lincoln could establish direct infringement by relying on the terms of the GMWB riders rather than on Transamerica's actual performance of the claimed steps, this instruction was erroneous.

The undisputed evidence of record shows that Transamerica's computerized system for administering its GMWB riders does not make a scheduled payment if an account is exhausted. Rather, Transamerica's computerized system stops making payments when an account becomes exhausted and its Distribution Services department provides a manual check to the policy owner. Because the record does not contain any evidence showing that Transamerica performed step (e) of claim 35, the "evidence adduced at trial is entirely insufficient to support the verdict [of infringement]." Shaw Group, 516 F.3d at 1064. The court therefore erred in denying Transamerica's motion for JMOL of noninfringement.

Reversed and remanded.

The majority declined to touch the §101 issue on appeal, its record being undeveloped in the district court.

[T]he district court never entered judgment on Transamerica's § 101 invalidity claim.

In light of our determination that the evidence at trial does not support the jury's verdict of infringement, there is no longer any case or controversy between these parties. Therefore, we need not reach this issue.

Judge Clevenger dissented on that point. To hell with Transamerica's § 101 Hail Mary.

By no stretch of anyone's imagination could it be said that the district court abused its discretion by denying Transamerica's motion for leave to add a section 101 claim. Transamerica clearly knew of the import of the issue to its case well before the deadline for amendments passed, yet waited to file its motion too late in the game.