Lincoln National v. Transamerica: Avoiding Infringement of a Computerized Method Claim

In Lincoln Nat’l Life Ins. Co. v. Transamerica Life Ins. Co., Case Nos. 2009-1403, -1491 (Fed. Cir. 2010), Lincoln asserted claims of U.S. Patent No. 7,089,201 against Transamerica. On appeal, the Federal Circuit held that a computerized method claim of the patent was not infringed because one of the steps was performed manually.

The ’201 Patent relates to “computerized methods for administering variable annuity plans.” The preamble of Claim 35 (the only asserted independent claim) recites “[a] computerized method for administering a variable annuity plan having a guaranteed minimum payment feature . . .,” and includes 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 trial court in the Northern District of Iowa found that Transamerica sells “Guaranteed Minimum Withdrawal Benefit” (GMWB) riders that guarantee the policy owner the right to receive a minimum payment regardless of market performance. The trial court also construed step (e) of Claim 35 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.

In addition, the trial court clarified that step (e) does not require actual exhaustion of the account value, but is merely a circumstance in which the guaranteed payment must still be made.

After a jury found that Transamerica infringed the ’201 Patent and awarded Lincoln National $13 million in damages, Transamerica filed a motion for judgment as a matter of law (JMOL) of non-infringement, which the court denied. Transamerica then appealed, among other things, the court’s denial of the JMOL of non-infringement.

On appeal, Transamerica argued to the Federal Circuit that it did not implement “a computer system that will make a payment in the event an account becomes exhausted.” Lincoln National responded that Transamerica did infringe because it was legally obligated to practice the claimed method by its GMWB riders.

Reversing on infringement, the Federal Circuit found that Transamerica’s system does not make automatic payments once a policy owner’s account value is exhausted, rather, a different department produces a manual check and sends it to the policy owner. As a consequence, Transamerica does not practice “[a] computerized method . . .” including “(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.”

Thus, the Federal Circuit reversed on infringement because Lincoln did not prove that Transamerica actually practiced the computerized method claim.