United States Court of Appeals
for the Federal Circuit
__________________________
LINCOLN NATIONAL LIFE INSURANCE
COMPANY,
Plaintiff-Appellee,
v.
TRANSAMERICA LIFE INSURANCE COMPANY,
WESTERN RESERVE LIFE ASSURANCE CO. OF
OHIO,
AND TRANSAMERICA FINANCIAL LIFE
INSURANCE COMPANY,
Defendants-Appellants.
__________________________
2009-1403, -1491
__________________________
Appeals from the United States District Court for the
Northern District of Iowa in 06-CV-110, Judge Mark W.
Bennett.
___________________________
Decided: June 23, 2010
___________________________
D. RANDALL BROWN, Barnes & Thornburg LLP, of Fort
Wayne, Indiana, argued for plaintiff-appellee. With him
on the brief was GARY C. FURST.
STEVEN M. BAUER, Proskauer Rose LLP, of Boston,
Massachusetts, argued for defendants-appellants. With
LINCOLN NATL v. TRANSAMERICA LIFE 2
him on the brief were KIMBERLY A. MOTTLEY, SANDRA J.
BADIN; and CHARLES S. SIMS, of New York, New York. Of
counsel on the brief were JAMES R. MYERS, Ropes & Gray
LLP, of Washington, DC, and JOHN KENNETH FELTER, of
Boston, Massachusetts.
__________________________
Before, MAYER, CLEVENGER, and MOORE, Circuit Judges.
Opinion for the court filed by Circuit Judge MOORE.
Concurring opinion filed by Circuit Judge CLEVENGER.
MOORE, Circuit Judge.
Transamerica Life Insurance Company, Western Re-
serve Life Assurance Company of Ohio, and Transamerica
Financial Life Insurance Company (collectively, Trans-
america) appeal from a final decision of the district court
denying Transamerica’s motion for judgment as a matter
of law that it does not infringe claims 35-39 and 42 of U.S.
Pat. No. 7,089,201 (the ’201 patent). Because the evi-
dence of record does not support the jury’s verdict of
infringement, we reverse and remand.
I. BACKGROUND
Lincoln National Life Insurance Company (Lincoln) is
the assignee of the ’201 patent, which is entitled “Method
and Apparatus for Providing Retirement Income Bene-
fits.” The ’201 patent relates to computerized methods for
administering variable annuity plans. An annuity is a
contract that guarantees the payment of money to an
annuitant upon certain intervals. Annuities are typically
used to provide individuals with long-term economic
protection against the risk of outliving their assets. ’201
patent col.1 ll.30-34.
Although a number of different types of annuities ex-
ist, the annuities relevant to this case are variable de-
3 LINCOLN NATL v. TRANSAMERICA LIFE
ferred 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 represent-
ing 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 “distri-
bution 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.
The uncertainty associated with these benefit pay-
ments 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 mar-
ket 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.
Transamerica sells and administers Guaranteed
Minimum Withdrawal Benefit (GMWB) riders 1 that
1 A rider is an attachment to a base annuity con-
tract.
LINCOLN NATL v. TRANSAMERICA LIFE 4
guarantee its policy owners the right to receive a mini-
mum payment regardless of market performance. On
August 8, 2006, Transamerica filed a complaint seeking
declaratory judgment that its method of administering
GMWB riders does not infringe any claim of the ’201
patent. Transamerica also sought declaratory judgment
that the ’201 patent was invalid under 35 U.S.C. § 102, §
103, and § 112. Transamerica did not allege invalidity
under 35 U.S.C. § 101. Lincoln filed a counterclaim for
infringement, and the court issued an order realigning
Lincoln and Transamerica as plaintiff and defendant,
respectively, for trial.
Claim 35, the only independent claim at issue, reads
as follows:
35. A computerized method for administering a
variable annuity plan having a guaranteed mini-
mum payment feature associated with a system-
atic withdrawal program, and for periodically
determining an amount of a scheduled payment to
be made to the owner under the plan, comprising
the steps of:
a) storing data relating to a variable annuity ac-
count, including data relating to at least one of an
account value, a withdrawal rate, a scheduled
payment, a payout term and a period of benefit
payments;
b) determining an initial scheduled payment;
c) periodically determining the account value as-
sociated with the plan and making the scheduled
payment by withdrawing that amount from the
account value;
d) monitoring for an unscheduled withdrawal
made under the plan and adjusting the amount of
5 LINCOLN NATL v. TRANSAMERICA LIFE
the scheduled payment in response to said un-
scheduled withdrawal; and
e) periodically paying the scheduled payment to
the owner for the period of benefit payments, even
if the account value is exhausted before all pay-
ments have been made.
’201 patent col.25 ll.12-33 (emphasis added). The appli-
cants added the final “even if” clause during prosecution
to overcome a rejection over the prior art.
The district court construed the disputed claim terms
in a March 2008 order. Transamerica Life Ins. Co. v.
Lincoln Nat’l Life Ins. Co., 550 F. Supp. 2d 865 (N.D. Iowa
2008) (Claim Construction Order). In construing step (e),
the court relied on Figure 6 of the ’201 patent as “most
clearly show[ing] how the payment guarantee [of step (e)]
works, in relation to account value.” Id. at 965. Figure 6
illustrates the operation of the claimed systematic with-
drawal program:
In the example of Figure 6, the guaranteed with-
drawal amount is 7.5% of the highest value attained by
LINCOLN NATL v. TRANSAMERICA LIFE 6
the account. ’201 patent col.11 ll.35-36. The account
reaches its highest value, $115,164.66, in year 4. Pursu-
ant to the guaranteed payment feature, the account
owner is entitled to withdraw $8,637.35 (7.5% of
$115,164.66) in years 5 through 15, regardless of the
account’s actual value. Thus, the scheduled payment of
$8,637.35 is still made in years 13 through 15 even
though the account value is exhausted, i.e., less than the
guaranteed withdrawal amount. Id. col.11 ll.29-34.
The court explained that Figure 6 was “consistent
with the court's suggested reading of [step (e)] as claim-
ing, 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 construc-
tion 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).
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 ad-
dressing 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
7 LINCOLN NATL v. TRANSAMERICA LIFE
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.
The parties tried the case to a jury, which found that
independent claim 35 and dependent claims 36-39 and 42
of the ’201 patent were infringed and not invalid. The
jury awarded Lincoln $13 million in damages. Trans-
america filed motions for judgment as a matter of law
(JMOL), asserting that the evidence was insufficient to
support the jury’s finding of infringement and that the
asserted claims were invalid under 35 U.S.C. § 103 and §
112. The court denied Transamerica’s motions and en-
tered a permanent injunction against Transamerica.
Transamerica appeals. On appeal, Transamerica does
not challenge the court’s claim constructions, jury instruc-
tions, or denial of JMOL as to invalidity. Instead, Trans-
america asserts that it was entitled to JMOL of
noninfringement of the asserted claims. Transamerica
also asserts that the court abused its discretion in deny-
ing leave to amend its complaint to assert a claim under
35 U.S.C. § 101. We have jurisdiction pursuant to 28
U.S.C. § 1295(a)(1).
II. DISCUSSION
A. Infringement
We review a denial of JMOL according to the law of
the regional circuit, here the Eighth Circuit. See Muni-
auction, Inc. v. Thomson Corp., 532 F.3d 1318, 1323-24
(Fed. Cir. 2008). The Eighth Circuit “reviews de novo the
district court’s decision to deny judgment as a matter of
law.” Shaw Group, Inc. v. Marcum, 516 F.3d 1061, 1064
(8th Cir. 2008). In making our determination, we con-
sider “all the evidence in the record without weighing
LINCOLN NATL v. TRANSAMERICA LIFE 8
credibility, while resolving conflicts and making all rea-
sonable inferences in favor of the non-moving party.” Id.
at 1064-65. We may not set aside the jury’s verdict
“unless there is a complete absence of probative facts to
support the verdict and only speculation supports the
verdict.” Id. at 1065 (citation omitted).
The jury returned a verdict of infringement in favor of
Lincoln, having been instructed that Lincoln could show
infringement by proving “that Transamerica must neces-
sarily perform or use each and every step of a claimed
computerized method” in administering its variable
annuity plans. J.A. 707. The district court then denied
Transamerica’s motion for JMOL of noninfringement. In
denying the motion, the court found that Transamerica
“simply reasserts and repackages the same legal theories
that the court has already rejected.” Transamerica Life
Ins. Co. v. Lincoln Nat’l Life Ins. Co., 625 F. Supp. 2d 702,
709 (N.D. Iowa 2009). Specifically, the court took issue
with Transamerica’s assertion “that [performance of] step
(e) of claim 35 requires that the account value be ex-
hausted,” noting that it had “repeatedly construed the
[step (e)] language at issue to identify only the most
extreme circumstance in which the guaranteed minimum
payment . . . would still be made.” Id. The court deter-
mined that the evidence permitted reasonable jurors to
differ in their conclusions as to whether Transamerica
performed all steps of the claimed method, thus rendering
JMOL inappropriate. Id.
Transamerica argues that the district court erred in
denying its motion for JMOL of noninfringement because
Lincoln failed to introduce substantial evidence that
Transamerica has practiced steps (b), (c), or (e) of claim
35. Transamerica argues that it does not perform step (e),
in particular, for two reasons. First, Transamerica as-
serts that none of its policy owners has ever had an ex-
9 LINCOLN NATL v. TRANSAMERICA LIFE
hausted 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.
Lincoln responds that Transamerica’s first argument
is impermissible in view of the court’s claim construction.
With respect to Transamerica’s second argument, Lincoln
asserts that the evidence is sufficient to support the jury’s
verdict, arguing alternatively that Transamerica uses
multiple computer systems to make a payment that
reduces an account’s value to zero (i.e., that exhausts an
account); that the terms of the GMWB riders obligate
Transamerica to practice the claimed method; and that
the “even if” clause of step (e) is a contingent limitation
that need not be performed unless actual exhaustion
occurs.
We agree with Lincoln that Transamerica’s first ar-
gument is directly contrary to the district court’s con-
struction 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. Under the court’s construction, Lincoln was not
required to prove actual exhaustion to establish infringe-
ment. Instead, Lincoln was required to prove that Trans-
america’s computerized method of administering GMWB
riders must necessarily make a scheduled payment in the
event of an exhausted account. If Transamerica’s com-
puterized system makes a payment regardless of account
value—i.e., if the system will make a payment to the
owner of an exhausted account, should that circumstance
arise—Transamerica performs step (e). Conversely, if the
computerized system is configured such that it does not
make a payment if an account is exhausted, Transamerica
does not perform step (e). Because actual exhaustion is
LINCOLN NATL v. TRANSAMERICA LIFE 10
not required to infringe claim 35, Transamerica’s first
argument does not provide any basis for reversing the
district court’s denial of JMOL.
Transamerica’s second argument is that it does not
perform step (e) because its computerized system will not
make payments if account value is exhausted. Trans-
america administers its GMWB riders using a computer-
ized variable annuity administration system called
“Vantage.” Transamerica has customized Vantage to
automate various features of the riders. For example,
Vantage tracks annuity account values, calculates an
annual withdrawal amount for each policy owner, and
makes scheduled payments to policy owners.
The operational details of Vantage are undisputed,
and both parties rely on Transamerica’s Vantage func-
tional specification as depicting system operation. The
functional specification shows that when a policy owner’s
account value drops to less than the scheduled with-
drawal amount—that is, when the account value becomes
exhausted—Vantage stops making payments to the policy
owner. J.A. 21934. Transamerica’s Distribution Services
department produces a manual check for the withdrawal
amount and sends the check to the policy owner. Id.
Vantage generates a letter informing the policy owner
that his policy was terminated due to lack of account
value and that future scheduled payments will be made
using a Repetitive Payment System (RPS). Id. 21934-35.
The underlying account file is then terminated in Vantage
and transferred to RPS. Id. 21917, 21934.
We agree with Transamerica that the undisputed evi-
dence shows that Vantage stops making scheduled pay-
ments when an account becomes exhausted. Indeed,
Lincoln does not appear to dispute this point. Lincoln
argues instead that Transamerica uses “multiple com-
11 LINCOLN NATL v. TRANSAMERICA LIFE
puter systems” in connection with Vantage to make a
final payment reducing the account value to zero. The
evidence does not support this argument. Although
Lincoln is correct that Vantage interacts with various
other programs to administer the GMWB riders—for
example, Vantage uses a program called Infopac to gener-
ate the policy termination letter—nothing in the record
indicates that Transamerica uses a computer system to
make a scheduled payment to the owner of an exhausted
account. To the contrary, the functional specification
expressly states that if there is insufficient policy value to
process a withdrawal, “[a] manual check will be produced
by [Transamerica’s] Distribution Services.” J.A. 21934
(emphasis added). Lincoln points to no evidence, and we
are aware of none, showing that Transamerica uses a
computerized method to make the “scheduled payment to
the owner . . . if the account value is exhausted before all
payments have been made,” as recited by claim 35. Given
that Transamerica’s computerized system is specifically
configured such that it does not make a payment if an
account is exhausted, we agree with Transamerica that it
does not perform step (e).
Lincoln argues alternatively that Transamerica is
contractually obligated to practice the claimed method
through its sale of the GMWB riders. The court in-
structed the jury that rider sales are “evidence of in-
fringement to the extent that the sale of the riders or
annuities necessarily requires or obligates Transamerica
to practice each and every step of the claimed invention.”
J.A. 707. Relying on this instruction, Lincoln asserts that
the GMWB riders require Transamerica to continue
making payments to policy owners even in the event of
account exhaustion. Although it is true (and undisputed)
that the GMWB riders require Transamerica to make
payments after an account is exhausted, the fact that
LINCOLN NATL v. TRANSAMERICA LIFE 12
such payment is required does not mean that it must be
made by a computerized method. Claim 35 is not directed
to the concept of guaranteed minimum payment variable
annuities, but to a computerized method of administering
the same.
More fundamentally, even if the GMWB riders did ob-
ligate Transamerica to perform the claimed method, this
would not be sufficient to establish infringement. “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 estab-
lish 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.
Lincoln also argues that the district court construed
the “even if” clause of step (e) to be a contingent limitation
that need not be performed unless the condition for per-
formance (the occurrence of an exhausted account) is
satisfied. In other words, Lincoln argues that Trans-
america’s computerized system infringes, even though the
computerized system would not make payments to ex-
hausted accounts, because the “even if” clause need not be
performed unless account exhaustion occurs. This is
simply the converse of Transamerica’s contention that
actual exhaustion is required to prove infringement, and
it fails for the same reasons. As the court explained, step
(e) recites making a guaranteed payment regardless of the
account value. Under the court’s construction, Lincoln
was required to prove that Transamerica’s computerized
system is configured to make payments regardless of
13 LINCOLN NATL v. TRANSAMERICA LIFE
account value, “even if the account value is exhausted
before all payments have been made.” ’201 patent col.25
ll.31-33. Because Transamerica’s computerized system
does not make a payment if an account is exhausted, the
system does not make a guaranteed payment regardless
of the account value. Therefore, Lincoln failed to prove
that Transamerica performs step (e).
The undisputed evidence of record shows that Trans-
america’s computerized system for administering its
GMWB riders does not make a scheduled payment if an
account is exhausted. Rather, Transamerica’s computer-
ized system stops making payments when an account
becomes exhausted and its Distribution Services depart-
ment provides a manual check to the policy owner. Be-
cause 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 sup-
port the verdict [of infringement].” Shaw Group, 516 F.3d
at 1064. The court therefore erred in denying Trans-
america’s motion for JMOL of noninfringement. We need
not reach Transamerica’s alternative arguments that it
does not perform steps (b) or (c) of claim 35.
B. Denial of Leave to Amend Complaint
Transamerica also argues that the district court
abused its discretion in denying Transamerica leave to
amend its complaint to assert a claim for invalidity under
35 U.S.C. § 101. 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.
The Supreme Court’s decision in Cardinal Chemical
Co. v. Morton International, Inc., 508 U.S. 83 (1993) is not
to the contrary. In Cardinal, the Court rejected our
LINCOLN NATL v. TRANSAMERICA LIFE 14
practice of routinely vacating district court judgments of
invalidity after determining on appeal that the asserted
claims were not infringed. The Court explained that this
practice created the “potential for relitigation [of the
validity issues] and impose[d] ongoing burdens on com-
petitors who are convinced that a patent has correctly
been found invalid.” Id. at 101. Here, however, the
district court never entered judgment on Transamerica’s §
101 invalidity claim. Indeed, the court did not even reach
the merits of the claim. Although Transamerica would
like us to decide this validity issue in the first instance,
we decline to do so where it was not considered by the
district court.
Because we conclude that Transamerica does not in-
fringe, we need not reach the argument that the district
court abused its discretion by refusing to grant Trans-
america leave to amend its complaint to assert a claim for
invalidity under 35 U.S.C. § 101.
III. CONCLUSION
Because we conclude that the evidence of record does
not support the jury’s verdict of infringement, we reverse
the district court’s denial of JMOL of noninfringement
and vacate the permanent injunction entered against
Transamerica. We remand the case to the district court
for entry of judgment of noninfringement in favor of
Transamerica.
REVERSED and REMANDED
United States Court of Appeals
for the Federal Circuit
__________________________
LINCOLN NATIONAL LIFE INSURANCE
COMPANY,
Plaintiff-Appellee,
v.
TRANSAMERICA LIFE INSURANCE COMPANY,
WESTERN RESERVE LIFE ASSURANCE CO. OF
OHIO,
AND TRANSAMERICA FINANCIAL LIFE
INSURANCE COMPANY,
Defendants-Appellants.
__________________________
2009-1403, -1491
__________________________
Appeals from the United States District Court for the
Northern District of Iowa in 06-CV-110, Judge Mark W.
Bennett.
__________________________
CLEVENGER, Circuit Judge, concurring.
I join the majority in all respects but one, which is the
question of whether the district court erred in denying
Transamerica’s motion for leave to amend its complaint to
add an invalidity claim under 35 U.S.C. § 101 for claiming
ineligible subject matter. Because the motion was offered
well after the cut-off date for amended pleadings, and the
circumstances of the case showed beyond any doubt that
LINCOLN NATL v. TRANSAMERICA LIFE 2
the claim could have been raised before the deadline for
amendments, Lincoln opposed the motion.
On appeal, Transamerica complains about the denial
of its untimely attempt to amend its complaint. The
district court’s opinion denying the section 101 amend-
ment describes in detail the reasons why Transamerica
easily could have raised this defense in a timely fashion.
Rather than decide whether the district court erred in
denying Transamerica’s motion for leave to amend the
complaint, the majority ducks the issue by saying we are
not required to decide the question of invalidity. Whether
or not we are compelled to adjudicate invalidity, I think
we should review the denial of the motion to amend, and
to that limited extent, I disagree with the majority.
We review an order granting or denying leave to
amend under the pertinent regional circuit law. See
Innova/Pure Water, Inc. v. Safari Water Filtration Sys.,
Inc., 381 F.3d 1111, 1124 (Fed. Cir. 2004). In the Eighth
Circuit, denying the amendment of a complaint is re-
viewed for abuse of discretion. See Alternate Fuels, Inc. v.
Cabanas, 538 F.3d 969, 974 (8th Cir. 2008).
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.