In Re Trans Texas Holdings Corp.

United States Court of Appeals for the Federal Circuit

2006-1599, -1600
(Reexamination Nos. 90/005,841 and 90/005,842)

IN RE TRANS TEXAS HOLDINGS CORP.

David L. Parker, Fulbright & Jaworski L.L.P., of Austin, Texas, argued for
appellant. With him on the brief was Marcy Hogan Greer. Of counsel was Shafeeqa
Watkins Giarratani.

William LaMarca, Associate Solicitor, United States Patent and Trademark
Office, of Arlington, Virginia, argued for the Director of the United States Patent and
Trademark Office. With him on the brief was Thomas L. Stoll, Associate Solicitor. Of
counsel was Stephen Walsh, Acting Solicitor.

Appealed from: United States Patent and Trademark Office
Board of Patent Appeals and Interferences
 United States Court of Appeals for the Federal Circuit

2006-1599, -1600
(Reexamination Nos. 90/005,841 and 90/005,842)

IN RE TRANS TEXAS HOLDINGS CORP.

___________________________

DECIDED: August 22, 2007
___________________________

Before MICHEL, Chief Judge, MAYER and DYK, Circuit Judges.

DYK, Circuit Judge.

Appellant Trans Texas Holdings Corp. (“Trans Texas”) appeals the decision of

the Board of Patent Appeals and Interferences (“Board”) in Reexamination Nos.

90/005,841 and 90/005,842. The Board affirmed the examiner’s rejection of all of the

claims of U.S. Patent No. 5,832,461 (filed Oct. 23, 1991) (“’461 patent”) and U.S. Patent

No. 6,052,673 (filed Nov. 2, 1998) (“’673 patent”) as obvious under 35 U.S.C. § 103.

We affirm.

BACKGROUND

I

Trans Texas is the assignee of both the ’461 patent and the ’673 patent. The

’673 patent is a continuation of the ’461 patent. The patents’ specifications, which are

nearly identical, describe a system of inflation-adjusted deposit and loan accounts. ’461

patent col.2 ll.55-59; ’673 patent col.2 ll.55-59. By adjusting the interest paid on deposit

accounts, or received on loan accounts, to compensate for inflation, the patented
system purports to insulate the value of assets from inflationary fluctuations. In

addition, the patented system seeks to match, or "hedge," any increased interest a

financial institution must pay to depositors as a result of inflation adjustments with the

increased inflation-adjusted interest payments it receives from borrowers, thereby

providing stability to the financial institution. ’461 patent col.3 ll.27-37; ’673 patent col.2

ll.27-37 (“[D]uring times of inflation . . . negative cash flows attributable to . . . deposit

accounts will be compensated for by incoming payments on loan accounts.”).

A

The ’461 patent has three independent claims, claims 1, 24, and 36.

Independent claim 1 claims “[a]n investment system for providing an improved capital

structure for an institution” composed, basically, of a deposit account and an account

management data processor. ’461 patent col.25 l.64-col.26 l.51. The claimed deposit

account has a principal component representing the initial cash investment of the

depositor and an accrual component representing interest paid that has both a fixed

interest and a variable interest component. Id. col.26 ll.39-42. Claim 1 notes that the

“deposit accrual component” is adjusted “in a manner responsive to the rate of inflation,”

id. (emphasis added), which the specification defines as “directly responsive to a market

indicator of prior actual inflation and it is not meant to include the market’s expectation

of future inflation,” id. col.3 ll.12-14 (emphasis added). 1 Claim 1 also specifies that the

data processor includes means for “retiring the fixed interest component” and “paying

1
The specification definition states in full: “Responsive to the rate of
inflation, as used herein, means directly responsive to a market indicator of prior actual
inflation and it is not meant to include the market’s expectation of future inflation.” ’461
patent col.3 ll.11-14.

2006-1599, -1600 2
the deposit principal component” according to schedules over the term of the deposit

account. Id. col.26 ll.48-51. 2

Independent claim 24 is generally similar to claim 1 for purposes of this appeal

and includes the “responsive to the rate of inflation” limitation. Id. col.28 ll.47-59. It

excludes claim 1’s reference to retiring the fixed interest and paying the principal

according to schedules. Id. Independent claim 36 is similar to claim 1 for purposes of

this appeal but covers both deposit and loan accounts. Id. col.29 l.25-col.30 l.9. Similar

to claim 1, it claims a “means for adjusting the amount in the deposit account in a

manner responsive to the rate of inflation” and a “means for determining the amount in

the loan accrual component in a manner responsive to the rate of inflation.” Id. col.29

2
Claim 1 states in full:

An investment system for providing an improved capital structure for an
institution comprising:

means for establishing data representative of at least one deposit account
for a term, the deposit account having a deposit principal component and
a deposit accrual component, the deposit accrual component having a
fixed interest component and a variable interest component; and

an account management data processor for servicing the deposit account
over the term, including:

means for determining the rate of inflation;

means for adjusting the amount in the deposit accrual component
in a manner responsive to the rate of inflation;

means for retiring the fixed interest component by a first schedule
over the term; and

means for paying the deposit principal component according to a
second schedule over the term.

’461 patent col.25 l.64-col.26 l.51.

2006-1599, -1600 3
l.37-col.30 l.3 (emphases added). Most of the ’461 patent’s dependent claims were not

argued separately on appeal and thus stand or fall with their corresponding independent

claim. See In re Dance, 160 F.3d 1339, 1340 n.2 (Fed. Cir. 1998). Some of the

dependent claims include other limitations described below.

B

The ’673 patent has four independent claims, claims 1, 9, 22, and 25. Claim 1

claims a “method of managing financial accounts” by providing deposit and loan

accounts that are adjusted “as a function of a rate of inflation,” “paying the deposit

accounts,” and “receiving repayment of the loan account.” ’673 patent col.25 l.60-col.26

l.42. Claim 1 also recites the use of “an account data processor.” Id. col.26 l.37. 3

Claim 9 claims a method whereby an institution provides a deposit account to a

3
Claim 1 states in full:

A method of managing financial accounts comprising:

providing a plurality of deposit accounts with a financial institution;

adjusting the amount in each deposit account as a function of a rate of
inflation;

providing at least one loan account with said financial institution using
funds deposited with the financial institution;

adjusting the amount in the loan account as a [f]unction of a rate of
inflation using an account data processor,

paying the deposit accounts; and

receiving repayment of the loan account by said financial institution in a
manner where the funds in the loan account obtain a rate of return
responsive to a rate of inflation.

’673 patent col.25 l.60-col.26 l.42.

2006-1599, -1600 4
depositor, uses a portion of the funds deposited to obtain a financial instrument “whose

rate of return adjusts with inflation,” and pays the “depositor a rate of return on

funds . . . based on a rate of inflation.” Id. col.26 l.61-col.27 l.7 (emphases added). 4

Claim 22 is nearly identical to claim 9, except that it calls for the institution to obtain “a

mortgage secured by real estate,” rather than “a financial instrument.” Id. col.27 l.41-

col.28 l.10. Claim 25 is also similar to claim 9 for purposes of this appeal, except that it

specifies that the financial instrument pays “the inflation-adjusted principal component at

the end of the term,” which the parties refer to as “balloon payments.” Id. col.28 l.16-35.

None of the dependent claims of the ’673 patent was argued separately on appeal, and

they therefore stand or fall with their independent claim. See Dance, 160 F.3d at 1340

n.2.

4
Claim 9 states in full:

A method for an institution to manage at least part of a program to provide
a depositor of funds a rate of return on said funds variable with a rate of
inflation, comprising:

providing a deposit account by the institution for receiving said funds from
said depositor;

allocating at least a portion of said funds for obtaining an asset whose rate
of return adjusts with inflation;

using said allocated funds to obtain said asset whose return adjusts with
inflation and is determined using a dataprocessor, said asset comprising a
financial instrument having an obligated rate of return indexed to a rate of
inflation; and

paying said depositor a rate of return on funds relived based on a rate of
inflation.

’673 patent col.26 l.61-col.27 l.7.

2006-1599, -1600 5
 On October 6, 2000, Trans Texas requested reexamination of the ’461 and ’673

patents based on a substantial new question of patentability. The United States Patent

and Trademark Office (“PTO”) granted this request on December 6, 2000, and initiated

separate reexamination proceedings for each patent.

II

A

In the course of the reexamination proceeding, Trans Texas urged that the PTO

was bound by a claim construction rendered in an earlier infringement proceeding to

which the PTO was not a party. On October 12, 1999, Trans Texas had filed a

complaint against Pimco Advisors, L.P. in the United States District Court for the

Western District of Texas, alleging infringement of the ’461 and ’673 patents. On

August 28, 2000, the district court had issued its claim construction ruling, which

adopted the definition of the term “responsive to the rate of inflation” found in the

specification, that is, it held that the term should be defined as “directly responsive to a

market indicator of prior actual inflation and is not meant to include the market’s

expectation of future inflation.” Trans Texas Holdings Corp. v. Pimco Advisors, L.P.,

No. 99-CA-658, slip op. at 10 (W.D. Tex. Aug. 28, 2000) (“Markman Order”). Relying on

language in the accompanying district court opinion, Trans Texas urges that the district

court also interpreted the “responsive to the rate of inflation” language to require a

continuous, one-to-one relationship between inflation and adjustments. See id. at 12

(“The '461 patent uses the phrase 'responsive to the rate of inflation' which more clearly

imparts a one-to-one correlation.”). For purposes of this appeal, we will assume that

Trans Texas’s interpretation of the district court order is correct. The district court also

2006-1599, -1600 6
held that the term “as a function of the rate of inflation” in claim 1 of the ’673 patent had

the same meaning as the term “responsive to the rate of inflation.” Id. at 12. The

district court construed the term “based on the rate of inflation” in claims 9 and 25 of the

’673 patent “to require the rate of return to be directly related to the rate of inflation.” Id.

at 12-13.

The parties then reached a settlement before trial, and the district court issued an

“Order of Dismissal with Prejudice” on January 8, 2001.

B

On February 11, 2002, the examiner mailed final office actions in the

reexamination proceedings rejecting all of the claims of the ’461 and ’673 patents as

obvious under 35 U.S.C. § 103. The primary issue before the examiner was the

construction of the terms “responsive to the rate of inflation” and “as a function of a rate

of inflation.” In holding the claims unpatentable, the examiner principally relied on

Santosh Mukherjee & Claire Orlans, Indexation in an Inflationary Economy: A Case

Study in Finland, Vol. XL, Broadsheet No. 551, PEP The Social Science Institute, April

1975, at 50-73, 106-111 (“Mukherjee”). Mukherjee discusses the decision of banks in

Finland in the 1950s to “adjust both their loans and deposits for inflation, on the basis of

quarterly inspections of the cost-of-living index.” Id. Among other accounts, it describes

“A” deposit accounts, which provided “100 per cent index compensation” for every one

percent increase in the cost of living index. 5 That is, for every one percent increase in

5
The predecessor of “A” accounts had required an initial cost-of-living index
value of 106 before compensation was paid and had only paid compensation for every
two percent increase in the cost-of-living index. However, since the 106 value was
reached at the beginning of 1956, this requirement no longer existed when A accounts

2006-1599, -1600 7
the cost of living index, the capital was increased by one percent. Mukherjee also

discloses that banks charged an inflation-adjusted “surcharge” on their loans in order to

provide the funds needed for fully inflation-adjusted deposit accounts. It notes that

“[t]he amount of the surcharge was usually fixed according to the proportion of the

bank’s deposits benefiting by index adjustment, so that the bank could just balance its

commitments.” Id. Although Mukherjee “lacks[] an explicit recitation of the data-

processor for account management,” the examiner concluded that U.S. Patent No.

4,774,663 (filed Nov. 21, 1983) (“Musmanno”) “demonstrates that it was notoriously

well-known to employ data-processors to manage plural accounts” and therefore it

would have been obvious to a person of ordinary skill in the art to apply Musamanno’s

data processor to Mukherjee.

On March 25, 2002, Trans Texas appealed the examiner’s decisions on both the

’461 and ’673 patents to the Board. Trans Texas first argued that under our decision in

In re Freeman, 30 F.3d 1459 (Fed. Cir. 1994), issue preclusion bound the Board to

apply the district court’s claim construction of the terms “responsive to the rate of

inflation” and “as a function of a rate of inflation.” The Board, in similar but separate

opinions for each reexamination proceeding, rejected this argument. The Board held

that a different claim construction standard applies in PTO proceedings, giving claims

“their broadest reasonable interpretation consistent with the specification.” See Ex

Parte Trans Texas Holdings Corp., No. 2005-2642, Reexamination No. 90/005,841, slip

op. at 4 (B.P.A.I. May 26, 2006) (“’461 Board Decision”); Ex Parte Trans Texas Holdings

were first offered in January 1957. Similarly, the A accounts were made “more
sensitive” than the predecessor accounts, paying compensation for one percent
increases in the cost-of-living index.

2006-1599, -1600 8
Corp., No. 2005-2643, Reexamination No. 90/005,842, slip op. at 4 (B.P.A.I. May 26,

2006) (“’673 Board Decision”). The Board also concluded that the district court’s claim

construction was not “necessary to the judgment rendered in the previous action” in light

of the pre-trial settlement and dismissal. ’461 Board Decision at 5-6; ’673 Board

Decision at 5-6.

Alternatively, Trans Texas argued that, even apart from issue preclusion, “the

claims require a continuous (i.e., nonstepped) relationship such that different amounts

of prior actual inflation will result in different inflation adjustments.” ’461 Board Decision

at 7; see also ’673 Board Decision at 7. The Board disagreed. It noted the

specification’s definition of “responsive to the rate of inflation”—“directly responsive to a

market indicator of prior actual inflation and it is not meant to include the market’s

expectation of future inflation.” ’461 Board Decision at 7. The Board concluded that this

“was meant to emphasize that the calculations of inflation adjustments must be based

on the market indicator data which represents prior actual inflation.” Id. (emphasis in

original). Relying as well on the dictionary definition of “directly,” the Board concluded

that the claims were broad enough to cover non-continuous adjustments. ’461 Board

Decision at 7-8; ’673 Board Decision at 9.

The Board upheld the examiner’s obviousness rejection of all of the claims of the

’461 and ’673 patents based on these constructions and its interpretation of other claim

terms. It concluded that claims 24-26, 28-32, 34-37, and 38-44 of the ’461 patent and

claims 1-24 of the ’673 were unpatentable over Mukherjee in view of Musmanno. The

Board rejected the remaining claims of the ’461 and ’673 patents over Mukherjee in

view of Musmanno and additional references.

2006-1599, -1600 9
 Trans Texas timely appealed the decisions, and we consolidated the appeals.

We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(4)(A) (2000). We review

questions of issue preclusion and claim construction without deference. See Shell

Petroleum, Inc. v. United States, 319 F.3d 1334, 1338 (Fed. Cir. 2003) (issue

preclusion); Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1455 (Fed. Cir. 1998)

(claim construction).

DISCUSSION

I

Trans Texas first argues that the Board erred in construing the term “responsive

to the rate of inflation” in the ’461 patent and the related terms “as a function of a rate of

inflation” and “based on a rate of inflation” in the ’673 patent. Trans Texas has treated

these terms as equivalent and focused on the “responsive to the rate of inflation”

limitation, and we will do likewise.

A

Trans Texas primarily argues that the Board should have given preclusive effect

to the district court’s Markman order, which construed “responsive to the rate of

inflation” to mean “directly responsive to a market indicator of prior actual inflation and is

not meant to include the market’s expectation of future inflation.” Markman Order at 15.

As discussed above, we assume, as Trans Texas argues, that the district court

construed the term to require a “continuous, one-to-one correlation with the inflation

rate.” Appellant’s Br. 20; see also Markman Order at 12.

Traditionally, issue preclusion, also known as collateral estoppel, applied only

where the same parties to an earlier proceeding were involved in later litigation involving

2006-1599, -1600 10
the same issue. See Restatement (Second) of Judgments § 27 (1982); Id. § 29

Reporter’s Note. More modern decisions in some circumstances apply issue preclusion

even where the parties to the subsequent suit are not the same. See Parklane Hosiery

Co. v. Shore, 439 U.S. 322, 326-33 (1979); Restatement (Second) Judgments § 29.

The latter doctrine is known as non-mutual collateral estoppel, and it is this latter

doctrine that Trans Texas relies on here.

Issue preclusion is not warranted in this case because the PTO was not a party

to the earlier litigation. Our case law has identified four prerequisites to the application

of issue preclusion: “(1) identity of the issues in a prior proceeding; (2) the issues were

actually litigated; (3) the determination of the issues was necessary to the resulting

judgment; and, (4) the party defending against preclusion had a full and fair opportunity

to litigate the issues.” Jet, Inc. v. Sewage Aeration Sys., 223 F.3d 1360, 1365-66 (Fed.

Cir. 2000) (emphasis added).

The PTO as “the party against whom the earlier decision is asserted” thus must

have been accorded “a ‘full and fair opportunity’ to litigate that issue in the earlier case.”

Allen v. McCurry, 449 U.S. 90, 95 (1980); Freeman, 30 F.3d at 1467 (Fed. Cir. 1994).

However, the PTO was not even a party to the earlier district court litigation and cannot

be bound by its outcome. Trans Texas nevertheless argues that this requirement

should somehow be excused because the PTO proceedings were ex parte. This

argument simply makes no sense. The PTO is plainly a party to these appeal

proceedings, and if it were not treated as a party, there would be no basis for even

considering the application of issue preclusion in the first place.

2006-1599, -1600 11
 We have never applied issue preclusion against a non-party to the first action. In

fact, the Supreme Court has specifically held that “litigants . . . who never appeared in a

prior action[] may not be collaterally estopped without litigating the issue. . . . Due

process prohibits estopping them despite one or more existing adjudications of the

identical issue which stand squarely against their position.” Blonder-Tongue Labs., Inc.

v. Univ. of Ill. Found., 402 U.S. 313, 329 (1971); see also Parklane Hosiery, 439 U.S. at

327 n.7 (“It is a violation of due process for a judgment to be binding on a litigant who

was not a party or a privy and therefore has never had an opportunity to be heard.”);

Restatement (Second) of Judgments § 29 Reporter’s Note (“The proposition that a non-

party cannot be bound by a judgment, unless he is represented by a party or has

interests that are derivative from a party, is a rule of Constitutional law.”). 6

Recognizing the general rule against collaterally estopping a non-party, Trans

Texas asserts that it somehow represented the PTO’s interests in the district court

action. However, the “presumption that nonparties are not bound by a judgment” can

only be rebutted in limited circumstances, such as when the non-party was in privity with

a party, has interests that are derivative from a party, or “participate[d] in an active and

controlling way” in the litigation. See 18A Charles Alan Wright, et al., Federal Practice &

Procedure § 4449 (2d ed. 2002); Restatement (Second) of Judgments § 29 Reporter’s

Note. The PTO’s interests were not represented in the earlier litigation even though

Trans Texas there urged that the district court reject the construction that the district

6
While the Due Process Clause of the Fifth Amendment does not apply to
the government, see South Carolina v. Katzenbach, 383 U.S. 301, 323-24 (1966), the
procedural protections afforded to private parties in the res judicata and collateral
estoppel context also apply to the government, see United States v. Stauffer Chem.
Co., 464 U.S. 165, 170 (1984).

2006-1599, -1600 12
court adopted. Since the PTO was not a party to the district court litigation, issue

preclusion does not apply.

Contrary to Trans Texas’s argument, our decision in Freeman does not require

the application of issue preclusion. In Freeman, we held that a patentee in a PTO

proceeding was barred by issue preclusion from asserting a claim construction already

rejected in a district court infringement action brought by the patentee against a third

party. 30 F.3d at 1469. Nothing in Freeman suggests that issue preclusion could be

applied against the PTO or another non-party to the infringement proceeding. 7

B

Alternatively, Trans Texas urges that the Board erroneously rejected its proposed

claim construction and that the claims require continuous, one-to-one adjustments. It is

not entirely clear what Trans Texas means by “continuous” or “one-to-one.” Any

inflation-adjustment is subject to the available inflation data. That is, it is limited by the

way in which inflation data are reported, both in terms of the frequency of reporting

(e.g., monthly, quarterly, yearly, etc.) and the specificity of reporting (i.e., how many

decimal places the rate of inflation is carried out). Thus, no inflation-adjustment system

can truly be “continuous” and “one-to-one” with the true rate of inflation. Instead, as

best we can understand it, Trans Texas’s argument is that for every increase in the

reported rate of inflation, there must be an immediate and equal inflation adjustment.

We understand this argument to be an attempt to distinguish the Mukherjee prior art

7
In light of our resolution of Trans Texas’s issue preclusion argument, we
have no need to decide whether non-mutual collateral estoppel against the government
would be permissible at all in the circumstances of this case. See United States v.
Mendoza, 464 U.S. 154 (1984).

2006-1599, -1600 13
reference, which did not disclose an immediate inflation adjustment to deposit accounts

for every increase in the rate of inflation. Instead, increases were only made when the

increase in the rate of inflation reached one percent. 8

Trans Texas’s argument is not persuasive. Claims are given “their broadest

reasonable interpretation, consistent with the specification, in reexamination

proceedings.” In re Yamamoto, 740 F.2d 1569, 1571 (Fed. Cir. 1984). The term

“responsive to the rate of inflation” is defined in the specification as “mean[ing] directly

responsive to a market indicator of prior actual inflation and it is not meant to include the

market’s expectation of future inflation.” ’461 patent col.3 ll.11-14. As the Board noted,

the specification’s definition only requires that the inflation adjustment be “directly

responsive” to a market indicator of inflation. There is nothing in the specification or the

prosecution history that requires an immediate inflation-adjustment every time the rate

of inflation increases. Trans Texas argues that immediate responsiveness is the only

construction consistent with the specification because “each of the examples in the ’461

specification . . . [is] adjusted on a one-for-one basis.” Appellant’s Br. 19. Even if the

examples are so limited (which the PTO disputes), Trans Texas’s argument conflicts

with our decision in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc). In

Phillips, we held that while “the specification [should be used] to interpret the meaning

of a claim,” courts must not “import[] limitations from the specification into the claim.” Id.

8
Trans Texas also points out that some of the deposit accounts in
Mukherjee had features requiring: (1) that a threshold value be exceeded before any
inflation-adjustment was made; (2) a proportional adjustment (i.e., every one point
inflation increase leads to a one-half percent inflation-adjustment). Trans Texas argues
that these accounts were not “directly responsive” to the rate of inflation. This is beside
the point given the disclosures described in the text above with respect to other
accounts that did not include such limiting features.

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at 1323. We specifically noted that it is improper to “confin[e] the claims to th[e]

embodiments” found in the specification, as Trans Texas asks us to do. Id.

Under Phillips, dictionary definitions are also pertinent. See id. at 1318 (“[T]he

court has observed that dictionaries . . . can be useful in claim construction.”). The

dictionary definition of “directly” confirms that the specification’s requirement that the

adjustment be “directly responsive” to a market indicator does not require that an

inflation-adjustment occur immediately after any increase in the reported rate of

inflation. While some definitions define “directly” as “simultaneously and exactly or

equally” or “immediately,” other definitions define it as “after a little: in a little while:

shortly, presently.” Webster’s Third New International Dictionary Unabridged 641

(2002). In view of the latter definitions, we conclude that the broadest reasonable

interpretation of “directly responsive” is not limited to situations in which the inflation-

adjustment occurs immediately after any increase in the reported rate of inflation, but

also includes situations in which the inflation-adjustment occurs “a little while” after an

increase in the reported rate, such as when the increase reaches one percent. The

Board did not err in concluding that the broadest reasonable interpretation of the term

“responsive to the rate of inflation” (and related terms) is not limited to a continuous,

one-to-one relationship but also includes a delayed relationship, in which adjustments

are made in one percent increments.

II

Turning to the Board’s obviousness determination, Trans Texas has relied only

on its erroneous claim construction in arguing that claims 24-30, 32, and 34-35 of the

2006-1599, -1600 15
’461 patent, relating to deposit accounts, are non-obvious. 9 We therefore affirm the

Board’s determination that these claims would have been obvious. See SmithKline

Beecham Corp. v. Apotex Corp., 439 F.3d 1312, 1319 (Fed. Cir. 2006) (“[A]rguments

not raised in the opening brief are waived.”).

Trans Texas also argues that additional limitations appearing in other claims

render those claims non-obvious. We cannot agree.

First, Trans Texas argues that claims 36-44 of the ’461 patent and claims 1-8 of

the ’673 patent are non-obvious because, even if Mukherjee discloses deposit accounts

responsive to the rate of inflation, Mukherjee does not disclose loan accounts that were

fully adjusted with the market indicator of inflation (i.e., the inflation adjustment was

equal to the increase in the market indicator of inflation), but instead only discloses loan

accounts that were adjusted on a proportional basis with inflation (for example, a one

percent increase in the market indicator would only result in a one-half or one-fourth

percent inflation adjustment). Trans Texas is correct that the loan accounts Mukherjee

describes as having actually been implemented in Finland at most imposed an inflation

adjustment of one-half the increase in the rate of inflation. However, Mukherjee also

discloses that banks would find the money needed to provide inflation-adjusted deposit

accounts by “imposing an ‘index surcharge’ on all loans. . . . fixed according to the

proportion of the bank’s deposits benefiting by index adjustment, so that the bank could

9
Trans Texas does argue that Mukherjee “teaches away” from inflation-
adjusted accounts because it describes how these accounts were abolished in Finland
following a “stabilization agreement” between trade unions and employers meant to
quell a price surge. It is unclear if this argument was raised before the Board. In any
event, the political decision to abolish these accounts as part of a trade agreement is
not in any way related to any deficiency in the utility of the invention itself.

2006-1599, -1600 16
just balance its commitments.” Mukherjee at 50-51. Further, Mukherjee discloses “A”

deposit accounts with “100 per cent index compensation” for every one percent

increase in inflation. Id. at 52. Thus, when a bank’s deposits were all in inflation-

adjusted accounts, the surcharge on loans would equal the full amount of the rate of

inflation. Compare id. at 68 (“[I]n a year when the index rose by 10 per cent, a bank

with one fifth of its deposits in fully index-linked accounts would place an index

surcharge of 2 per cent on all its outstanding loans.”). Substantial evidence supports

the Board’s conclusion that Mukherjee discloses fully adjusting loan accounts based on

increases in the rate of inflation.

Second, Trans Texas argues that claims 1-23, 31, 33, and 44 10 of the ’461

patent are non-obvious because these claims include a requirement for annuities. The

Board relied on the prior art Zvi Bodie reference, An innovation for stable real retirement

income, Portfolio Management, Fall 1980, 5 (“Bodie”). Bodie describes a “purchasing

power annuity” linked to consumer price levels. Id. Trans Texas argues that Bodie in

fact taught away from indexed annuities because it stated that inflation-adjusted

annuities “were not commercially available” and noted a “reluctance, if not outright

opposition” within certain segments of the market to price-indexed bonds. But, as the

Board found, Bodie never indicated that such proposals would not work and in fact

10
Claim 31, dependent on claim 24, requires that the principal component
be retired by making payments to the depositor over a series of “iteration periods.” ’461
patent col.29 ll.11-14. Claim 33, also dependent on claim 24, specifies that the “index
correspond[s] generally to the consumer price index.” Id. col.29 ll.19-20. Claim 44,
dependent on claim 36, requires that “the means for paying out the deposit account
includes means for paying out the deposit principal component by a schedule over the
term and means for paying out the deposit accrual component by a schedule over the
term.” Id. col.30 ll.33-38.

2006-1599, -1600 17
noted that proposals for price-indexed bonds “have abounded.” Id. The Board’s

decision as to what the prior art discloses is reviewed for substantial evidence. See In

re Gartside, 203 F.3d 1305, 1308 (Fed. Cir. 2000) (noting that Board factual findings are

reviewed for substantial evidence); Para-Ordnance Mfg., Inc. v. SGS Importers Int’l,

Inc., 73 F.3d 1085, 1088 (Fed. Cir. 1995) (“What the prior art teaches and whether it

teaches toward or away from the claimed invention . . . is a determination of fact.”).

Substantial evidence supports the Board’s conclusion as to what Bodie discloses.

Third, Trans Texas argues that independent claim 9 of the ’673 patent and its

dependent claims 10-14 and 16-21 are non-obvious because Mukerjee does not teach

the limitation “obtaining an asset whose rate of return adjusts with inflation.” Appellant’s

Br. 47. Trans Texas argues that, even if deposit accounts responsive to the rate of

inflation were disclosed in the prior art, securities with rates responsive to the rate of

inflation were not. We conclude that the Board’s finding that the prior art disclosed such

securities was supported by substantial evidence. For example, Mukherjee describes

the desire of institutional buyers to purchase “[inflation] index-linked securities” and

specifically notes that “[b]anks and cooperative credit societies” sought to buy inflation-

adjusted bonds “to help pay compensation on indexed deposit accounts.” Mukherjee at

59.

Fourth, Trans Texas asserts that Mukherjee does not teach the limitation

“obtaining . . . a mortgage secured by real estate” (responsive to the rate of inflation) of

independent claim 22 of the ’673 patent and its dependent claims (23 and 24). The

Board did not err in concluding that it would have been obvious to combine the indexed

loan accounts disclosed in Mukherjee with the well-known practice of offering loans

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secured by mortgaged real estate. See KSR Int’l Co. v. Teleflex Inc., 127 S. Ct. 1727,

1739 (2007) (“The combination of familiar elements according to known methods is

likely to be obvious when it does no more than yield predictable results.”).

Finally, Trans Texas argues that claims 15 and 25-28 of the ’673 patent were

non-obvious because the prior art does not teach obtaining an inflation-adjusted

financial instrument that makes “balloon” payments (i.e., paying the inflation-adjusted

principal component at the end of the term). Trans Texas admits that G. Weiner,

Choosing a Home Equity Plan, Restaurant Business, (Feb. 10, 1985), “does appear to

describe loans where the interest is repaid monthly and the principal in a lump sum.”

Appellant’s Br. 50. The Board did not err in concluding that it would have been obvious

to combine the known inflation-adjusted loan accounts of Mukherjee with the known

balloon payments of Weiner.

CONCLUSION

We conclude that the Board was not bound by the district court’s claim

construction and properly construed the term “responsive to the rate of inflation” and

related terms. The Board did not err in holding that claims 1-44 of the ’461 patent and

claims 1-28 of the ’673 patent would have been obvious over the prior art.

AFFIRMED

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