TRANSAMERICA LIFE INS. v. LINCOLN NAT. LIFE INS.

691 F. Supp.2d 946

TRANSAMERICA LIFE INSURANCE COMPANY, Western Reserve Life Assurance Co. of Ohio, and Transamerica Financial Life Insurance Company, Plaintiffs, v. LINCOLN NATIONAL LIFE INSURANCE COMPANY, Defendant.

No. C 06-110-MWB.

United States District Court, N.D. Iowa, Cedar Rapids Division.

March 8, 2010.

Aaron S. Jacobs, John K. Felter, Ropes & Gray, LLP, Jeremy P. Oczek, Steven M. Bauer, Proskauer Rose, LLP. Boston, MA, Gregory M. Lederer, Lederer Weston Craig PLC, Cedar Rapids, IA, James R. Myers, Ropes & Gray, LLP, Washington, DC, Mark Henry Bloomberg, Ropes & Gray, LLP, New York, NY, for Plaintiffs.

Carrie Marie Raver, Dale Randall Brown, Gary C. Furst, Barnes and Thornburg LLP, Fort Wayne, IN, Dennis P. Stolle, Barnes and Thornburg LLP, Indianapolis, IN, Denny M. Dennis, Todd A. Strother, Bradshaw Fowler Proctor Fairgrave, Des Moines, IA, Jonathan P. Froemel, Barnes and Thornburg LLP, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER ON MOTIONS RELATING TO TRANSAMERICA'S COMPLIANCE WITH PERMANENT INJUNCTION

MARK W. BENNETT, District Judge.

TABLE OF CONTENTS
I. INTRODUCTION............................................................949
   A. Background...........................................................949
      1. The lawsuit.......................................................949
      2. The patent and the constructions of pertinent terms...............949
      3. The jury verdict, post-trial motions, and permanent injunction....954
   B. Motions Now Before The Court.........................................956
   C. The Evidentiary Hearing..............................................957
   D. The Tentative Ruling.................................................957
   E. The Closing Arguments And Final Comments......................958
II. ANALYSIS...............................................................958
   A. Standards And Burdens Of Proof.......................................958
      1. Arguments of the parties..........................................958
      2. Tentative Analysis................................................960
         a. The status quo.................................................960
         b. Transamerica's burden..........................................960
         c. The nature of Lincoln's motion and Lincoln's burden............961
         d. The interplay between the motions..............................963
      3. The parties' closing arguments....................................963
      4. Final analysis....................................................964
   B. Transamerica's Motion................................................966
      1. The March 2009 "design around "...................................966
         a. Nature of the "design around ".................................966
         b. Arguments of the parties.......................................968
         c. Tentative analysis.............................................969
         d. The parties' closing arguments.................................972
         e. Final analysis.................................................972
      2. The July 6 and September 12, 2009, "design arounds "..............972
         a. Nature of the "design arounds "................................973
             i. The July 6, 2009, "design around ".........................973
            ii. The September 12,2009, "design around "....................974
           iii. Expert analyses............................................978
         b. Arguments of the parties.......................................985
         c. Tentative analysis.............................................987
         d. The parties' closing arguments.................................994
              i. Transamerica's closing argument...........................994
             ii. Lincoln's closing argument................................995
            iii. Transamerica's rebuttal...................................995
             iv. The e-mail exchanges......................................996
         e. The final analysis.............................................996
             i. Dr. Kelly's participation in the September 12, 2009
                 "design around "..........................................996
            ii. Credibility determinations.................................997
           iii. Reconsideration of the September 12,2009, " design
                 around"...................................................999
      3. Summary..........................................................1001
   C. Lincoln's Motion....................................................1002
      1. Arguments of the parties.........................................1003
      2. Tentative analysis...............................................1003

3. The parties' closing arguments and the court's final analysis......1006
   4. Summary............................................................1007
III. CONCLUSION..........................................................1007

After a jury verdict finding patent infringement and awarding damages based on a reasonable royalty rate, and after the court's entry of a permanent injunction against further infringement, the parties in this litigation have filed post-trial motions concerning the infringer's compliance with the permanent injunction. The infringer asserts that changed circumstances, consisting of its implementation of various "design arounds," make prospective application of the permanent injunction inequitable and, indeed, that one of its "design arounds" warrants refund of the royalties that it has paid since implementing that "design around." The patent holder asserts that the infringer's "design arounds" still infringe, so that, pursuant to the terms of the permanent injunction, the patent holder is now entitled to a further royalty, at a further enhanced rate, for continued infringement.

I. INTRODUCTION

A. Background

1. The lawsuit

On August 8, 2006, Transamerica Life Insurance Company, Western Reserve Life Assurance Co. of Ohio, and Transamerica Financial Life Insurance Company, collectively "Transamerica," filed a Complaint For Declaratory Judgment (docket no. 1) initiating this action. In its Complaint, Transamerica asserted, in essence, that it is not infringing a patent held by Lincoln National Life Insurance Company (Lincoln) by selling various annuity product contracts. Transamerica also alleged that the patent-in-suit is invalid on "anticipation" and "obviousness" grounds, pursuant to 35 U.S.C. §§ 102 and 103, respectively, and subsequently clarified in amended pleadings that it was also asserting invalidity of the patent for an "inadequate specification," pursuant to 35 U.S.C. § 112. See Amended And Substituted Complaint (docket no. 52).¹ In contrast, in an Answer To Plaintiffs' Complaint And Patent Infringement Counterclaim (docket no. 14), filed December 29, 2006, Lincoln sought declarations that the patent-in-suit is not invalid and that Transamerica is infringing the patent, as well as damages for infringement, injunctive relief from such infringement, and reasonable attorney fees for litigating this matter.

2. The patent and the constructions of pertinent terms

This litigation involves United States Patent No. 7,089,201 B1 (the `201 patent), entitled "METHOD AND APPARATUS FOR PROVIDING RETIREMENT INCOME BENEFITS," which is assigned to Lincoln. In pertinent part, the `201 patent is a "business method" patent. See State Street Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1375 (Fed.Cir. 1998) (taking the opportunity "to lay to rest this ill-conceived notion" that a method of doing business was not "within the statutory classes" of patentable inventions); accord In re Comiskey, 499 F.3d 1365, 1374 (Fed.Cir.2007) (explaining that State Street Bank held that patentability of a business method "does `not turn on whether the claimed subject matter does "business" instead of something else'" (quoting State Street Bank, 149 F.3d at 1377)). The business methods claimed in the `201 patent are "computerized methods for administering variable annuity plans." The `201 patent, Abstract.

Independent Claim 35 of the `201 patent, the claim at issue for present purposes, claims a five-step computerized method for administering a variable annuity plan having, inter alia, a guaranteed minimum payment feature associated with a systematic withdrawal program. Claim 35 is quoted below, with bold text indicating claim terms for which the parties had agreed on a construction and italicized text indicating claim terms for which the parties disputed the proper construction.

35. A computerized method for administering a variable annuity plan having a guaranteed minimum payment feature associated with a systematic 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 account, 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 associated 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 the scheduled payment in response to said unscheduled 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 payments have been made.

In a Memorandum Opinion And Order Regarding Construction Of Disputed Patent Claim Terms (the Markman Ruling)² (docket no. 64), entered March 10, 2008, the court adopted the parties' agreed constructions of certain terms and...