Beruflich Dokumente
Kultur Dokumente
Plaintiff,
Defendants.
I. INTRODUCTION...............................................................................................................1
II. BACKGROUND.................................................................................................................3
A. ‘201 Patent Litigation ................................................................................................3
B. Transamerica’s Attempts to “Reasonably Satisfy” Lincoln ......................................3
V. CONCLUSION .................................................................................................................20
i
TABLE OF AUTHORITIES
Page(s)
CASES
Agostini v. Felton,
521 U.S. 203 (1997).................................................................................................................19
Horne v. Flores,
129 S. Ct. 2579 (2009).......................................................................................................17, 19
In re Hendrix,
986 F.2d 195 (7th Cir. 1993) ...........................................................................................18 n.16
ii
Joy Tech. v. Flakt, Inc.,
6 F.3d 770 (Fed. Cir. 1993) .....................................................................................................12
Zamani v. Carnes,
491 F.3d 990 (9th Cir. 2007) ...................................................................................................15
STATUTES
iii
I. Introduction
To comply with the Permanent Injunction entered in this action on June 8, 2009 (Dkt. No.
313), as modified on September 16, 2009 (Dkt. No. 338), Transamerica implemented substantial
the time of trial that significantly changed how it performs steps 35(b), (d) and (e) of Claim 35 of
entirely outside the United States using a computer system owned, developed and operated by an
independent third party, Citigroup Fund Services Canada, Inc. (“Citi Canada”). These
modifications also include the manual processing of scheduled payments far in advance of policy
account value exhaustion. For these reasons, Transamerica’s current policy administration
system is outside the scope of the enjoining provisions of the Permanent Injunction. Moreover,
method that does not infringe the asserted claims of the ‘201 Patent. Because of these
significantly changed facts, Transamerica moves this Court (1) to relieve it from any royalty
payment obligations; (2) to modify the Permanent Injunction; and (3) to order the refund of
royalty payments that Transamerica made under protest solely to comply with the Permanent
Injunction.
In brief, starting on September 12, 2009, Transamerica has not been able to calculate and
adjust the Maximum Annual Withdrawal Amount (“MAWA”) and Total Withdrawal Base
1
Transamerica has appealed the Judgment and several orders and rulings entered in this action to the United States
Court of Appeals for the Federal Circuit. Transamerica continues to believe that the policy administration system
that it used before the implemented modifications did not infringe the asserted claims. However, to comply with
the terms of the Permanent Injunction during the appeal, and to eliminate any risk of an unfavorable appellate
outcome, Transamerica implemented modifications to remove any doubt that it does not infringe the ‘201 Patent.
For ease of reference, these modifications will sometimes be referred to herein as “design arounds.”
1
(“TWB”) relating to the administration of Guaranteed Minimum Withdrawal Benefit (“GMWB”)
riders in the United States.2 Transamerica contracted with Citi Canada to perform all GMWB
rider administration calculations and adjustments of MAWA and TWB in Canada. Earlier, as of
July 6, 2009—less than one month after the entry of the Permanent Injunction—Transamerica
was no longer able to calculate the first MAWAs for new riders and upgrades to riders within the
United States. Transamerica transmitted the data needed to perform these calculations to an
implemented its first modification on March 30, 2009, more than two months before this Court
ruled on post-trial motions and issued the Permanent Injunction. As a result of this first
modification, Transamerica would manually administer any rider whose account value is reduced
to less than two times MAWA. Should this unlikely event ever occur, no scheduled payments
Thus, after implementing these design arounds, Transamerica’s modified method for
administering variable annuity riders does not perform three of the five steps limiting Claim 35
of the ‘201 Patent. If any one of the steps is not performed, the modified method is outside the
prohibitions of the Permanent Injunction and does not infringe. Here, out of an abundance of
caution, Transamerica modified its administrative method so that it does not perform three steps.
system more than “colorably distinct” from a claimed method and non-infringing.
2
For purposes of this Motion, “variable annuity riders” or “riders” refer to the following riders: Guaranteed
Principal Solution, 5-For-Life, 5-For-Life with Growth, Income Select for Life, Retirement Income Choice and
Architect. The Architect rider was not at issue at trial, but it is also a GMWB rider that is administered by the
modified method.
2
II. Background
that its computerized method for administering GMWB riders did not infringe the ‘201 Patent
and that that Patent was invalid. Lincoln counterclaimed for infringement. On February 13,
2009, a jury found that Transamerica infringed and that the ‘201 Patent was not invalid and
awarded Lincoln approximately $13 million in damages. On June 8, 2009, the Court denied
appealed. As described below, Transamerica employees have spent in excess of 5,000 hours
October 16, 2009 to attempt to “show to Lincoln’s reasonable satisfaction” that its modified
method for administering riders is more than “colorably distinct” from a claimed method and that
annuity riders. Felter Decl. Ex. A. Over the course of the next six weeks, in response to
documents, including technical and functional specifications, regarding the design arounds. Id.
¶ 6. Transamerica also provided Lincoln’s counsel and Lincoln’s counsel’s consultants with a
tremendous amount of computer software source code and related data and conducted live
3
For example, immediately after Transamerica and Lincoln jointly moved to add
provisions to the Protective Order (Dkt. No. 343), on October 7, 2009, Transamerica sent to
Lincoln’s counsel’s consultant by Federal Express a stand-alone computer containing all relevant
source code before and after the modifications. Id. ¶ 7. Over the course of October 8 and 9,
system and the implemented design arounds for Lincoln’s counsel and their consultant in Cedar
three persons designated to testify on behalf of Transamerica as Rule 30(b)(6) deponents and
provided (in Lincoln’s counsel’s words) an “[explanation of] Transamerica’s legal position as to
how each attempted design around avoids infringement with specific reference to the claim
limitation(s), as construed by the Court, allegedly absent after the design change.” Id. Ex. B.
On October 14, 2009, in response to Lincoln’s Rule 30(b)(6) deposition notice, three of
designees answered every question immediately or obtained the requested information during
breaks. At the conclusion of the deposition, Lincoln’s counsel identified four unanswered
questions. Answers to those remaining questions were provided on October 16, 2009. Id. ¶¶ 12-
13.
In sum, every document requested by Lincoln’s counsel has been produced, all relevant
source code has been supplied to Lincoln’s counsel and Lincoln’s counsel’s consultants, and
4
every question posed about the design arounds by either Lincoln’s counsel and/or Lincoln’s
Notwithstanding the fact that Transamerica provided Lincoln with everything that it
requested, and the overwhelming evidence summarized above and described in more detail
below, on October 16, 2009, Lincoln informed Transamerica that it is not “satisfied.”
To design around the asserted claims of the ‘201 Patent, Transamerica’s information
Transamerica’s policy administration system and procedures. See Blankenship Decl. ¶¶ 27-34,
computerized method for administering riders, first implemented in July and then replaced and
expanded starting in September 2009, cannot perform steps 35(b) and (d) within the United
States. Those steps must be performed using Citi Canada’s servers in Canada. In addition,
modified method cannot perform step 35(e) by using any computerized system. The most recent
modifications, implemented beginning on September 12, 2009, are the most comprehensive and
are discussed first below, followed by the July and March modifications.
A. After the September Modifications, Transamerica Does Not Perform Step 35(b) and
the Second Limitation of Step (d).
3
This number of hours does not include significant additional hours spent by Transamerica employees in other
departments (e.g., legal or actuary). Transamerica does not know how many hours Citi Canada employees expended
to develop and implement its calculator in Canada. See Blankenship Decl. ¶ 59.
5
After modifications implemented beginning on September 12, 2009, Transamerica does
not perform step 35(b) nor the “adjusting” limitation of step 35(d) within the United States.
Transamerica now “determin[es]” the initial scheduled payment in Canada, and makes all
As this Court correctly noted, “[p]ractice of the claimed method in the United States is an
essential element of infringement.” Letter from Mark W. Bennett, U.S. District Judge, to
counsel in Lincoln Nat’l Life Ins. Co. v. Transamerica Life Ins. Co., No. C 06-110-MWB (N.D.
Iowa Jan 20, 2009) (Dkt. No. 277), at 2 (citing 35 U.S.C. § 271(a)4) (emphasis added); see also,
e.g., NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282, 1318 (Fed. Cir. 2005) (“[A] process
cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps is
performed within this country.”) (emphasis added). This Court reinforced this legal principle in
Jury Instruction Number 7. See Jury Instruction No. 7 (Dkt. No. 272) at 18 (“Infringement must
be based on performance of steps of the claimed method performed or that must necessarily be
performed using computers in the United States.”). Lincoln did not (and cannot) dispute this
principle of law.5
4
35 U.S.C. § 271(a) reads in full: “Except as otherwise provided in this title, whosoever without authority makes,
uses, offers to sell or sells any patented invention, within the United States or imports into the United States any
patented invention during the term of the patent therefor, infringes the patent.”
5
Lincoln did not object to this portion of Jury Instruction No. 7, nor did it dispute that, for infringement, each step
of a method patent must be performed within the United States. See, e.g., Lincoln’s Objections and Requested
Addition to the Court’s Proposed Jury Instructions (01/20/09 Version), No. C 06-110-MWB (N.D. Iowa Jan 23,
2009) (Dkt. No. 237), at 2 (“Lincoln also acknowledges that ‘in the United States’ is an element of infringement
under 35 U.S.C. § 271(a), and therefore, a relevant inquiry—if disputed.”). Rather, Lincoln argued that
Transamerica admitted that it had—to that time—performed all steps of Claim 35 within the United States, and thus
that portion of the Instruction was superfluous. Lincoln’s Objections and Requested Addition to the Court’s
Proposed Jury Instructions (01/15/09 Version), No. C 06-110-MWB (N.D. Iowa Jan 20, 2009) (Dkt. No. 230), at 2-
4. And, while it was true that Transamerica, as of the time of trial, administered its variable annuity riders within the
United States, Transamerica also repeatedly informed Lincoln and the Court that, if Transamerica were found to
infringe the asserted claims, Transamerica intended to modify its method of administration to perform at least some
of the steps outside the United States. See, e.g., Transamerica’s Response to the Court’s January 15, 2009
Proposed Jury Instructions, No. C 06-110-MWB (N.D. Iowa Jan 20, 2009) (Dkt. No. 232), at 9; see also Letter from
Mark W. Bennett, U.S. District Judge, to counsel in Lincoln Nat’l Life Ins. Co. v. Transamerica Life Ins. Co., No. C
06-110-MWB (N.D. Iowa Jan 20, 2009) (Dkt. No. 277), at 2.
6
Beginning on September 12, 2009, Transamerica exported to Canada every calculation of
MAWA and Required Minimum Distribution (“RMD”) related to rider administration, and every
calculation of TWB used to calculate MAWA.6 See generally Blankenship Decl. ¶¶ 61-66;
Neill Decl. ¶¶ 35-91. These calculations include not only the first MAWA calculations, but
every MAWA calculation performed before the first payments to rider owners. See Neill Decl.
¶¶ 35, 67-71. These offshored calculations also include every such calculation made thereafter,
including those that are required to adjust scheduled payments in response to unscheduled
withdrawals. Id. In other words, every calculation and adjustment made to MAWA, RMD and
TWB (used to calculate MAWA)7 related to rider administration is now performed outside the
United States and is, therefore, beyond the boundaries of the ‘201 Patent.
Transamerica contracted with Citi Canada to perform all calculations of MAWA, RMD
and TWB for rider administration in Canada. Citi Canada commenced performing these
calculations on September 12, 2009. See Blankenship Decl. ¶¶ 61-62; Neill Decl. ¶¶ 35, 50, 67-
71; Matys Decl. ¶¶ 12-16. Citi Canada now performs all the calculations for twenty-four
different transactions.8 Neill Dec. ¶¶ 72-89; Matys Decl. ¶¶ 13, 16. Citi Canada independently
6
At Lincoln’s counsel’s request, Transamerica obtained a declaration from Citi Canada attesting to the fact that all
MAWA ,TWB and RMD calculations relating to rider administration are performed in Canada. See Declaration of
Derek Matys filed with this Brief.
7
Lincoln has never asserted that calculation of TWB alone constitutes infringement. However, because TWB can
be used to calculate MAWA, in an excess of caution, Transamerica offshored the calculations of TWB whenever it
is used to calculate MAWA.
8
Transamerica offshored twenty-four transactions for the administration of riders. The transactions are:
• Transaction Type = '101' TWB Calculation at Rider Issue
• Transaction Type = '102' MAWA Calculation at Rider Issue
• Transaction Type = '103' TWB and MAWA Calculation at Rider Upgrade
• Transaction Type = '104' Life MAWA Calculation at time of Percentage Override
• Transaction Type = '105' TWB and MAWA Calculation - Calendar - Rider Valuation
• Transaction Type = '106' TWB and MAWA Calculation - Anytime - Rider Valuation
• Transaction Type = '107' MAWA Calc at time of Income Enhancement Activation - Nursing Home
• Transaction Type = '108' Principal Back MAWA and TWB calc at time of withdrawal
• Transaction Type = '109' Life MAWA and TWB calc at time of withdrawal
• Transaction Type = '110' Life MAWA and TWB at Premium Addition
• Transaction Type = '111' Principal Back MAWA and TWB at Excess Withdrawal
7
designed and constructed the calculator that performs these twenty-four transactions, as well as
the secure interface for transfer of message requests from Transamerica.9 See Blankenship Decl.
¶¶ 63-66; Matys Decl. ¶¶ 11-12. The source code for Transamerica’s policy administration
system, where these calculations were previously performed, has been deactivated (i.e.,
“commented out”) and replaced with instructions to call Citi Canada where the calculations are
now performed. See Neill Decl. ¶¶ 39-47, 53-66. The results of the calculations from Citi
Canada are then sent back to Transamerica. Each request message to Citi Canada includes all
relevant data fields, while the response message includes the calculated numbers and adjustments
that are then mapped into Transamerica’s policy administration system. Id. ¶¶ 53-89.
Transamerica does not—and cannot—perform any of these calculations using its policy
This Court, in its Memorandum Opinion and Order Regarding Construction of Disputed
Patent Claim Terms (“Markman Order”) (Dkt. No. 64), defined “determining an initial scheduled
payment” in step 35(b) as “[c]alculating the amount of a first scheduled payment of a systematic
See Neill Decl. ¶¶ 72-89. Transaction Type 123 is only performed at the end of each month to generate the “Low
Value Report”. Transaction Type 124 is performed each month for the “Low Value Report,” and on a daily basis
for certain riders that have a particular investment feature (“OAM”). Transaction Types 123 and 124 were
performed by Citi Canada beginning on September 30, 2009. Only a few of these transactions occurred between
September 12, 2009 and September 30, 2009. Id. ¶¶ 87-89.
9
Transamerica does not have access to Citi Canada source code, which Citi Canada considers to be confidential and
proprietary. See Blankenship Decl. ¶ 66.
8
withdrawal program based on the account value associated with the plan.” Markman Order at
152 (emphasis added). And, this Court defined “adjusting the amount of the scheduled payment
in response to said unscheduled withdrawal” in step 35(d) as “[r]educing the amount of the
added).10
Based on this Court’s claim construction, performance of steps 35(b) and (d) are now
performed by Citi Canada outside the United States. The data is sent to Canada, where the
calculations are performed, and the results returned to Transamerica. Indeed, not only does
Transamerica not perform any of these calculations within the United States, no Transamerica-
affiliated entity performs any of these calculations, and, moreover, Transamerica is unaware of
the methods by which the calculations are performed by Citi Canada. See Blankenship Decl.
¶¶ 63-66.
are now sent by Transamerica software applications by way of a secure channel to Citi Canada.
Citi Canada receives the messages, performs the calculations—in Canada—and then returns the
results back to the software applications that sent the requests. Batch-cycle calculations, such as
those required for daily computations of policy values, are now sent on a nightly basis to Citi
Canada by way of the same secure channel. The batch-cycle transactions are queued and sent
serially. Citi Canada receives each message, performs the necessary calculations—in Canada—
and returns the results back to Transamerica, and then the next transaction is sent. Id. ¶¶ 53-57.
After these modifications, Transamerica does not perform step 35(b) because it does not
“calculate” an initial (or any) scheduled payment; rather, the initial (and every) scheduled
10
Significantly, Lincoln has asserted that the MAWA is the “scheduled payment” required by these claim
limitations. See, e.g., Felter Decl. Ex. C (‘201 Patent Trial Tr.) at 495:14-496:6, 510:17-511:5.
9
payment is calculated outside the United States by Citi Canada. See Markman Order at 152.
Transamerica also does not perform the second claim limitation of step 35(d), because it does not
all such reductions are made outside the United States by Citi Canada. See Markman Order at
B. After the July 6, 2009 Modification, Transamerica Does Not Perform Step 35(b).
Prior to offshoring the performance of all calculations that could possibly infringe steps
35(b) and (d) in September 2009, Transamerica modified its policy administration system on
July 6, 2009, by exporting to Canada calculations of initial MAWAs for policies with new or
upgraded GMWB riders. See generally Martin Decl. ¶¶ 54-73; Blankenship Decl. ¶¶ 27-36;
11
The modifications implemented beginning on September 12, 2009 are significant and complicated. Owing to the
time and resources required to implement the modifications on an emergency basis, Transamerica only had time to
verify that the calculations were (and are) being performed correctly; but Transamerica did not have time to test the
modifications for programming errors. Immediately after the September 12, 2009 modifications were implemented,
Transamerica began a thorough review of source code to ensure that all calculations and adjustments that are
intended to be made in Canada are, in fact, made in Canada. See Neill Decl. ¶ 92. Upon discovering any
programming error, Transamerica immediately initiated action to correct it. Id. ¶¶ 93-97. Some discovered errors
involved what can be described as “vestigial” MAWA calculations. For example, Transamerica suppressed the
MAWA field on customer statements. As a result, a statement issued on July 1, 2009 included a MAWA field and
number, while a statement issued on October 1, 2009, did not. However, due to a programming error, the policy
administration system continued to calculate MAWA “behind the scenes” between September 14, 2009 (the first
business day after the September 12, 2009 modifications were implemented) and September 27, 2009 (the last
business day before the error was corrected). During this time, MAWA was calculated but immediately discarded
because there was no field in which to place the value. In effect, the system was simply calculating numbers
without saving results. This “bug” occurred a total of 671 times. Id. ¶ 94.
Even assuming arguendo that the calculations of unused (and immediately discarded) MAWA values somehow
constitute performance of step 35(b), they do not constitute performance of step 35(d). That step requires, in the
Court’s construction, “[r]educing the amount of the scheduled payment” (emphasis added) as a result of the MAWA
calculation. Nothing is “reduced” as a result of a calculated and discarded MAWA value. Moreover, it certainly
does not constitute “[a] computerized method for administering a variable annuity plan,” as required by the
preamble to the ‘201 Patent because the discarded value was never used in connection with the administration of any
rider.
10
Between July 6, 2009 and September 11, 2009, the data needed to calculate the first
MAWA on all new and upgraded riders entered daily into the policy administration system was
placed into comma-delimited files on a nightly cycle. See Martin Decl. ¶¶ 62-63; Neill Decl.
¶¶ 27-29. The following morning, these files were converted to an Excel spreadsheet. A
SharePoint site. See Martin Decl. ¶¶ 64-66; Neill Decl. ¶¶ 30-31. Transamerica Canada then
calculated—in Canada—the MAWA values for these riders and populated the appropriate
columns in the spreadsheet with the results the same day. These spreadsheets were then placed
back onto the SharePoint site in Canada (by Transamerica Canada employees) and retrieved
from the SharePoint site (by Transamerica employees). See Martin Decl. ¶¶ 67-69. Finally, the
MAWA information was processed by Transamerica’s policy administration system in the next
batch cycle, so that the data was in the system by the following day. Id. ¶¶ 70-71; Neill Decl.
¶ 32.12
“[c]alculating the amount of a first scheduled payment of a systematic withdrawal program based
on the account value associated with the plan.” Markman Order at 152. As of no later than July
6, 2009, Transamerica’s policy administration system did not perform step 35(b) for new or
upgraded riders because it did not “[c]alculat[e] the amount of a first scheduled payment of a
systematic withdrawal program based on the account value associated with the plan.” Id.
(emphasis added). Rather, since at least that date, the initial scheduled payment for these riders
has been calculated outside the United States and/or by hand. NTP, 418 F.3d at 1318.
12
Additionally, starting on July 6, 2009, when new or upgrading customers requested their first-year RMD
numbers, these numbers were calculated by hand using paper, pen or pencil, or a calculator. See Martin Decl. ¶¶ 72-
73; Neill Decl. ¶¶ 33-34.
11
C. After the March 30, 2009 Modification, Transamerica Does Not Perform Step 35(e).
Prior to the above modifications—and more than two months before the entry of the
would manually calculate and process all scheduled payments for all riders more than one year
before their account values would equal one MAWA. See generally Martin Decl. ¶¶ 22-49. As
a result of these procedural modifications, Transamerica could not perform step 35(e) by using a
computerized method.
As the Federal Circuit recently reiterated, it “is axiomatic that a method claim is directly
infringed only if each step of the claimed method is performed.” Muniauction, Inc. v. Thompson
Corp., 532 F.3d 1318, 1328 (Fed. Cir. 2008); see also, e.g., Cardiac Pacemakers, Inc. v. St. Jude
Med., Inc., 576 F.3d 1348, 1359 (Fed. Cir. 2009) (“[A] method claim is directly infringed only
by one practicing the patented method.”) (quoting Joy Tech. v. Flakt, Inc., 6 F.3d 770, 775 (Fed.
Cir. 1993)).
The March 30, 2009 modification utilizes an existing procedure whereby Transamerica’s
policy administration system runs a scan—called the “Low Value Report”—at the end of each
month to identify policies with riders which have account values less than two times MAWA.13
See Martin Decl. ¶¶ 36-37. After March 30, 2009, if any policy ever appears on the “Low Value
Report,” it would be immediately removed from the policy administration system and thereafter
13
Based upon customers’ historical withdrawal behavior and predictable market conditions, an account value would
be reduced to less than two times MAWA at least one year before that account value would equal one MAWA. See
Martin Decl. ¶¶ 34, 36-37. It is noteworthy that no account value has ever been reduced to less than two times
MAWA. Id.
12
administered manually. All future calculations and scheduled payments would be performed by
Claim 35 recites a “computerized method for administering a variable annuity plan” and,
as this Court and Lincoln recognized, every step—including 35(e)—must be performed using a
computer. See Jury Instruction No. 7 at 18 (“Infringement must be based upon performance of
steps of the claimed method performed or that must necessarily be performed using computers in
the United States.”) (emphasis added); Felter Decl. Ex. C (‘201 Patent Trial Tr.) at 220:1-4
(Lincoln’s trial representative testified that it was “clear” to him that “all of the steps of claim 35,
expert testified: “In order to infringe, . . . [Transamerica] would have to have . . . a computerized
system that would be able to perform [all five] steps.”), 582:8-10 (“Q. And [step (e) must] be
performed by a computer; isn’t that right? A. Yes, yes.”). Moreover, the Permanent Injunction
enjoins Transamerica only from “[u]sing and continuing to use a claimed computerized method
or any computerized method that is not colorably distinct from a claimed computerized method
This Court defined “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 step 35(e) to mean “[a]t 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 all payments guaranteed under the plan have been
made.” Markman Order at 180-81 (emphasis added). If an account value is ever reduced to two
times MAWA, which would only happen more than one year before an account value would
equal one MAWA, not only would Transamerica manually make any scheduled payments, but it
would also manually calculate such payments. See Martin Decl. ¶¶ 36-49.
13
Based upon this Court’s claim construction, after the modification implemented on
March 30, 2009, Transamerica would not use any computerized method to make any scheduled
payments to its customers “even if” their account values ever become “exhausted”, that is, would
be less than one MAWA. Rather, Transamerica’s policy administration system would not
process a rider once its account value became less than two times MAWA. Indeed, after that
threshold is reached, all calculations and scheduled payments would be performed by hand.
Transamerica therefore would not use a computerized method to perform step 35(e) because
“even if” the account value becomes less than one MAWA before all scheduled payments have
been made.
IV. Argument
Transamerica implemented modifications which render its modified method more than
method does not infringe the asserted claims of the ‘201 Patent. Thus, Transamerica fully
satisfied any royalty payment obligations that it might have had pursuant to the Permanent
Injunction. Transamerica requests that this Court find and rule that Transamerica has no future
obligation to make any additional royalty payments pursuant to the Permanent Injunction.
Transamerica further requests that this Court order Lincoln to refund the royalty payments made
under protest for all periods after March 30, 2009. See Fed. R. Civ. P. 60(b)(5) (first clause).
Federal Rule of Civil Procedure 60(b)(5) “allows the district court to relieve a party from
a final judgment if the judgment has been satisfied.” Newhouse v. McCormick & Co., 157 F.3d
582, 584 (8th Cir. 1998). “The ‘satisfied, released, or discharged’ clause of Rule 60(b)(5) is
14
generally invoked when a party seeks entry of satisfaction of judgment because no
acknowledgment of satisfaction has been delivered due to an ongoing dispute over the judgment
amount.” Zamani v. Carnes, 491 F.3d 990, 995 (9th Cir. Cal. 2007) (citing Redfield v. Ins. Co.
of N. Am., 940 F.2d 542, 544 (9th Cir. 1991); Conte v. Gen. Housewares Corp., 215 F.3d 628,
639-40 (6th Cir. 2000); Newhouse, 157 F.3d at 584; and Baumlin & Ernst, Ltd. v. Gemini, Ltd.,
637 F.2d 238, 241 n.5 (4th Cir. 1980)). This clause of Rule 60(b)(5) may also be relied upon
when a party seeks the return or partial return of an overpayment made pursuant to a judgment or
Furniture Corp., “[g]enerally, in reviewing rulings under Rule 60(b), [the Federal Circuit]
defer[s] to the law of the regional circuit in which the district court sits because such rulings
commonly involve procedural matters that are not unique to patent law.” 12 F.3d 1080, 1083
(Fed. Cir. 1993). Where a ruling on a Rule 60(b) motion (of any variety) “turns on substantive
matters that are unique to patent law,” such as those that concern infringement, however, Federal
Circuit law applies to those matters. Id.; Fiskars, Inc. v. Hunt Mfg. Co., 279 F.3d 1378, 1381
Transamerica implemented several modifications, both before and after this Court issued
manual procedure to process and make scheduled payments that would become due on any rider
if its account value is ever reduced to less than two times MAWA. If this unlikely event ever
occurs, the affected rider would be removed from Transamerica’s policy administration system.14
14
As stated above, based on historical data, an account value would reach this reduced level, if ever, approximately
one year before the account value would reach one MAWA. The Court effectively defined “exhaustion” as one
MAWA or less. See Markman Order at 180-81. The March 30, 2009 modification is triggered by the “Low Value
Report”, which identifies riders with account values less than two times MAWA. Consequently, all policies
approaching “exhaustion” would be detected well in advance and administered manually.
15
Any and all withdrawals or scheduled payments would thereafter be administered by hand.
Thus, as of at least March 30, 2009, Transamerica could not use a computerized method to
administer payments for riders whose account values may become “exhausted” and its policy
administration system could not perform step 35(e). At least as of that date, Transamerica had
complied with the Permanent Injunction, and any right Lincoln may have had to royalty
payments was extinguished. Transamerica should therefore not only be relieved of any
obligation to make additional royalty payments, but also Lincoln should be required to refund all
royalty payments, which were made under protest, for periods after March 30, 2009.
relocating to Canada all calculations of MAWAs for all newly-issued riders and all upgrades to
riders. Transamerica implemented this new method by modifying its source code so that these
MAWA calculations could not be performed in the United States. The modified method
required the calculations of initial scheduled payments for these riders to be performed in
Canada. As of July 6, 2009, for new and upgraded riders, Transamerica had complied with the
Permanent Injunction, and any rights that Lincoln may have possessed for royalty payments
based on those riders ceased. Transamerica is entitled to a refund of all royalty payments based
The July 6, 2009 modification was superseded and replaced by additional and more
comprehensive modifications that were implemented starting on September 12, 2009. As of that
date, all calculations of TWBs used for calculating MAWAs related to rider administration are
now performed in Canada. Further, all calculations of MAWAs related to the administration of
riders are now also performed in Canada.15 Transamerica was and is using a method for
15
As it did at trial, Transamerica will argue on appeal that there can only be one “initial scheduled payment” for
each rider and that that payment is determined when each rider is issued. Thus, step 35(b) is performed only once
and on the date a rider is issued. That said, Transamerica’s current policy administration system requires that all
16
administering riders that is more than “colorably distinct” from a claimed method and that
modified method does not infringe the asserted claims of the ‘201 Patent. Transamerica has fully
complied with the Permanent Injunction and it should therefore be relieved of any further
In any event, even if this Court does not order Lincoln to refund royalty payments to
Transamerica, this Court should relieve Transamerica from prospective enforcement of the
Permanent Injunction, pursuant to the final clause of Rule 60(b)(5), because it is no longer
equitable to enforce it against Transamerica. See Horne v. Flores, 129 S. Ct. 2579, 2593 (2009)
(“Federal Rule of Civil Procedure 60(b)(5) permits a party to obtain relief from a judgment or
order if, among other things, ‘applying [the judgment or order] prospectively is no longer
equitable when “‘a significant change either in factual conditions or in law’ renders continued
enforcement of the judgment ‘detrimental to the public interest.’” Id. at 2596-97 (quoting Rufo
v. Inmates of Suffolk County Jail, 502 U.S. 367, 384 (1992)); see also Kaler v. Bala (In re Racing
Servs.), 571 F.3d 729, 734 (8th Cir. 2009) (explaining that applying order “prospectively is no
longer equitable” when a critical element of the original ruling no longer exists).
longer equitable due to “a significant change in factual conditions,” to wit: if it ever did,
Transamerica no longer uses an infringing method to administer riders. As explained above, two
of the steps ((b) and (d)) are no longer performed within the United States, and a third (step (e))
calculations of MAWA related to the administration of riders must be performed outside the United States.
Therefore, even if step 35(b) was ever performed within the United States, Transamerica no longer “adjust[s] the
amount of the scheduled payment in response to said scheduled payment” within the United States, as required by
the limitation of step 35(d).
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is performed by hand. Quite simply, it would be inequitable to enforce a patent-based injunction
where the enjoined party no longer infringes as a matter of governing law. Cf. Life Techs., Inc. v.
Promega Corp., 189 F.R.D. 334, 336-37 (D. Md. 1999) (relieving enjoined party in light of
changed circumstances); see also Int’l Rectifier Corp. v. Samsung Elecs. Co., 361 F.3d 1355,
1360-62 (Fed. Cir. 2004) (finding district court erred in holding defendant in contempt for
extraterritorial actions which could not, as a matter of law, violate patent-based permanent
injunction).
For all these reasons, this Court should relieve Transamerica from any prospective
Injunction, this Court should modify the Permanent Injunction to explicitly exempt from its
scope the modified method by which Transamerica now administers its variable annuity riders.
As this Court observed, “a district court has the authority to modify its injunctive decrees
the initial grant of relief.” Pro Edge L.P. v. Gue, 411 F. Supp. 2d 1080, 1086-87 (N.D. Iowa
2006) (Bennett, J.) (citations omitted).16 Indeed, “[d]ue to the equitable nature of injunctive
16
Pro Edge involved the proposed modification of a preliminary injunction. However, in its opinion in that case,
this Court discussed permanent injunctions and cited Humble Oil & Refining Co. v. American Oil Co., 405 F.2d 803,
812-13 (8th Cir. 1969), as setting the legal standard for the modification of a permanent injunction. See Pro Edge,
411 F. Supp. 2d at 1088 (“[A] party seeking to modify a final injunctive decree must meet a heavy burden . . . .”)
(emphasis original). Transamerica respectfully suggests that the standard for modification of a permanent injunction
has changed since 1969, when Humble Oil was decided. In Humble Oil, the Eighth Circuit Court of Appeals based
its decision on United States v. Swift & Co., 286 U.S. 106 (1932). But, in Rufo v. Inmates of Suffolk County Jail,
502 U.S. 367, 380 (1992), the Supreme Court clarified that its “decisions since Swift reinforce the conclusion that
the ‘grievous wrong’ language of Swift was not intended to take on a talismanic quality, warding off virtually all
efforts to modify consent decrees.” “Although, as the Court emphasized, that case, like the lower-court cases that
had expressed dissatisfaction with the standard of Swift, involved institutional reform litigation, the ‘flexible
standard’ adopted in Rufo is no less suitable to other types of equitable cases.” In re Hendrix, 986 F.2d 195, 198
(7th Cir. 1993) (citing Rufo, 502 U.S. at 393). Under the current standard, “a court can modify an injunction that it
has entered whenever the principles of equity require it do so.” Id. (emphasis added). Cf. W.L. Gore & Assoc. v.
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relief, district courts have wide discretion to determine under what circumstances the grant of
injunctive relief is appropriate, and under what circumstances the modification or dissolution of
that injunction is warranted.” Amado v. Microsoft Corp., 517 F.3d 1353, 1360 (Fed. Cir. 2008)
(citing eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 394 (2006); and Sys. Fed’n No. 91 v.
Wright, 364 U.S. 642, 647-48 (1961)). A modification is warranted when there is “a significant
change in circumstances . . . .” Rufo v. Inmates of Suffolk Jail, 502 U.S. 367, 383 (1992). As the
Supreme Court explained in Rufo, the movant’s burden may be satisfied “by showing a
significant change either in factual conditions or in law.” Id. at 384. A district court’s discretion
is not limitless, for once a party has met its burden “of establishing that changed circumstances
warrant relief . . . a court abuses its discretion ‘when it refuses to modify an injunction or consent
decree in light of such changes.’” Horne, 129 S. Ct. at 2593 (citing Rufo, 502 U.S. at 383; and
made after applying Federal Circuit law. Int’l Rectifier Corp. v. Samsung Elecs. Co., 361 F.3d
1355, 1359 (Fed. Cir. 2004) (citing Carborundum Co. v. Molten Metal Equip. Innovations, Inc.,
72 F.3d 872, 881 (Fed. Cir. 1995)). The Federal Circuit’s decision in Int’l Rectifier Corp. v.
Samsung Elecs. Co., is instructive. There, the enjoined party continued to manufacture the
adjudged devices in South Korea, and then sold the devices to an unrelated company in
Germany, which subsequently imported the devices into the United States. After the patent
C.R. Bard, Inc., 977 F.2d 558, 561 (Fed. Cir. 1992) (“The court may modify an injunction when it is ‘satisfied that
what it has been doing has been turned into an instrument of wrong.’”) (quoting Swift, 286 U.S. at 114-15).
In this case, the standard applied is academic because governing patent law dictates the result: “Absent
infringement, there cannot be contempt for violating an injunction.” Bass Pro Trademarks, L.L.C. v. Cabela’s, Inc.,
485 F.3d 1364, 1368 (Fed. Cir. 2007) (quoting Laitram Corp. v. Cambridge Wire Cloth Co., 863 F.2d 855, 867
(Fed. Cir. 1989)). Transamerica does not perform steps (b) and (d) of Claim 35 within the United States, and does
not perform step (e) by using a computerized method. Transamerica simply does not infringe the claimed method.
Thus, this Motion only asks this Court to take notice of the significantly changed facts and to determine the legal
effect of those changes.
19
holder filed a motion for contempt, the German company filed a motion to clarify, modify or
from the scope of the injunction. Id. The district court that entered the permanent injunction
denied the motion and held both the enjoined party and the German company in contempt. Id. at
1358-59. On appeal, the Federal Circuit held that the permanent injunction could not apply to
the extraterritorial activity as a matter of law and vacated the contempt order. Id. at 1359-63. Cf.
Int’l Rectifier Corp. v. IXYS Corp., 361 F.3d 1363, 1378 (Fed. Cir. 2004) (vacating injunction).
Here, Transamerica does not infringe the asserted claims of the ‘201 Patent because it has
designed around three steps of Claim 35. In light of these significant changes, and to provide the
parties with guidance (and to avoid further litigation), Transamerica respectfully requests that
this Court modify the Permanent Injunction by adding the following language to the end of
However, the Court finds that Transamerica’s current method used to administer
variable annuities, including those with Guaranteed Principal Solution, 5 for Life, 5 for
Life with Growth, Income Select for Life, Retirement Income Choice and/or Architect
riders, is colorably distinct from a claimed computerized method and does not infringe
Claims 35 through 39 and 42 of the ‘201 Patent because steps (b) and (d) of independent
Claim 35 are not performed within the United States, and step (e) of Claim 35 is not
performed by a claimed computerized method.
V. Conclusion
For all of the above reasons, Transamerica moves the Court to relieve it from any future
obligation to make any additional royalty payments pursuant to the Permanent Injunction; to
modify the Permanent Injunction (as described above); and to order Lincoln to refund all royalty
payments made by Transamerica under protest for all periods after March 30, 2009. Upon
request of this Court, Transamerica will promptly file an accounting of the royalty payments that
should be refunded.
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Dated: October 18, 2009 Respectfully submitted,
Copy to:
D. Randall Brown, Esq. CERTIFICATE OF SERVICE
Gary C. Furst, Esq. The undersigned hereby certifies that a copy of this document
BARNES & THORNBURG LLP was served upon counsel of record for each party to the action
600 One Summit Square in compliance with FRCP 5 on October 18, 2009 by: