15 August 2010

US CAFC says that a Computerized Method is not Infringed when a Step is Performed by Hand

(Photo shows a court room of the US CAFC)
Thanks to a tweet of "PatentLawFirm", I came across an interesting US case law relating to infringement of computer-implemented inventions.

The US Federal Circuit (CAFC) found in case no 2009-1403 (Lincoln National vs. Transamerica) that a computerized method claim of Lincoln National's patent US 7,089,201 was not infringed because one of the required steps of independent claims 35 was not computer-implemented - and was instead performed manually rather then automatically. The CAFC thus reversed and remanded the appealed district court decision. (Please refer to the full opinion in pdf or html).

The patent relates to “computerized methods for administering variable annuity plans" to ensure guaranteed minimum annuity payments. Claim 35, the only independent claim at issue, reads as follows:
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 [...],
(b) determining [...],
(c) periodically determining [...],
(d) monitoring [...]; 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.
 The district court construed step (e) of Claim 35 to mean:
At 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. [Further, step (e)] does not require actual exhaustion of the account value, but is merely a circumstance in which the guaranteed payment must still be made.
That is, the district court believed that the annuity account value did not have to be exhausted, but the method had to ensure that when the annuity account was exhausted, the computer method still issued an annuity payment. 

On appeal, Transamerica explained that it did not implement "a computer system that will make a payment in the event an account becomes exhausted" since its payment system issues a manual check when the account was exhausted. 

The Federal Circuit took the position that a method claim is directly infringed only if each step of the claimed method is performed, while Transamerica’s payment system does not make automatic payments once a policy owner’s account value is exhausted. Rather, a different department produces a manual check and sends it to the policy owner.

Since, consequently, Transamerica does not practice a computerized method according to claim 35, includion step (e), the Federal Circuit reversed on infringement because Lincoln did not prove that Transamerica actually practiced every computer-implemented step of computerized-method-claim 35 (further coverage here).

The patent in suit was granted on August 8, 2006. According to my understanding of current US case law, independent claim 35 would nowadays not any more be found to represent eligible subject matter pursuant 35 U.S.C. § 101. This claim, in fact, appears to be a great example for a claim both encompassing an abstract idea according to the Bilski opinion of the US Supreme Court and not meeting the requirements of the machine-or-transformation test of the Federal Circuit.