Bancorp Services, L.L.C. v. Hartford Life Insurance Company and International Corporate Marketing Group, L.L.C. (Formerly Known as International Corporate Marketing Group, Inc.)
Docket: 03-1181
Court: Court of Appeals for the Federal Circuit; February 29, 2004; Federal Appellate Court
An appeal was made by Bancorp Services, L.L.C. concerning a district court ruling that invalidated its patent, United States Patent No. 5,926,792, for indefiniteness. The Federal Circuit Court reversed this decision, determining that the patent is not indefinite and remanded the case for further proceedings. The '792 patent details a system for managing and tracking life insurance policies through separate accounts, specifically addressing Corporate Owned Life Insurance (COLI) and Bank Owned Life Insurance (BOLI) plans. These plans involve policy owners paying higher premiums, allowing excess funds to be invested, with tax advantages for the death benefit and investment gains. Despite the existence of separate account policies since the 1970s, their adoption has been limited due to the "mark-to-market" accounting issue, which requires fluctuating market values to be reported. The patent addresses this issue by introducing stable value protected investment systems, allowing for a third-party guarantor to stabilize the reported value of life insurance policies. This system involves fees for the guarantor and restrictions on the policyholder's ability to cash in the policy, while providing a computerized method for tracking both book and market values and calculating necessary guarantees.
Bancorp secured a patent with a priority date of September 1996 and initiated a patent infringement lawsuit against Hartford Life Insurance Company in January 2000, later adding Hartford’s affiliate, International Corporate Management Group, Inc. (ICMG), as a defendant. Following the introduction of various claims and counterclaims, the sole issue on appeal pertains to Bancorp's patent infringement claim against Hartford and ICMG. In February 2002, the District Court granted summary judgment in favor of Hartford and ICMG, declaring all independent claims of the '792 patent invalid due to indefiniteness. The court identified the term "surrender value protected investment credits," used in the patent, as fatally indefinite because it lacked a clear definition. Bancorp's assertion that "surrender value protection" equated to "stable value protection" was dismissed, as the court interpreted "surrender value" to reflect the total policy value, thus distinguishing it from stable value protected components. The court noted that the language of the patent suggested these terms were not synonymous. A review of intrinsic evidence supported the conclusion that the terms could not be interchangeable. Furthermore, the District Court assessed extrinsic evidence, favoring Hartford's expert testimony that the term lacked a clear meaning among skilled individuals in the field, while rejecting Bancorp's expert and inventor testimony for not demonstrating relevant expertise.
The court dismissed Bancorp's evidence regarding Hartford's internal use of the term "surrender value protected investment," determining it did not demonstrate a public understanding of the term in the industry. It found that Bancorp failed to provide expert testimony from someone skilled in life insurance administration to clarify the meaning of "surrender value protected investment credits." In contrast, Hartford presented an expert who deemed the term indefinite within the field. Consequently, the court ruled the term "surrender value protected investment credits" as indefinite, rendering all claims of the '792 patent, which included this term, invalid.
Under 35 U.S.C. § 112, paragraph 2, patent claims must distinctly identify the subject matter of the invention. The court noted that the determination of a patent claim's indefiniteness is a legal question, subject to plenary review. It emphasized that to assess indefiniteness, the understanding of those skilled in the art must be considered alongside the patent's specification. The court also clarified that a claim is not indefinite simply due to complex construction issues; it must be shown that reasonable construction efforts are futile for a claim to be invalidated on these grounds. This approach respects the statutory presumption of patent validity and protects patentees' inventive contributions, resolving ambiguities in favor of the patentee.
The indefiniteness issue revolves around the term "surrender value protected investment credits" in the '792 patent, with Hartford claiming it is indefinite due to lack of explicit definition and absence of a commonly understood meaning in the relevant field. Bancorp contends that the term is synonymous with "stable value protected investment credits," which is consistently used in the patent, and that skilled individuals in the field would recognize this equivalence. Both parties concur that "SVP" refers to "stable value protected investments." Bancorp argues that "SVP" should also encompass "surrender value protected investments," establishing that all terms refer to the same concept.
The analysis concludes that "surrender value protected investment credits" is reasonably discernible and not invalid for indefiniteness. While the patent does not explicitly define the term, the individual components—"surrender value," "protected investment," and "credits"—have established meanings. "Surrender value" refers to the net value of a life insurance policy after deductions, while "protected investment" denotes stabilized investment returns for a fee. "Credits" represent the difference between actual investment value and targeted returns. Collectively, these definitions clarify that "surrender value protected investment credits" refers to the difference between the actual value of a protected investment and its targeted return value upon policy surrender, thus aligning it closely with "stable value protected investments," which is well understood in the relevant field.
Bancorp argues that the term "surrender value protected investment credits" is clearly defined in the patent through dependent claims 4, 12, 23, and 32, which consistently refer to notifying a "surrender value protected investment writer" about investment values. The corresponding specification states that the system notifies the "SVP writer" of current investment values, suggesting that "SVP" and "surrender value protected investment" are synonymous. Bancorp asserts that both terms, along with "stable value protected investment," are equivalent in the context of the patent, a point not satisfactorily countered by Hartford.
Hartford contends that "surrender value protected investment credits" lacks definition in the specification and that the independent claims use both "stable value protected investment" and "surrender value protected investment," implying they may have distinct meanings. However, it is noted that the absence of an explicit definition does not invalidate the term if its meaning can be reasonably inferred. The court acknowledges Hartford's point regarding the proximity of the terms, which typically suggests different meanings; yet, it also recognizes that different terms can describe similar concepts, despite potential drafting issues.
The patent delineates two terms: "stable value protected investment" and "surrender value protected investment credits," which are used in distinct contexts. "Stable value protected investment" pertains to investments backed by a guarantor ensuring a consistent rate of return, while "surrender value protected investment credits" relates to credits compensating for any shortfall between the actual investment value and the guaranteed amount at the time of policy surrender. The language choice suggests that the drafter intended to emphasize stability in the first term and the compensatory nature in the second, contradicting the district court's view that these terms cannot be synonyms.
Hartford's argument posits that "surrender value" typically refers to the total policy value, as opposed to the specific account guaranteed under "stable value protected investment." However, the context in the patent indicates that "surrender value protected investment credits" pertains only to credits for the specific investment under protection, not the entire policy's surrender value. This supports Bancorp's claim that the terms are synonymous.
The district court, after finding no defined meaning for "surrender value protected investment credits," relied on extrinsic evidence from experts but concluded that the term would be unclear to those skilled in insurance administration. The appellate review finds that the intrinsic evidence favors Bancorp's interpretation and asserts that even if the district court's external analysis were valid, its judgment of indefiniteness should still be overturned. Moreover, it criticizes the district court for overlooking critical extrinsic evidence that corroborates Bancorp's position that the term would be understandable to professionals in the field.
Bancorp's principal expert witness, Larry Mylnechuk, provided a declaration asserting that "surrender value protected investment credit" refers to the increase in value necessary to achieve a fund's targeted return, a definition he believed would be understood by someone skilled in the art as of September 1996. However, the district court dismissed his testimony, arguing that Mylnechuk's expertise in stable value investments did not extend to life insurance administration, the relevant field for the '792 patent. The court's conclusion was influenced by the patent's abstract, which emphasized life insurance policy administration, despite the patent title indicating a connection to stable value investments.
The court's approach to identifying the relevant art for patent validity issues should consider the inventor's problem. In this case, the challenge was to administer variable life insurance policies incorporating stable value investments, thus including both fields in the relevant art. Mylnechuk, as an expert in stable value investments, should have been allowed to testify about the terms related to both stable value protected investments and variable life insurance policies.
Bancorp also presented evidence that prior to the patent's priority date, several defendants and their associates referred to stable value products as "surrender value protected" investments, along with a declaration from a prospective customer regarding their understanding of "surrender value protection." The district court rejected this evidence, claiming it did not demonstrate public usage of the term. Despite this, the evidence indicated that those familiar with stable value products understood the term as Bancorp proposed, and the court's refusal to consider this evidence was deemed an error.
Consequently, the judgment of invalidity for indefiniteness was reversed, and the case was remanded for further proceedings on other patent validity and infringement issues.
