Brief Re Modification Of Injunction For Method Patent

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF IOWA CEDAR RAPIDS DIVISION LINCOLN NATIONAL LIFE INSURANCE COMPANY, Plaintiff/ Counterclaim Defendant, vs.

TRANSAMERICA LIFE INSURANCE COMPANY, WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO, and TRANSAMERICA FINANCIAL LIFE INSURANCE COMPANY, Defendants/Counterclaim Plaintiffs.

) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

CASE NO.: 1:06-CV-00110-MWB

LINCOLN'S MEMORANDUM IN SUPPORT OF ITS MOTION FOR A FURTHER ACCOUNTING AND ONGOING ROYALTY PAYMENTS AND IN OPPOSITION TO TRANSAMERICA’S MOTION FOR RELIEF AND MODIFICATION OF PERMANENT INJUNCTION

TABLE OF CONTENTS Page I.

INTRODUCTION AND SUMMARY OF ARGUMENT. ..................................................- 1 -

II.

PROCEDURAL BACKGROUND.......................................................................................- 4 -

III.

FACTUAL SUMMARY OF TRANSAMERICA’S DESIGN AROUND ATTEMPTS.....- 6 -

IV.

ARGUMENT......................................................................................................................- 10 -

V.

A.

None of Transamerica's Three Alleged Design-Arounds Avoid Infringement of the Asserted Claims of the '201 Patent. ..............................................................- 11 -

B.

Transamerica Continues to Infringe Even if Some of the Activity Relating to Steps (b) and (d) Occurs Outside of the United States ...........................................- 25 -

C.

Transamerica's Sister Companies are Contributory Infringers Under 35 U.S.C. § 271(c). ......................................................................................................- 28 -

D.

Lincoln is Entitled to an Accounting and Royalty Payments for the Period of Infringement After September 16, 2009.............................................................- 31 -

CONCLUSION...................................................................................................................- 31 -

Lincoln National Life Insurance Co. (“Lincoln”) submits this memorandum in support of its Motion for a Further Accounting and Ongoing Royalty Payments from Defendants Transamerica Life Insurance Co., Western Reserve Life Assurance Co. of Ohio, and Transamerica Financial Life Insurance Co. (collectively "Transamerica"), and in opposition to Transamerica’s Motion for Relief and Modification of Permanent Injunction. I.

INTRODUCTION AND SUMMARY OF ARGUMENT

Under this Court's June 8, 2009 Permanent Injunction (Dkt. #313), Transamerica had one hundred days to implement a non-infringing method for administering its variable annuities. After the one hundred days, Lincoln could move the Court for an additional accounting and royalty payments at the rate of 44 basis points for Transamerica's ongoing infringement. Rather than taking concrete steps to install a method to administer its variable annuities different from that which the jury found infringing, Transamerica has taken half measures, obfuscated the manner in which it presently administers its variable annuities, and relied on tired legal arguments already rejected by this Court. Transamerica has, therefore, failed to meet its burden of showing to Lincoln's “reasonable satisfaction” that it has stopped using a claimed computerized method to administer variable annuities. (Dkt. #313: Perm. Inj. ¶4). Initially, Transamerica contends that on March 30, 2009, it modified its computerized method to include a “manual” procedure to administer its variable annuity riders “even if” account values become exhausted.

This argument is, once again, contrary to the Court's

construction of step (e) of Claim 35 of the '201 Patent. In fact, the argument is no different than the argument advanced at trial that was rejected by the jury through its verdict, and by this Court through its denial of Transamerica's motion for judgment as a matter of law (“JMOL Order”).1

1

Transamerica's attempted design around still includes the use of its Repetitive Payment System, the same computer software system referenced in its interrogatory answers (Lin. Ex. 20: PX678 and 679)

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In fact, Transamerica equates “manual” with the use of over a dozen computerized systems and subsystems, including its Vantage Policy Administration System. Not reasonably satisfied with its own argument regarding step (e), Transamerica next contends that it temporarily moved performance of step (b) of its infringing method outside the United States. The first of two “offshore” arguments is that from July 6, 2009 to September 11, 2009, Transamerica computed the first Maximum Annual Withdrawal Amount (“MAWA”) for newly issued and upgraded policies in Canada and, therefore, it did not determine an initial scheduled payment under step (b) for this limited group of policies in the United States. Initially, this attempted design around had no effect on the administration of the 60,000 plus policies issued before July 6, 2009. As to the newly issued policies, this argument is directly contrary to the jury verdict and this Court's Markman and JMOL Orders, as “an initial” scheduled payment can be calculated more than once.2 The second “offshore” argument is that since September 12, 2009, Transamerica transmits all of the data for the MAWA and related Total Withdrawal Base (“TWB”) equations to a third party in Canada who returns the results of the formula to Transamerica via the internet through a virtual private network (“VPN”).3

Lincoln has learned through post-judgment

discovery that this argument is a sham. First, Transamerica simply has not moved all MAWA and TWB calculations to Canada. Rather, Transamerica continues to calculate the MAWA for

that Transamerica tried disavowing at trial. (Lin. Ex. 17: Ziegler TT at 1019:6-1021:11). The “new” method also continues to use Vantage, AWD, various computerized accounting systems, and other computer systems and software programs to practice step (e). (Lin. Ex. 5: 30(b) Dep. Tr. 204:20205:6; 209:6-9; 209:25-210:24; 214:10-13; 217:6-219:5). 2

This post-verdict change could likewise have no impact on any policies previously administered through the adjudicated infringing system that were “upgraded” between July 6 and September 11.

3

For purposes of implementing this modification, Money Services, Inc. (“Money Services”), an entity within Transamerica’s corporate structure, contracted with Citigroup Fund Services Canada, Inc. (“Citigroup”). (Lin. Ex. 10: Contract between Money Services and Citigroup).

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every single policy in the United States when determining hedging for growth purposes associated with variable annuity policies, calculates MAWA when creating illustrations of policies for potential policyholders, and may calculate MAWA in the United States for purposes of establishing sufficient reserves in the administration of its variable annuities.

Second,

Transamerica’s own documents show it continues to perform the “doCalculation[s]” instruction within the United States. Third, even assuming Transamerica moved all MAWA calculations to Canada as it has represented to Lincoln and this Court, this argument is contrary to the Court's interpretation of the “determining” and “adjusting” steps of Claim 35 and ignores the fact that claim steps (b) and (d) are actually performed in the United States even if Transamerica's method causes data to be transmitted across the Canadian border via the VPN.4 Transamerica continues to calculate the MAWA for every single policy in the U.S. within the Court’s definition of “calculating” by initiating the process from the United States and by transforming data received from Canada in the United States for use in policy administration. Finally, even if it had actually moved one or more of the claimed steps of its infringing method outside the United States (and it did not), Transamerica is nevertheless still infringing the '201 patent because it is selling and offering to sell the infringing method in the United States in direct contravention of 35 U.S.C. §271(a). Lincoln therefore requests that this Court order Transamerica to provide monthly accountings and monthly royalty payments pursuant to paragraph 4 of the Permanent Injunction at the rate of 44 basis points for the period of continued infringement from September 22, 2009

4

This attempted design-around merely adds Transamerica's sister companies, Transamerica Capital and Money Services, to the list of infringers, albeit contributory infringers who are importing a material under 35 U.S.C. §271(c) for use in Transamerica's actual performance of the claimed steps.

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through such time as Transamerica establishes to Lincoln's reasonable satisfaction that it is no longer using a claimed computerized method to administer variable annuities. II.

PROCEDURAL BACKGROUND

After the jury returned a verdict that Transamerica infringes U.S. Patent No. 7,089,201 (“the '201 Patent”) and awarded $13,098,349.00 in damages for past infringement, this Court entered a Permanent Injunction enjoining Transamerica from infringing claims 35 through 39 and 42 of the '201 Patent. (Dkt. #313: Permanent Injunction at 42-45). The Permanent Injunction provided Transamerica with a ten day implementation period in which to implement non-infringing alternatives. Transamerica did not take advantage of this safe harbor provision. The Permanent Injunction further required that “[n]inety (90) days after conclusion of the 'implementation period,' Transamerica shall provide counsel for Lincoln with an accounting of the cumulative account values of the variable annuities . . . for which it has used a claimed computerized method of administration or a computerized method of administration that is not colorably distinct from a claimed method . . . together with a royalty payment . . . to compensate Lincoln for any infringement by Transamerica after the ten-day 'implementation period.'” (Perm. Inj., at ¶ 3). Transamerica provided this accounting and royalty payment on September 28, 2009.5 The Permanent Injunction also provides that one hundred days after entry of the Permanent Injunction, “[i]f Transamerica fails to show to Lincoln's reasonable satisfaction that it has ceased and desisted using a claimed computerized method or a computerized method that is not colorably distinct from a claimed computerized method to administer variable annuities,”

5

Transamerica also provided Lincoln with an accounting and payment on July 7, 2009, pursuant to paragraph 2 of the Permanent Injunction.

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then “Lincoln may move the court for a further accounting and royalty payment at the rate of 0.44% for the period of further infringement.” (Perm. Inj. at ¶ 4). Thus, Transamerica had a “safe harbor” until June 22, 20096 to implement non-infringing alternatives. Transamerica had another window until September 21, 2009 (ninety days after the implementation period) to continue to use a claimed computerized method by providing an accounting and royalty payment at the rate of 0.22%. Finally, Transamerica had until September 21, 2009, in which “to show to Lincoln's reasonable satisfaction” that it had implemented a noninfringing alternative. Transamerica did not even attempt to make this showing until September 8, 2009. (See Lin. Ex. 1: 9/8/09 Felter Corresp.). At that time, Transamerica advised Lincoln, without any evidentiary support, that it either had implemented or would implement on or before September 16, 2009, modifications to Transamerica's infringing administrative method to: (1) include a “manual” procedure to administer a variable annuity rider “even if” its account value becomes exhausted; (2) relocate to Canada all calculations of initial scheduled payments (“MAWA”) for newly-issued variable annuity riders and all upgrades to existing variable annuity riders; and (3) relocate to Canada all calculations of MAWA and Total Withdrawal Base (“TWB”) for existing variable annuity riders.7 (Id.). Lincoln responded to Transamerica the very next day explaining its surprise as to the tardiness of the attempted showing and requested information and verified statements relating to

6

According to Fed.R.Civ.P. 6(a), calculation of time periods excludes intermediate Saturdays and Sundays when the period is less than 11 days. Fed.R.Civ.P. 6(a)(2), (3).

7

Transamerica contends that the modification described in (1) above avoids infringement of step (e) and the modifications described in (2) and (3) avoid infringement of steps (b) and (d). (Lin. Ex. 1: Felter Corresp.). Transamerica further alleges that the modification related to step (e) occurred in March 2009. Yet Transamerica included sales of riders after this date in its July 7, and September 28, 2009 accountings and royalty payments to Lincoln. (See Lin. Ex. 11: 7/7/09 Felter Corresp.).

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the claimed modifications. (Lin. Ex. 2: 9/9/09 Brown Corresp.). Thereafter, the parties jointly moved the Court to extend certain of the injunction-related deadlines as Transamerica attempted to substantiate its design around claims. (See Dkt. ##338 and 342). Transamerica is accurate in its representation that it has produced volumes of documents relating to its modifications to Lincoln, permitted Lincoln's consultant and counsel to review Transamerica's administrative system “in action” on October 8-9, and presented witnesses pursuant to Fed.R.Civ.P. 30(b)(6) on October 14, 2009.8 However, Transamerica did not show (because it cannot) to Lincoln's reasonable satisfaction that the modifications to its computerized method for administration of variable annuities bring the method outside the scope of the Permanent Injunction. To the contrary, the information produced by Transamerica confirms that Transamerica continues to disregard the Court's Markman, JMOL, and Permanent Injunction Orders. III.

FACTUAL SUMMARY OF TRANSAMERICA’S DESIGN AROUND ATTEMPTS Transamerica’s first attempted design around, which was instituted on March 30, 2009,

comes from the same failed playbook as its trial argument that step (e) of Claim 35 is performed “manually” after the policy is exhausted. Transamerica’s design around attempt conveniently ignores the multiple computer systems implicated. Transamerica’s so-called “manual” process uses the Vantage Policy Administration System to identify, on a monthly basis, any policies that 8

Notably absent from Transamerica’s Brief is any citation to Transamerica’s 30(b)(6) deposition. Instead, Transamerica cites to Declarations of several witnesses, including the 30(b)(6) deponents. Despite likely having already prepared these declarations prior to the 30(b)(6) deposition, Transamerica did not provide them to Lincoln in advance of the deposition. Further, these declarations are inconsistent with Transamerica’s 30(b)(6) testimony. For example, Mr. Neill, Transamerica’s Mainframe Product Manager, testified that following the September 12, 2009 implementation of the third design around, he was unaware of any further MAWA calculations being performed in the United States. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 37:7-11). Yet in his declaration signed October 18, 2009, he stated that Transamerica continued to calculate MAWA in the United States due to a bug in the software after September 12, and that modifications to the design around were still occurring as recently as October 14, the date of the deposition. (Dkt. # 345-15: ¶¶92-97).

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have a policy value less than twice the MAWA. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 205:7-10).9 If Vantage identifies any such policies, Vantage automatically generates a letter to Transamerica’s policy owner indicating that the policy is at risk of reaching a low value. (Id., 206:5-10). In addition, information about the policy, including the current MAWA value, is moved from Vantage to a computer spreadsheet. (Id., 206:19-207:20; Lin. Ex. 15: Dep. Ex. 707). The actuarial department and distribution services group access the computer spreadsheet on a shared computer server located in the United States to continue administering the policy. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 209:6-22). Transamerica also uses its Repetitive Payment System (“RPS”) to administer these policies after exhaustion. (Id., 210:21-24). Transamerica pulls information from Vantage to set up a shell account in RPS. (Id., 212:3-9). Transmerica uses the notify function in RPS to determine when a payment needs to be made. (Id., 210:16-211:3). RPS generates a report that the distribution services group receives to know payments are coming due. (Id., 213:4-13). Additionally, RPS interacts with the Enterprise Client System to populate data about the policy that resides in RPS. (Id., 221:21-222:16). Multiple computer systems are also used in actually completing the payment. Transamerica’s internal email systems are used to advise the actuarial and separate accounts departments that payment needs to be made.

(Id., 217:6-218:11).

The Automated Work

Distribution (“AWD”) system houses the data necessary for cutting the check. (Id., 219:4-8).

9

In another discrepancy between Transamerica’s deposition testimony and its declarations, Ms. Martin, Transamerica’s Director of Post Issue Operations for Annuities, testified at deposition that there had never been any hits on the low policy value report. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 205:11-17). In her declaration, she testified that there have been hits on the low policy value report as a result of “false positives.”(Dkt. #345-12: Declaration of Tracy Martin, ¶ 37).

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Other computer systems, including the General Ledger, and Accounts Payable systems, are implicated as part of this process. (Id., 219:9-14). Transamerica’s second attempted design around occurred in July 2009. This interim modification was limited to only new riders and upgraded riders sold between July 6, 2009 and September 11, 2009. (Id., 9:19-10:2). The interim modification had no effect on any previously sold riders that were not upgraded during that time period. (Id., 10:3-7). Even with respect to the limited policies for which the interim modification was used - new and upgraded riders sold during the interim time period - the interim solution only affected the first MAWA calculation. (Id., 11:2-17). For the first MAWA calculation, Transamerica prepared a spreadsheet with several data fields filled, except for MAWA. The spreadsheet was sent to a Transamerica subsidiary in Canada that calculated the MAWA value for the policies in the spreadsheet and sent the spreadsheet back to Transamerica. (Id., 18:2-10). Any subsequent MAWA calculation was performed by Transamerica’s Vantage System in the United States. (Id., 11:12-17). On September 12, 2009, the third design around attempt superceded the interim modification. (Id., 11:12-20). In the third attempt, Transamerica attempted to modify the Vantage system so that the software does not run the MAWA equations internally (i.e., on the mainframe system), but instead determines MAWA by sending an MQ message to an Enterprise Service Bus (“ESB” also called JCAPS) that requests the MAWA based on certain input data. (Id., 96:18-24). The ESB, in turn, translates the request for the MAWA from the Vantage MQ message into an XML message, and sends the XML message to a calculation engine located in Canada. (Id., 96:25-98:12). The XML message sent from Transamerica includes a transaction type identifier that signals to the calculation engine what input data to expect and which formula to use. (Id., 98:20-99:1). The calculation engine in Canada basically presses the equal sign of

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the equation, and then sends an XML message to the ESB, which contains the MAWA value prepared by the calculation engine. (Id., 99:6-15). The ESB translates the XML message into an MQ message and sends it to the Vantage System. (Id., 99:13-100:3). The ESB, which is located in the United States, is an important “interim layer” between the Vantage system and the calculation engine. (Id., 132:22-133:6). For Transamerica to use the data from the calculation engine in its Vantage Policy Administration System, the data in the XML message must be transformed to an MQ message. (Id., 99:16-20). In other words, the data received from the calculation engine cannot be used by Vantage until it is transformed in the United States. (Id., 101:21-25). The Vantage System drives the determination of MAWA by determining which transaction type needs to be used. (Id., 88:13-18; 88:24-89:3). The calculation engine cannot initiate any transaction in the United States. (Id., 88:19-23). Indeed, Transamerica’s Service Implementation Guide indicates that the process is initiated in the United States by the “doCalculation” instruction.

(Lin. Ex. 9: Dep. Ex. 711, Bates No. 000071866).

Further,

Transamerica provided Citigroup with the necessary calculations to build the calculation engine. (Lin. Ex. 16: Dep. Ex. 709, Bates No. 000071784). When a rider is purchased or upgraded, the Vantage System sends an MQ message to the ESB that requests the MAWA calculation be made based on certain input data generated from the Vantage System. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 122:2-11). The ESB translates the MQ request into a XML message and sends the XML message to the calculation engine. The XML message includes a transaction type identifier that signals to the calculation engine that the requested value is a MAWA calculation at rider issue or upgrade. (Lin. Ex. 16: Dep. Ex. 709, Bates No. 000071784). The ESB receives the response XML message from the calculation

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engine. The XML message is transformed into an MQ message by the ESB, as Vantage cannot use the XML message. The MQ message is then sent to the Vantage System. The Vantage System stores the calculated MAWA value into the rider segment. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 122:2-11). Likewise, with an excess withdrawal transaction, the reduced MAWA value is stored in Vantage in the rider segment. (Id., 134:15-22). Until another transaction triggers a change in the MAWA value, the MAWA value stored in the rider segment in Vantage does not change. The calls to the calculation engine during the intervening period before a triggering event are essentially superfluous because the Vantage System already knows the current MAWA value (it is stored in the rider segment) and does not need to call the calculation engine. Indeed, the then current MAWA value stored in Vantage is pulled and sent in the message to the calculation engine. (Id., 122:12-123:2). IV.

ARGUMENT

The Court has the power to “grant the relief that is necessary to effect compliance with its decree.”

Hartman v. Lyng, 884 F.2d 1103, 1106 (8th Cir. 1989) (quoting McComb v.

Jacksonville Paper Co., 336 U.S. 187, 193 (1949)). To avoid the scope of the Permanent Injunction, Transamerica must make more than mere colorable changes to an infringing method. Conoco, Inc. v. Energy & Environmental Int'l L.C., 460 F.3d 1349, 1365 (Fed. Cir. 2006); Additive Controls & Measurement Systems, Inc. v. Flowdata, Inc., 154 F.3d 1345, 1349-50 (Fed. Cir. 1998). Transamerica has failed to show that it has made more than mere colorable changes to its infringing method.

Therefore, Lincoln is entitled to entry of an order requiring

Transamerica to provide a monthly accounting and monthly royalty payments at 0.44% for its continued infringement of the '201 Patent. Whether Transamerica has complied with the Permanent Injunction to Lincoln's “reasonable satisfaction” is determined objectively. See Advantage Consulting Group, Ltd. v. - 10 -

ADT Security Systems, Inc., 306 F.3d 582, 589 (8th Cir. 2002) (contract satisfaction clause evaluated under “objectively-reasonable-man standard”).

The “assessment of unsatisfactory

performance must be made both reasonably and in good faith.” Rolscreen Co. v. Pella Products of St. Louis, Inc., 64 F.3d 1202, 1212 (8th Cir. 1995). By any measure, (objective, subjective, or otherwise) Transamerica is violating the Permanent Injunction, and Lincoln is entitled to the accounting and royalty payment of 44 basis points outlined in paragraph 4 of the Permanent Injunction. A.

None of Transamerica's Three Alleged Design Arounds Avoid Infringement of the Asserted Claims of the '201 Patent. 1.

Despite the March 30, 2009 attempted design around of step (e), Transamerica continues to use a claimed computerized method to administer variable annuities “even if” account value is exhausted in violation of the Permanent Injunction.

Transamerica contends that it has implemented a “manual” procedure to administer a variable annuity “even if” its account value becomes exhausted, and as a result is no longer using a claimed computerized method. (Lin. Ex. 1: Felter 9/8/09 Corresp. at 2-3; Brief in Support of Motion for Relief From and Modification of Permanent Injunction and Refund of Royalty Payments Made Under Protest (“Trans. Br.”) at 1, 12-14). Transamerica merely recasts the argument it raised and lost at trial and on JMOL, and as a result, cannot meet its burden to establish that it is no longer using a claimed computerized method to administer variable annuities. At trial, Transamerica argued that it was not obligated to use its computerized RPS in the event account value was exhausted despite its sworn interrogatory answers to the contrary. Transamerica expressly directed the jury's attention to DX1146, a functional specification explaining the use of multiple computer systems when the amount of a scheduled payment exceeds the remaining account value balance. (Lin. Ex. 17: Ziegler TT at 1035:5-1037:7). - 11 -

DX1146 describes the use of Transamerica's Vantage, RPS, AWD, and General Ledger computer software programs and systems that are implemented in the event account value is exhausted. The jury (and this Court when considering Transamerica’s JMOL motion) rejected Transamerica's argument that DX1146 did not involve computerized methods of ensuring payments even if account value is exhausted.10 Moreover, Ron Ziegler admitted at trial that Transamerica does guarantee scheduled payments, and Transamerica continues to guarantee scheduled payments, thereby practicing step (e) under the Court's claim construction. (Lin. Ex. 17: Ziegler TT at 1029:20-1030:8). Transamerica has not changed the nature of the guarantee it provides its customers. Rather, it continues to guarantee payments even if account value is exhausted. (See Lin. Ex.4: “Manual Rider Administration at Exhaustion” memorandum (“Exhaustion Memo”) at 000072034, 000072052). Further, the evidence presented by Transamerica post-trial shows that Transamerica continues to use a computerized method to perform the step of periodically paying the scheduled payment even if account value is exhausted. Transamerica's “redesign” uses multiple computer systems, including the same Vantage, RPS, AWD, and General Ledger computer systems and software programs previously identified for use “even if” account value is exhausted. (Compare Lin. Ex. 3: DX1146 at 28 with Lin. Ex. 4: Dep. Ex. 718, Exhaustion Memo at 000072034-39; 000072052-54; see also Lin. Ex 5: 30(b)(6) Dep. Tr. 204:20-205:6; 209:6-9; 209:25-210:25; 214:10-13; 217:6-219:5). 10

This was true, in part, because when it sells an accused rider, Transamerica becomes contractually obligated to perform according to the rider's features. (See Trans. JMOL Br. at 14-15 (citing and quoting Dr. Behan's trial testimony)). Importantly, Vantage was specifically programmed to implement the features of the riders. (Lin. Ex. 18: Bennett June 14, 2007 Dep. at 13:20-14:6). And Transamerica administered each and every accused rider using a computerized method, and continues to use a computerized method should it need to fulfill the most extreme circumstance in which a guaranteed scheduled payment will be made. (Lin. Ex. 22: JX2: Stip. Fact No. 15; Lin. Ex. 17: Ziegler TT at 876:23-25, 1020:3-10; Lin. Ex. 19: Brunscheen Dep. at 78:17-25; Lin. Ex. 20: PX678 at 8; Lin. Ex. 5: 30(b)(6) Dep. Tr. 204:20-205:6; 209:6-9; 209:25-210:25; 214:10-13; 217:6-219:5).

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As explained by Transamerica's own witnesses, Vantage and RPS11 are both used to track those policies for which continued payments may be necessary when account value gets close to zero. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 204:25-208:6). Based on the interaction between Vantage, RPS, AWD, and multiple other computerized systems, Transamerica follows through on its guarantee of continued payments “even when the account value is less than the scheduled payment.” (Dkt. #64: Markman Order at 177-78). Initially, Transamerica’s Policy Administration System, Vantage, searches for policies that have a policy value of less than twice the MAWA on a monthly basis. (Lin. Ex. 5: 30(b)(6) Dep. Tr., 204:20-205:6).

When these policies are located, Vantage generates a letter to

Transamerica’s policyholder advising of the consequences of an additional withdrawal. (Id., 202:20-203:2). The policy information stored in Vantage, including policy value and rider information, is then transferred to a computerized spreadsheet. (Id., 206:14-207:14). This spreadsheet resides on Transamerica’s shared services computer server that is used in administering variable annuities. (Id., 209:6-9; 209:16-22; 218:18-22). Transamerica’s RPS is then used to notify Transamerica’s distribution services group when to make a payment pursuant to Transamerica’s contractual guarantee. (Id., 210:16-211:3; 218:12-17). Several other computerized systems are also used to generate the payment to policyholders. (Id., 217:6-218:6). In fact, Transamerica admitted that it uses multiple computer

11

RPS monitors those policies whose account value has reached zero for purposes of identifying when the periodic payments are to be made. (Lin. Ex. 4: Dep. Ex. 718 Exhaustion Memo at 000072052 (background and step 1's “advance notify”), 000072063 (glossary explaining that Transamerica “created” the “Advance Notify” feature “in RPS for a specific date. This will cause the policy to appear on an action required report for review”); Lin. Ex. 5: 30(b)(6) Dep. Tr. 213:4-13).

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systems besides Vantage to administer policies in these circumstances, despite its argument that this process is “manual.” (Id., 219:21-25). •

Transamerica’s electronic mail system advises Transamerica’s personnel that action needs to be taken. (Id., 218:23-219:1).

•

Transamerica’s facsimile system faxes data into the AWD system. (Id., 217:6-218:6; 219:2-219:8).

•

Transamerica’s AWD system stores the data necessary for a payment to be made. (Id).

•

Word is used to generate a check requisition form. (Id., 217:24-25).

•

Transamerica’s computerized accounting systems, including General Ledger and Accounts Payable interact as the payment is made. (Id., 219:9-14).

Transamerica’s purported “manual” administrative process also employs additional computerized systems and programs, including the following: •

VOS system (Id., 221:7-10).

•

Enterprise Client System (Id., 222:1-16).

•

Checkfree (Id., 224:14-24).

•

EnCorr and GDL (subparts of AWD) (Id., 225:15-20).

•

PCATS (Id., 225:20-226:2).

•

CMS (part of General Ledger system) (Id., 222:7-15).

All told, at least 15 computerized systems, subparts of computerized systems or computer programs are used by Transamerica to administer variable annuity riders “even if” account value reaches zero. This hardly constitutes a “manual” process.12 Transamerica also argues that because it will handwrite checks in these circumstances, it no longer uses a computerized method.

12

(Lin. Ex. 5: 30(b)(6) Dep. Tr. 218:10-11).

The fact that humans operate the computer systems is both obvious and irrelevant. Indeed, Ziegler admitted as much at trial. (Lin. Ex. 17: Ziegler TT at 1039:4-5).

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Transamerica, through Mr. Ziegler, made the exact same argument at trial. (Lin. Ex. 17: Ziegler TT: 955:6-14). Yet Mr. Ziegler also admitted at trial, as Transamerica admits here, that even the “manual” writing of checks requires the use of multiple computer systems to balance Transamerica’s accounts and to withdraw funds from those accounts to be paid to Transamerica’s policyholders. (Lin. Ex. 17: Ziegler TT: 1033:4-1034:2). The jury rejected the argument at trial that simply handwriting checks took Transamerica outside the bounds of step (e), and the Court rejected this argument in ruling against Transamerica’s JMOL. Simply put, a “manual” system cannot include and rely upon interaction between at least 15 different computer systems, sub-systems or programs. This ongoing computerized administration meets the Court's definition of the extreme circumstance covered by step (e) precisely.13 Objectively, Transamerica's assertion that as of March 30, 2009 it had implemented a non-infringing alternative “manual” method to perform step (e) is also expressly belied by the fact that (1) Transamerica's July 7 and September 28, 2009 accountings and royalty payments to Lincoln included cumulative account values for dates after March 30; (2) Transamerica continued implementing additional changes to its method, including contracting with Citigroup to perform the purported “offshore” design arounds discussed in detail below; and (3) Transamerica is planning additional changes to its computerized method of administering variable annuities in the fourth quarter of 2009. (Lin. Ex. 1: 9/8/09 Felter Corresp. at 2-3).

13

Further, the sale of an accused rider is evidence of infringement if the sale obligates Transamerica to perform the steps found in Lincoln's claimed method. (Jury Inst. No. 7 at 15) With respect to step (e), Transamerica's GMWB riders guarantee scheduled payments even if the account value is exhausted. (Lin. Ex. 22: JX2, Stip. Fact No. 15). This obligation is a current one. Transamerica provides the guarantee with the sale of and while administering its riders. (Id.). Transamerica's “new” plan is to use computerized systems that interact to administer riders whose account values were exhausted, should that extreme event ever occur. As a result, Transamerica continues to use a claimed computerized method.

- 15 -

If, in fact, Transamerica believed that its “new” method of performing step (e) was more than colorably distinct from a claimed computerized method, Transamerica could have presented this purported design around to Lincoln and the Court promptly when the Permanent Injunction issued in June 2009, and subjected itself to possible contempt. And there would have been no need for Transamerica to purportedly move MAWA calculations to Canada as discussed below. Instead, Transamerica included with its July 7 (and September 28) accounting and royalty payment, policies administered after March 30, thus all but conceding that its “new” method is not more than colorably distinct from a claimed computerized method. If Transamerica itself is not confident in its design around, neither Lincoln, nor this Court, can have confidence or be “reasonably satisfied” that Transamerica has ceased and desisted from using a claimed computerized method of administering variable annuities. Transamerica cannot now reasonably argue that its “new” procedure for administering step (e) removes its method from the scope of the Permanent Injunction when Transamerica itself believed that an accounting and royalty were due Lincoln after March 30, 2009. 2.

Despite the July 6, 2009 attempted design around of step (b), Transamerica continues to determine an initial scheduled payment in the United States in violation of the Permanent Injunction.

Transamerica contends that by temporarily moving the first calculation of MAWA for all newly issued or upgraded variable annuity riders to Canada from July 6 through September 11, 2009, it no longer practiced step (b) of the claimed computerized method. (Lin. Ex. 1: 9/8/09 Felter Corresp.; Lin. Ex. 5: 30(b)(6) Dep. Tr. 21:23-22:14; Trans. Br., at 1, 10-11). This attempted design around did not affect the multiple other instances in which Transamerica's computerized method calculates the MAWA. Further, this attempted design around is no longer being used by Transamerica, and as a result has no bearing on the current proceedings.

This

attempt to avoid the permanent injunction fails, in any event, as it is inconsistent with the Court's - 16 -

claim construction referencing “an” not “the” initial payment, ignores clear Federal Circuit authority, and was already rejected by this Court in denying Transamerica's JMOL. The Court construed step (b)'s language, “determining an initial scheduled payment,” as “[c]alculating the amount of a first scheduled payment of a systematic withdrawal program based on the account value associated with the plan.”

(See Markman Order at 152, 206

(emphasis added)). On this very issue, the Federal Circuit has “repeatedly emphasized” that: [A]n indefinite article “a” or “an” in patent parlance carries the meaning of “one or more” in open-ended claims containing the transitional phrases “comprising.” That “a” or “an” can mean “one or more” is best described as a rule, rather than merely a presumption or even a convention. The exceptions to this rule are extremely limited: a patentee must “evince[] a clear intent” to, limit “a” or “an” to “one.” Baldwin Graphic Sys., Inc. v. Siebert, Inc., 512 F.3d 1338, 1342 (Fed. Cir. 2008) (quoting KCJ Corp. v. Kinetic Concepts, Inc., 223 F.3d 1351, 1356 (Fed. Cir. 2000)). The inclusion of these indefinite articles as opposed to the more definite word “the” alone is proof that there may be more than one initial scheduled payment.14 Moreover, this is the exact same argument Transamerica made (and lost) at trial and in its JMOL motion in connection with policies sold before the issue date of the '201 Patent. Transamerica argued through Mr. Ziegler that those policies could not infringe because the MAWA was calculated for the first time before the '201 Patent issued. (See, e.g., Lin. Ex. 17: 14

As Lincoln explained in its JMOL Resistance, Federal Circuit authority also establishes the use of the words “initial” and “subsequent” and “first” and “second” as “a common patent-law convention to distinguish between repeated instances of an element or limitation.” 3M Innovative Prods. Co. v. Avery Denison Corp., 350 F.3d 1365, 1371 (Fed. Cir. 2003) (holding district court erred in defining term to require “first” and “second” steps to occur sequentially). Numerous other decisions reflect this common patent-law convention. See, e.g., Whirlpool v. LG Electronics, Inc., 423 F.Supp.2d 730, 747 (W.D. Mich. 2004) (noting the words “first,” “second,” and “third” merely distinguish one step from another); MyMail Ltd. v. America Online Inc., No. 6:04-cv-189, 2005 WL 6225308 at *6 (E.D. Tex. June 3, 2005) (noting “first-time” limitation is not absolute and, thus, there could be more than one “first-time” in claim relating to configuring and establishing communications with an ASP or network).

- 17 -

Ziegler TT at 1001:22-1002:3; Dkt. #299-2: Trans. JMOL Br. at 25-30). The jury expressly rejected this argument in rendering its verdict for Lincoln and including the aggregate account value of all policies in the royalty base. And the Court rejected the identical argument in denying Transamerica's JMOL motion. (Dkt. # 313: 10-11). Despite this clear law of the case, Transamerica again argues that “calculating the amount of a first scheduled payment” can only occur once.15 This argument is contrary to substantial evidence at trial that the MAWA is calculated automatically at least on an annual basis. (Lin. Ex. 17: Behan TT at 510:11-16, 628:15-19; Lin. Ex. 21: Ziegler Jan. 26, 2007 Dep. at 237:25-238:4). This argument is also contrary to Transamerica’s admission post-trial that recalculations and subsequent calculations of MAWA continue to occur in the United States. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 11:8-17). Further, for all riders existing before Transamerica's “new” interim modification whose owners had not yet started taking scheduled payments, Transamerica admits that the MAWA is computed annually and as a result continues to be computed in the United States, establishing for these riders, “an initial scheduled payment” has been determined in the United States even though the owner may have elected not to take it. (Id.) As a result, this design around does not remove Transamerica’s administration of variable annuities from a claimed computerized method. 3.

Despite the September 12 attempt to design around steps (b) and (d), Transamerica continues to determine initial scheduled payments and adjust the amount of scheduled payments in response to unscheduled withdrawals in the United States in violation of the Permanent Injunction.

Transamerica claims Citigroup built a black box “calculator” in Canada that calculates MAWA and TWB for Transamerica based on data and formulas provided by Transamerica in the 15

See Lin. Ex. 1: 9/8/09 Felter Corresp. at 2-3 (contending that by moving the calculation of MAWA to Canada for all new riders “the” initial scheduled payment MAWA is determined for those riders at the time of purchase in Canada).

- 18 -

United States, and that calculations of and adjustments to MAWA are now made “entirely outside the United States.” (See Lin. Ex. 1: 9/8/09 Felter Corresp. at 2-3; Trans. Br., at 1, 5-10). Transamerica then argues that as a result, the “determining” portion of step (b) and the “adjusting” portion of step (d) are now performed in Canada.

Despite this modification,

however, Transamerica is still using a claimed computerized method in the United States in violation of the Permanent Injunction. As explained below, the steps of “determining an initial scheduled payment” and “adjusting the amount of scheduled payments in response to an unscheduled payment,” as defined in this Court's Markman Order, still occur in the United States. Further, Transamerica continues to calculate MAWA in the United States for hedging purposes, for running illustrations for new policyholders, and potentially for reserve purposes. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 32:7-15; 36:25-37:6; 39:6-8; Lin. Ex. 6: SecurePath Variable Annuity Hypothetical Illustration, TA Doc. No. 000232255-69; Lin. Ex. 13: Dep. Ex. 705, at 71933).16

As a result, and as explained below, Transamerica's argument fails legally and

factually. Legally, Transamerica distorts the requirement that performance of a claimed method step occur in the United States with its argument that since some portion of its administrative method occurs in Canada it cannot infringe. Yet Transamerica cannot avoid infringement based

16

Mr. Neill testified at deposition that he was not aware of any further calculations of MAWA in the United States after September 12, or of any further validation of the MAWA data after September 12. (See Lin. Ex. 5: 30(b)(6) Dep. Tr. 37:7-11; 85:9-86:25). This testimony contradicts Mr. Neill’s declaration filed in support of Transamerica’s Motion that in fact several thousand MAWA calculations were performed in the United States after September 12 due to bugs in the software, and that even as of the date of his deposition, Transamerica was continuing to fix software code bugs that continued to cause MAWA to be calculated by Transamerica within the United States. (Dkt. # 34514: ¶¶ 92-94). Transamerica admits that it has not worked out all of the “bugs” in its system. This discrepancy is yet another reason that Lincoln cannot be reasonably satisfied with Transamerica’s purported design around attempt.

- 19 -

on “use” merely by moving unclaimed steps of its policy administration system to Canada. To the contrary, the claimed step itself must occur outside of the United States.

And here,

Transamerica's argument falls apart factually when its computerized method is compared to the claims as construed by the Court. Transamerica continues to determine an initial scheduled payment in the United States. The only difference between its prior computerized system for administering variable annuities and its purported design around is the addition of the “calculator” in Canada. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 48:4-7; Lin. Ex. 7: Dep. Ex. 703; Lin. Ex. 8: Dep. Ex. 704). Initially, Transamerica’s own documentation of its design around refers to the step of “doCalculation” that occurs in the United States. (Lin. Ex. 9: Dep. Ex. 711). The step of “doCalculation” occurs long before Transamerica calls Citigroup in Canada. (Id. at 000071866). In fact, Transamerica admitted that the “doCalculation” step of the determination of MAWA occurs within the United States. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 108: 5-13). Further, Transamerica “determines” the specific calculations to be made by the “calculator” in Canada. (Id., 91:16-21; Lin. Ex. 16: Dep. Ex. 709, 000071784). The specific determination to call the calculator in Canada is also made by Transamerica in the United States. (Lin. Ex. 5: 92:6-21). Further, Transamerica’s Vantage Policy Administration System initiates the determination of MAWA by sending an MQ request that is received by Transamerica’ s Enterprise Service Bus (“ESB”).

(Id., 95:10-12; 96:18-24; Lin. Ex. 9:

Dep. Ex. 711).

Transamerica’s ESB then continues the determination by transforming the MQ message into an XML message. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 96:25-97:3). Transamerica’s Vantage System in the United States then calls Canada through a VPN in a step labeled “Call Calc Engine Block.” (Id., 97:22-98:7). Transamerica, through its Vantage System in the United States, determines

- 20 -

based on one of twenty-four transactions which data to send, including the prior total withdrawal base, the principal back total withdrawal base, life withdrawal percentages, and life maximum annual withdrawal amount. (Id., 118:2-11; 118:19-22). In fact, the life MAWA data is already stored in Transamerica’s Vantage System. (Id., 121:18-122:1).17 Citigroup then sends data back to Transamerica, which is received in the United States through the VPN in a step labeled “receive calc engine response.” (Id., 99:6-11). Transamerica then continues the determination of MAWA by transforming the data from Citigroup from an XML message to an MQ message. (Id., 99:16-100:3). Without this transformation, Transamerica could not use the data from Citigroup in its Vantage System. (Id.) In other words, the “determination” of MAWA is not possible without the transformation of data that occurs within the United States. (Id., 101:1125). These data results are then used in Transamerica’s Vantage System. (Id., 103:18-23). The “determination” of MAWA within the meaning of this Court’s claim construction is carried out by Transamerica through its decision within the United States to initiate the call to Canada, through its determination of the specific transactions to be sent to Canada, through its transformation of this information both before and after sending to Canada, and through its use of the resultant data in its Policy Administration System in the United States. Transamerica’s assertion that the “determining” of a first scheduled payment is now performed in Canada is also inconsistent with this Court’s Markman order. The Court construed this portion of step (b) as follows: “Calculating the amount of a first scheduled payment of a systematic withdrawal program based on the account value associated with the plan.” (Dkt. # 64: 206). Transamerica interprets the term “calculating” to mean the simple act of pushing the

17

For non-growth riders for which no transactions occurred in which the MAWA equations were initially performed in the United States, the MAWA amount sent to Citigroup would be identical to the amount received back from Citigroup. (Id., 133:18-134:6).

- 21 -

equal sign on a calculator located in Canada. Yet this Court determined that “’calculating’ does not necessarily suggest just ‘simple’ arithmetic, or even use of only mathematical processes.” (Dkt. # 64: at 120-1). Instead, “calculating” also means “to reckon by exercise of practical judgment” and “to solve or probe the meaning of.” (Id.). Transamerica “calculates” the MAWA in the United States, “exercis[ing] practical judgment” by deciding which transactions to send to Citigroup, by deciding what information and data to send to Citigroup, and by deciding to initiate the call to Citigroup. Transamerica further “calculates” MAWA in the United States through the transformation of data received from Citigroup and used by the Policy Administration System by “exerc[ising practical judgment” and “solv[ing] or prob[ing] the meaning of.”18 The mere fact that the equal sign is pressed in Canada fails to establish that Transamerica is no longer using a claimed computerized method. Even assuming that Transamerica’s tortured claim interpretation has some merit, Citigroup’s calculator does not handle all MAWA calculations. Transamerica admittedly still continues to use the Vantage System and the data stored therein to determine MAWA on a daily basis in the United States for each variable annuity for hedging purposes. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 36:25-37:6; 38:2-11; 39:6-8; 39:17-18; 41:12-14). Transamerica’s failure to bring this fact to the Court’s attention in its opening Brief is understandable, as it was not capable of moving all MAWA equations overseas within the ninety day window provided in the Permanent Injunction. Robert Frederick, Transamerica’s Business Unit Chief Operating Officer and Senior Vice President, testified in his declaration in support of Transamerica’s Motion to Stay Permanent Injunction Pending Appeal filed with the Federal Circuit that removal of all MAWA equations from Transamerica’s computer systems in the United States would be difficult and 18

Transamerica further “calculates” MAWA in the United States as Transamerica has complete control over the data and its use. (Id., 137:9-11; 138:20-24).

- 22 -

complex. (Lin. Ex. 12: Declaration of Robert Frederick, ¶10).19 Specifically, the move of MAWA equations for hedging to account for growth, and for the establishment of sufficient reserves, would require Transamerica to identify all of the places in the code where MAWA is calculated, revise that code, and debug it. Id. Mr. Frederick testified that because of the complexity of the design around, the implementation of this change could not occur until January 16, 2010. Id. In other words, Transamerica did not complete the transition of all MAWA equations within the ninety day window provided by this Court, and as a result, continues to perform these equations of MAWA in the United States.20 In addition, Transamerica continues to perform MAWA equations in the United States for the illustration system used by brokers to illustrate the specifics of variable annuity policies, including the initial scheduled payment. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 195:1-5; 196:10-18; 32:7-15; 36:25-37:6; 39:6-8; Lin. Ex. 6: Secure Path Variable Annuity Hypothetical Illustration, TA Doc. No. 000232255-69). Further, these calculations of MAWA are performed in the United States. Id. Therefore, Transamerica continues to practice step (b) of claim 35 by determining an initial scheduled payment within the United States through its illustration system.

19

In yet another discrepancy between Transamerica’s deposition testimony and its declarations, Mr. Blankenship, Transamerica’s Director of Business Applications, testified at deposition that he never provided an estimate of the time necessary to complete this modification, and that there was no detailed effort to determine an estimate. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 177:21-178:22). Yet in his declaration, filed four days after his deposition, he stated that there had been an initial estimated completion date of January 2010, and that certain factors contributed to the earlier completion. (Dkt. # 345-10: ¶¶41-58). These discrepancies raise the question of whether Lincoln or this Court can rely on any of Transamerica’s deposition testimony or sworn declarations.

20

Further, Transamerica itself does not know whether MAWA continues to be calculated within the United States for purposes of maintaining a sufficient amount of reserves. While Transamerica’s design around implementation documents show that the calculation of MAWA for reserves will remain in-house (see Lin. Ex. 13: Dep. Ex. 705, at 71933), Transamerica’s witness testified that he believed this statement to be inaccurate. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 58:19-59-14). Again, Transamerica cannot meet its burden because its contradictory statements raise questions about the accuracy of its documents and testimony.

- 23 -

Transamerica now argues that calculations for hedging and reserves purposes are unrelated to rider administration, and as a result, Transamerica’s failure to move these calculations offshore is insignificant. Trans. Br. at 7. This argument is belied by Transamerica’s prior statements to the Federal Circuit that it was necessary to move the calculation of MAWA for hedging and reserve purposes offshore. (Lin. Ex. 12: Declaration of Robert Frederick, ¶10). Further, Transamerica uses the very same Vantage Policy Administration System for these calculations. In addition, Figure 11 of the ‘201 Patent includes “establish reserves” as part of the administrative process. (Lin. Ex. 14: ‘201 Patent, Fig. 11). Transamerica puts forth the after the fact rationalization that moving the MAWA calculations for hedging and illustration purposes is unnecessary due to its inability to move these calculations overseas. The Federal Circuit's decision in NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005) reinforces Lincoln's position. There, because each of the steps of the asserted method claims included the limitation of an “interface switch” or an “interface,” there could be no direct infringement in the United States by “use” of the patented method since defendant RIM's relay (or interface) was located in Canada. In this case, there is no such limitation. Further, in this case, each step of the method is still being performed by Transamerica in the United States. And unlike NTP, which had always located its relay in Canada, Transamerica only attempted to move a portion of one of the steps of a claimed computerized method outside of the United States to avoid future infringement. The factual analysis concerning step (d) is similar. The Court construed “Adjusting the amount of the scheduled payment in response to said unscheduled withdrawal” to mean “Reducing the amount of the scheduled payment in response to said unscheduled withdrawal.” (Dkt. # 64: 208).

Transamerica continues to make this reduction in the United States.

- 24 -

Transamerica testified that when the Citigroup calculator returns lower MAWA data, the actual reduction is stored and used by Transamerica’s Policy Administration System. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 136:5-137:3). In other words, the data received from Citigroup is used by Transamerica’s Policy Administration System within the United States to update rider values with a reduced MAWA.

(Id., 138:20-139:18).

As a result, Transamerica performs the

“reducing” portion of step (d) within the United States.21 B.

Transamerica Continues to Infringe Even if Some of the Activity Relating to Steps (b) and (d) Occurs Outside of the United States. As explained above, Transamerica has not shown that steps (b) and (d) are performed

outside of the United States. However, even if Transamerica had made such a showing, it is nevertheless infringing Lincoln's '201 Patent and violating the Permanent Injunction because Transamerica is selling and/or offering to sell a claimed computerized method within the United States in violation of 35 U.S.C. § 271 (a). On its face, §271(a) prohibits making, using, selling, offering for sale, or importing a patented invention in the United States. Transamerica's argument focuses on the “use” prong of §271(a). This focus is intentionally too narrow. The Federal Circuit has made clear that it remains an open question as to whether a method claim can be infringed under the sale or offer for sale portion of § 271(a). See Ricoh Co. Ltd., v. Quanta Computer Inc., 550 F.3d 1325, 1335 (Fed. Cir. 2008) (declining to “determine whether a process may ever be sold so as to give rise to liability under § 271(a)”); NTP, Inc., 418 F.3d at 1320-21 (“We need not and do not hold that method claims may not be infringed under the ‘sells’ and ‘offers to sell’ prongs of section 271(a).”). At least two district courts have rejected arguments (like Transamerica's implicit

21

Transamerica admittedly continues to perform the “monitoring” portion of step (d) within the United States. (Lin. Ex. 5: 30(b)(6) Dep. Tr. 129:10-25).

- 25 -

argument) that method claims cannot be infringed through sales or offers for sale. See Recycling Sciences Int'l v. Soil Restoration and Recycling, L.L.C., 2001 WL 969040 at *1-2 (N.D. Ill. Aug. 24, 2001) (rejecting the argument that “sells” and “offers to sell” language of section 271(a) does not apply to method patents); In re Cygnus Telecomm. Tech., LLC Patent Litigation, 481 F. Supp. 2d 1029, 1054, n. 17 (N.D. Cal. 2007) (denying summary judgment concerning “sells” or “offers to sell” prongs of section 271(a) because defendants all located within United States, creating question of fact).22 In analyzing whether RIM infringed under the “sells” or “offers to sell” prong of section 271(a), the Federal Circuit in NTP noted that [t]he definition of ‘sale’ is: ‘1. The transfer of property or title for a price. 2. The agreement by which such a transfer takes place. The four elements are (1) parties competent to contract, (2) mutual assent, (3) a thing capable of being transferred, and (4) a price in money paid or promised.’ Black's Law Dictionary 1337 (7th ed.1999). Thus, the ordinary meaning of a sale includes the concept of a transfer of title or property. The definition also requires as the third element ‘a thing capable of being transferred.’ It is difficult to apply this concept to a method claim consisting of a series of acts . . . . It is difficult to envision what property is transferred merely by one party performing the steps of a method claim in exchange for payment by another party. Moreover, performance of a method does not necessarily require anything that is capable of being transferred. 418 F.3d at 1319. The facts of the instant case are different from NTP. Unlike RIM's method, Transamerica's sale of and offer to sell variable annuity riders satisfies all elements of a “sale” within the meaning of section 271(a), and within the parameters set forth by the NTP Court. There is no question that the first, second, and fourth elements of a sale are present. 22

An offer to sell a method more than one year before the filing date of the patent application would anticipate and invalidate that patent application under §102(b). Scaltech, Inc. v. Retec/Tetra, L.L.C., 269 F. 3d 1321, 1328 (the on sale bar rule applies to the sale of an “invention,” and inventions encompass processes). “Under well established law, that which would literally infringe if later in time anticipates if earlier than the date of invention.” Ecolab, Inc. v. FMC Corp., 569 F.3d 1335, 1348 (Fed. Cir. 2009) (internal quotation omitted). Thus, just as the sale or offer to sell a method can anticipate a method claim, so to can the sale or offer to sell a method infringe a method claim.

- 26 -

Transamerica and its customers (all of whom resided in the United States at the time of purchase) are competent to contract, and mutually and voluntarily agree to enter such contracts for variable annuities. Transamerica's customers pay money in exchange for Transamerica's promise to provide specific distributions. The third element is also present in this case. Transamerica enters into annuity contracts with customers who pay for the administration of those contracts. Transamerica transfers a contractual obligation for guaranteed distributions to the customer in exchange for the customer's money. In other words, in addition to money being transferred as part of the administrative process, Transamerica provides to customers a contractual obligation or guarantee to provide distributions in accordance with the terms of the contract. As a result, the Federal Circuit's concerns with defining what property is transferred, and what within a method claim requires anything capable of being transferred, are met. Thus, even assuming Transamerica performs steps (b) and (d) of claim 35 of the '201 Patent in Canada, Transamerica sells and offers to sell the infringing method in the United States within the meaning of section 271(a). In Ricoh, the Federal Circuit held “that a party that sells or offers to sell software containing instructions to perform a patented method does not infringe under section 271(a).” 550 F.3d at 1335. As in NTP, the court refused to decide whether a method or process could ever infringe under the “sells” or “offers to sell” prongs of section 271(a). Id. The court distinguished the software containing instructions to perform the patented process from the process itself. Id. The court noted “that the actual carrying out of the instructions is that which constitutes a process within the meaning of § 271(a).” Id. Ricoh is distinguishable from the present case in that by selling its variable annuity riders, Transamerica is contractually obligated to, and in fact does, carry out the steps of the patented

- 27 -

method. Unlike Ricoh, where the software merely provided instructions capable of carrying out the patented process, here Transamerica's sale of variable annuity riders and the contractual obligations attached thereto constitute the performance of the process itself through the patented method. Therefore, sale of the infringing variable annuity riders by Transamerica is a sale or offer for sale within the meaning of section 271(a).

C.

Transamerica's Sister Companies are Contributory Infringers Under 35 U.S.C. § 271(c). As explained above, Transamerica continues to perform steps (b) and (d) in the United

States. Indeed, the physical steps of determining and adjusting are all initiated and executed in the United States.

The fact that Transamerica's sister companies, Money Services and

Transamerica Capital, import material into the United States for use in Transamerica's method in the United States simply does not allow Transamerica to escape infringement liability. To the contrary, the sister companies themselves are also now liable as contributory infringers under 35 U.S.C. § 271 (c), which provides: Whoever offers to sell or sells within the United States or imports into the United States . . . a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer. 35 U.S.C. § 271(c). As the Federal Circuit recently explained, “[i]n order to succeed on a claim of contributory infringement, in addition to proving an act of direct infringement, plaintiff must show that defendant knew that the combination for which its components were especially made was both patented and infringing and that defendant's components have 'no substantial noninfringing uses.” Lucent Tech., Inc., v. Gateway, Inc., 508 F.3d 1301, 1320 (Fed. Cir. 2009) (internal quotations omitted). - 28 -

Transamerica claims that its MAWA and certain TWB equations are now performed by Citigroup in Canada. It further expressly admits that the results of the equations are saved electronically and then transmitted back to the United States for the specific purpose of performing steps (b) and (d) of claim 35 of the '201 Patent. This electronic data is, by definition, “material” for use in practicing Lincoln's patented method, which Transamerica Capital and Money Services knowingly import into the United States and which is not suitable for any noninfringing use, but instead is specifically designed to perform a claimed computerized method. Lucent, 508 F.3d at 1320; Ricoh, 550 F. 3d at 1325 (“Such a component, specially adapted for use in the patented process and with no substantial noninfringing use, would plainly be ‘good for nothing else’ but infringement of the patented process.”). In this case, the data imported from Canada is specifically designed to perform the infringing method.

Thus,

Transamerica's sister companies are liable under 35 U.S.C. § 271(c) as contributory infringers. The fact that the data imported is in the form of electronic data rather than a physical object is irrelevant to the inquiry under section 271(c). See Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 452 (2007).

In the context of analyzing whether exporting copies of software

constituted a “component” within the meaning of section 271(f), the Supreme Court noted that it need not address whether software in the abstract, or any other intangible, can ever be a component under § 271(f). If an intangible method or process, for instance, qualifies as a ‘patented invention’ under § 271(f) (a question as to which we express no opinion), the combinable components of that invention might be intangible as well. Id. at n.13 (italics in original, underlining added). In Cardiac Pacemakers, the Federal Circuit held that section 271(f) did not apply to method claims because section 271(f) implies “the transfer of a physical object” and “[s]upplying an intangible step is thus a physical impossibility.” 576 F.3d 1348, 1364 (Fed. Cir. 2009). Although Cardiac Pacemakers appears to be in tension with the Supreme Court in - 29 -

Microsoft regarding whether section 271(f) requires a “component” to be a tangible object, the Federal Circuit noted the contrasting treatment that Section 271 gives to tangible inventions and method inventions and the meaning of the term ‘component.’ Section 271(c) contrasts ‘a component of a patented machine, manufacture, combination, or composition’ with a ‘material or apparatus for use in practicing a patented process.’ 35 U.S.C. § 271(c). Congress clearly believed that a ‘component’ was separate and distinct from a ‘material or apparatus for use in practicing a patented process.’ Thus, a material or apparatus for use in practicing a patented process is not a component of that process. Id. at 1363-64 (emphasis added) citing Davis v. Mich. Dept. of Treasury, 489 U.S. 803, 809 (1989). Thus, the Federal Circuit has recognized that “a material or apparatus” under section 271(c) is different than a “component” under section 271(f). Therefore, there is no requirement that “a material or apparatus” under section 271(c) be a tangible object. See Lucent, 580 F.3d at 1321(software tool included in larger program was “material or apparatus” within the meaning of 35 U.S.C. § 271(c)).23 Further, nothing in NTP precludes the application of section 271(c) to method claims. In fact, section 271(c) specifically prohibits the importation of “material” for use in the “patented process.” 35 U.S.C. § 271(c).

In NTP, as with the “sells” and “offers to sell” prongs, the

Federal Circuit did not decide whether a method claim could be infringed by importation. 418 F.3d at 1320-21. The court merely held under the unique facts of that case that RIM could not infringe the method claims for the same reason that it could not infringe under the “sells” and “offers to sell” prongs. Thus, nothing precludes application of section 271(c) to method claims.

23

In Lucent, the Federal Circuit also noted that “the Supreme Court in Microsoft did not address the meaning of 'material or apparatus' in § 271(c).” 580 F.3d at 1321.

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D.

Lincoln is Entitled to an Accounting and Royalty Payments for the Period of Infringement After September 21, 2009. Pursuant to the Permanent Injunction, “[i]f Transamerica fails to show to Lincoln's

reasonable satisfaction that it has ceased and desisted using a claimed computerized method or a computerized method that is not colorably distinct from a claimed computerized method to administer variable annuities,” then “Lincoln may move the court for a further accounting and royalty payment at the rate of 0.44% for the period of further infringement.” (Perm. Inj.: ¶ 4). For the reasons discussed above, Lincoln is entitled to an accounting and royalty payment for Transamerica's further infringement. Notwithstanding that Transamerica has provided Lincoln with insufficient evidence of its purported noninfringing design-around, even if Transamerica moved certain operations outside the United States, Transamerica nevertheless would still be liable for selling and offering to sell the infringing method and for contributory infringement, as discussed above. Therefore, Lincoln requests the Court to order Transamerica to provide a monthly accounting and royalty payments for the period of further infringement after September 21, 2009. V.

CONCLUSION

Based on the foregoing, Lincoln requests that its motion be granted and that the Court order Transamerica to provide monthly accounting and royalty payments at the rate of .44%, and

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for all other just and proper relief. November 4, 2009

Respectfully submitted,

s/D. Randall Brown D. Randall Brown (IN #15127-49) ([email protected]) Gary C. Furst (IN #19349-64) ([email protected]) BARNES & THORNBURG LLP 600 One Summit Square Fort Wayne, IN 46802 Telephone: (260) 423-9440 Facsimile: (260) 424-8316 PRO HAC VICE Denny M. Dennis Todd A. Strother BRADSHAW, FOWLER, PROCTOR & FAIRGRAVE, P.C. Suite 3700 801 Grand Avenue Des Moines, Iowa 50309-8004 ATTORNEYS FOR LINCOLN NATIONAL LIFE INSURANCE COMPANY

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CERTIFICATE OF SERVICE The undersigned hereby certifies that a copy of the above and foregoing document has been served this 4th day of November, 2009, via the Court's ECF system to the following counsel of record: Steven M. Bauer, Esquire Kimberly Mottley, Esquire Jeremy Oczek, Esquire Proskauer Rose LLP One International Place Boston, MA 02110-2602 Pro Hac Vice James R. Myers, Esquire ROPES & GRAY LLP 700 12th Street NW, Suite 900 Washington, DC 20005 Pro Hac Vice John Kenneth Felter, Esquire ROPES & GRAY LLP One International Place Boston, MA 02110-2624 Pro Hac Vice

s/D. Randall Brown

CHDS01 JWF 569836v1

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