Bancorp Services, L.L.C. v. Hartford Life Ins. Co.

• Citation: 359 F.3d 1367
• Decision Date: 01 March 2004
• Docket Number: No. 03-1181.,03-1181.
• Parties: BANCORP SERVICES, L.L.C., Plaintiff-Appellant, v. HARTFORD LIFE INSURANCE COMPANY and International Corporate Marketing Group, L.L.C. (formerly known as International Corporate Marketing Group, Inc.), Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

359 F.3d 1367

BANCORP SERVICES, L.L.C., Plaintiff-Appellant, v. HARTFORD LIFE INSURANCE COMPANY and International Corporate Marketing Group, L.L.C. (formerly known as International Corporate Marketing Group, Inc.), Defendants-Appellees.

No. 03-1181.

United States Court of Appeals, Federal Circuit.

Decided March 1, 2004.

Charles K. Verhoeven, Quinn Emanuel Urquhart Oliver & Hedges, LLP, of Redwood Shores, California, argued for plaintiff-appellant. With him on the brief was David A. Perlson, Quinn Emanuel, etc., of San Francisco, California.

Seth P. Waxman, Wilmer, Cutler & Pickering, of Washington, DC, argued for defendants-appellees. With him on the brief were Jonathan E. Nuechterlein and Todd C. Zubler. Of counsel on the brief were R. Laurence Macon, Kirt S. O'Neill, and Melanie G. Cowart, Akin, Gump, Strauss, Hauer & Feld, L.L.P., of San Antonio, Texas. Also of counsel on the brief was Rex S. Heinke, Akin, Gump, etc., of Los Angeles, California.

Joseph P. Zammit, Fulbright & Jaworski L.L.P., of New York, New York, for amicus curiae Metropolitan Life Insurance Company.

Matthew B. Lowrie, Lowrie, Lando & Anastasi, LLP, of Cambridge, Massachusetts, for amicus curiae Sun Life Assurance Company of Canada (U.S.). Of counsel on the brief was Ilan N. Barzilay, Wolf, Greenfield & Sacks, P.C., of Boston, Massachusetts.

Before RADER, BRYSON, and PROST, Circuit Judges.

BRYSON, Circuit Judge.

This is an appeal from a district court decision holding a patent invalid for indefiniteness. Because we conclude that the patent is not indefinite, we reverse the district court's judgment and remand for further proceedings.

I

Plaintiff-appellant Bancorp Services, L.L.C., is the owner of United States Patent No. 5,926,792, "System for Managing a Stable Value Protected Investment Plan" ("the '792 patent"). The '792 patent describes a system for administering and tracking the value of life insurance policies in separate accounts. The kinds of life insurance policies that are subject to the system claimed by the patent include separate account policies issued pursuant to Corporate Owned Life Insurance ("COLI") and Bank Owned Life Insurance ("BOLI") plans. Under separate account BOLI and COLI plans, the policy owner pays a higher premium than is needed to fund the death benefit. The extra money can then be invested in a variety of financial assets. Under federal tax law, the death benefit is not taxed and the gains from the investment assets are tax-deferred even if the policy is ultimately surrendered. Banks and corporations have purchased such policies on the lives of their employees to help fund, on a tax-advantaged basis, future post-retirement benefits for the group of insured employees.

Separate account policies have existed since the 1970s, but their use has been limited because of what is known as the "mark-to-market" problem. Accounting rules ordinarily require BOLI and COLI plan owners to report, from quarter to quarter, the cash surrender value of any policies they own, i.e., the amount the owners would receive if they surrendered the policies. That value varies as the market fluctuates, however. Banks and corporations would prefer to report a more predictable, stable value on their financial statements, which is what a stable value protected investment allows.

Stable value protected investment systems provide a mechanism for stabilizing the reported value of life insurance polices by arranging for a third party guarantor, called the "stable value protected writer," to guarantee a particular value for the life insurance policy, regardless of its market value, should the policy have to be paid out prematurely. In order to offset the risk to a potential guarantor for providing that service, the guarantor is paid a fee and restrictions are placed on the policyholder's right to cash in the policy. The '792 patent provides a system for administering variable life insurance policies, including those containing stable value protected investments. The patent provides a computerized means for tracking the book value and market value of the policies and calculating the credits representing the amount the stable value protected writer must guarantee and pay should the policy be paid out prematurely.

Bancorp obtained a patent on its invention with a priority date of September 1996. In January 2000, Bancorp filed suit against defendant-appellee Hartford Life Insurance Company ("Hartford") in the United States District Court for the Eastern District of Missouri alleging that Hartford had infringed the '792 patent. International Corporate Management Group, Inc. ("ICMG"), a Hartford affiliate, was later added as a defendant. Several other claims and counterclaims were added to the lawsuit, but the only issue remaining in dispute on this appeal is Bancorp's claim against Hartford and ICMG for patent infringement.

In February 2002, the District Court granted summary judgment for Hartford and ICMG on Bancorp's patent infringement claim. Bancorp Servs., L.L.C. v. Hartford Life Ins. Co., No. 4:00-CV-70 (E.D.Mo. Feb. 13, 2002). The court held all the independent claims of the '792 patent invalid for indefiniteness because each of those claims used the term "surrender value protected investment credits," which the court held was fatally indefinite. The court noted that the term "surrender value protected investment credits" was not defined in the patent, and after considering both the text of the patent and the extrinsic evidence proffered by the parties, the court found the term to be so unclear in meaning as to render the patent claims invalid.

The court rejected Bancorp's argument that the term "surrender value protection" meant the same thing as "stable value protection," a term that is used and defined in the specification. Because the court interpreted the term "surrender value" to mean the value of the entire policy, i.e., "the value of all of the investments that make up the entire policy minus a surrender charge and/or any outstanding debt," the court concluded that "surrender value protected investment credits" appeared to refer to "credits to the overall policy surrender value" rather than to credits applicable to the stable value protected components of the policy.

The court found support for that view in the claim language that referred to the "surrender value protected investment credits" for "the life insurance policy," while, as the court explained, stable value protected investments "are only one component, or investment division, of the values that contribute to the overall policy value." The words "surrender value," the court concluded, "necessarily implicate the value of the entire policy."

In addition, the court noted that the independent claims of the '792 patent used the terms "stable value protected investment" and "surrender value protected investment credits" in close proximity. The court regarded the use of the two different terms in the same claims as supportive of Hartford's contention that they were not meant to be synonymous.

Summarizing its review of the intrinsic evidence — in this case the claims and written description of the patent — the district court concluded that it "tends to support the conclusion that the two phrases, `surrender value protected' and `stable value protected' cannot be synonyms for one another." Before adopting that conclusion, however, the court looked to the extrinsic evidence, i.e., the evidence offered by the parties as to how the claim language would be understood by persons of skill in the art.

After reviewing the extrinsic evidence offered by each side, the district court credited the testimony of Hartford's expert that the term "surrender value protected investment credits" did not have a well-understood meaning to persons of skill in the art. The court rejected the testimony of Bancorp's principal expert on the ground that he was an expert in stable value funds but was not shown to be an expert in life insurance administration. For that reason, the court stated that it "cannot accept his opinion as evidence of what persons skilled in the art would or would not understand in regard to the phrase `surrender value protected investment credits.'" In addition, the court rejected the testimony of one of the inventors of the '792 patent on the ground that the proffered inventor testimony concerned what the patentee subjectively intended the claims to mean instead of what those skilled in the art would understand the claims to mean. Finally, the court rejected Bancorp's evidence that before the priority date of the '792 patent Hartford and its associated companies had used the term "surrender value protected investment" in their internal communications. The court declined to consider that evidence on the ground that it revealed only Hartford's internal use of the term and thus did not constitute a public use of the term that would suggest a widely understood meaning for the term in the industry. After reviewing the extrinsic evidence, the court concluded that Bancorp had not proffered evidence from any expert skilled in the art of life insurance administration who could state that he understood the meaning of the term "surrender value protected investment credits," while Hartford had presented at least one expert skilled in the art of life insurance administration who stated that the phrase "surrender value protected investment credits" would be indefinite to a person skilled in that field of art. Based on that testimony and the court's reading of the patent, the court concluded that the term "surrender value protected investment credits" is indefinite and that the asserted claims of the '792 patent, all of which contain that term, are therefore invalid.

II

A

Section 112, paragraph 2, of the Patent Act, 35 U.S.C. § 112, ¶ 2, requires that the claims of a patent "particularly point[] out and distinctly claim[] the subject matter which the applicant regards as his...