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District Court’s Invalidity Ruling for Indefiniteness “Surrenders” to Federal Circuit’s Claim Construction

03-1181
March 01, 2004

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Last Month at the Federal Circuit - April 2004

Judges: Bryson (author), Rader, and Prost

In Bancorp Services, L.L.C. v. Hartford Life Insurance Co., No. 03-1181 (Fed. Cir. Mar. 1, 2004), the Federal Circuit reversed the district court’s SJ ruling of invalidity under 35 U.S.C. § 112, ¶ 2.

Bancorp Services, L.L.C. (“Bancorp”), owner of U.S. Patent No. 5,926,792 (“the ’792 patent”), filed a suit against Hartford Life Insurance Company (“Hartford”). The ’792 patent, titled “System for Managing a Stable Value Protected Investment Plan,” describes and claims a system for administering and tracking the value of life insurance policies in separate accounts, including policies containing stable value protected investments.

Unlike traditional separate account policies, a stable value protected investment system allows policy owners to report a more predictable, stable value on their financial statements. Under a stable value protected investment system, a third-party guarantor guarantees a particular value for a life insurance policy, regardless of its market value, should the policy have to be paid out prematurely.

Two years into the litigation, the district court granted Hartford’s SJ motion, holding the claims of the ’792 patent invalid because the phrase “surrender value protected investment credits” was indefinite. The district court rejected Bancorp’s argument that the term “surrender value protection” had the same meaning as the term “stable value protection,” which is defined in the specification and used in the claims. The court also rejected the testimony of Bancorp’s expert because he was not shown to be an expert in life insurance administration.

On appeal, the Federal Circuit explained that claims are invalid for indefiniteness only if reasonable efforts at claim construction prove futile. Otherwise, if the meaning of the claim is discernable, even though the task may be formidable and the conclusion may be one over which reasonable persons will disagree, the claim avoids invalidity on indefiniteness grounds.

Applying these principles to the facts of the case, the Federal Circuit reversed the district court’s SJ ruling and held that the meaning of the term “surrender value protected investment credits” was reasonably discernable. While noting that the term was not defined in the patent nor in any industry publication, it nevertheless found the term’s components to have well-recognized meaning, allowing the reader to infer the term’s meaning with reasonable confidence. First, it found that the component term “surrender value” had a clear meaning to a person skilled in the art. Next, it found the meaning of the component term “protected investment” from the specification and extrinsic evidence. Finally, it found the meaning of the component term “credits” from the specification. Considering these component terms together, it arrived at the claim construction proposed by Bancorp, namely, that the term “surrender value protected investment credits” had essentially the same meaning as the term “stable value protected investment.”

While the Federal Circuit concluded that the intrinsic evidence alone merited a reversal of the SJ ruling of invalidity, it commented on the district court’s flawed analysis on certain extrinsic evidence. First, it commented that the district court should have considered the testimony of Bancorp’s expert because he was an expert in the use of stable value protected investments in the context of variable life insurance policies. Furthermore, it concluded that the district court should also have considered Hartford’s internal use of the term “surrender value protected investment” because, while not public in nature, the use was relevant to show that the term had a discernable meaning to at least some persons practicing in the field.