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New Variable Annuity Patent Illustrates Value of Continuation Applications

January 25, 2012

Lincoln National Life Insurance Company (a member of the Lincoln Financial Group) owns patents related to the administration of variable annuities that have guaranteed withdrawal benefit riders.  Lincoln has asserted these patents against several companies, including filing several lawsuits.  One of the lawsuits, against Transamerica Life Insurance Company, went to trial and resulted in a verdict that found Transamerica had infringed one of the patents and ordered Transamerica to pay damages of over $13M.

That verdict was overturned on appeal.  The patent requires making scheduled withdrawal payments to an annuity owner using a computer, even if the account value is exhausted.  The undisputed evidence at trial was that no account values for Transamerica’s annuity owners had yet been exhausted, and Transamerica had not built out the computer modules necessary to administer payments if the account value was exhausted.  In other words, if the payments ever became necessary, it was possible–at least in theory–that Transamerica could administer the payments by hand.   Therefore, the appellate court found that Transamerica had not infringed the patent.  Thus a hole in the patent was revealed.

In a new patent issued last week (US Patent No. 8095398), Lincoln has attempted to plug the hole.  Claim 1 of the new patent is nearly identical to the claim at issue in the litigation, except that new claim 1 specifies that the step of making scheduled payments even if the account value is exhausted “can be made without the aid of a computer.”  If Lincoln asserts this new patent against Transamerica, or any other insurance company, the accused infringer will not be able rely on administering the payments by hand, rather than with the aid of a computer, to establish that they are not infringing the patent.

The new patent was the result of a “continuation application.”  A continuation application is a patent application that uses the same disclosure as an earlier application, but has different claims.  Any continuation applications must be filed while the earlier application is still pending.  However, there is no limit to the number of continuations that can be daisy-chained together.  Therefore, it can be a valuable strategy to file a continuation application with amended claims each time the issue fee is paid for an allowed application.  Keeping a continuation application alive gives the patent owner the ability to address any weaknesses in the original patent that may be identified during litigation.

It remains to be seen whether Lincoln will aggressively pursue enforcement of this new patent.  Lincoln may be reluctant to sign on for additional litigation after going through the time and expense of the first litigation only to come away empty handed.  However, this case does illustrate both the value of continuation applications and the risk of claiming a computer implemented method.

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