Lincoln National Wins $13M Jury Verdict in GMWB Patent Lawsuit
By Tom Bakos
Lincoln National Life Insurance Company won a $13 million jury verdict on Feb. 13 in its patent infringement lawsuit against Transamerica Life Insurance Company, Western Reserve Life Assurance Company of Ohio, and Transamerica Financial Life Insurance Company.
This is the first time in recent memory that an insurance company has asserted its patent rights with respect to an insurance product and prevailed.
The decision allows Lincoln National to claim as intellectual property the administration of variable annuity benefits that provide what are commonly known as Guaranteed Minimum Withdrawal Benefits (GMWBs). One of the claims describes an administrative process for continuing to make guaranteed minimum payments from a variable annuity account even if the account value is exhausted before all payments are made.
This decision was unusual because less than 1 percent of patent infringement lawsuit go to a jury. The rest are usually settled before they get that far.
The jury found that Transamerica infringed claims 35 – 39 and 42 of patent US 7,089,201 and further rejected Transamerica’s argument that one or more of the claims were invalid. The jury awarded $13,098,349 as reasonable royalty for infringement that began on Aug. 8, 2006 (which is the date of issue of the ‘201 patent). The award was calculated using a royalty basis of 11 b.p. multiplied by an asset base of $11,907,589,871.
This royalty award covers Transamerica’s use of Lincoln’s intellectual property (IP) from Aug. 8, 2006, but it is not known what arrangements, if any, Transamerica has made to continue to use the disputed IP. It is also, as of this point, unknown whether or not Transamerica can or will appeal the decision.
Lincoln National has three issued patents (US 6,611,815; US 7,089,201, & US 7,376,608) addressing various aspects of the GMWB feature, which is included in many variable annuity policies issued by insurance companies today. In addition, Lincoln has two pending patent applications also addressing GMWBs.
So far, Lincoln has three other patent infringement lawsuits currently outstanding:
•v. Transamerica et. al. for infringing Lincoln’s patent US 7,376,608 (issued 5/20/2008) – a patent with claims focused on the GMWB feature.
• v. Jackson National Life Insurance Company for infringing Lincoln’s patents US 6,611,815 (issued August 26, 2003) and US 7,089,201 – both of which contain claims focused on GMWB features.
• v. Sun Life Insurance Company of Canada (& New York) for infringing all three Lincoln patents addressing GMWB features – US 6,611,815; US 7,089,201; and US 7,376,608.
Also of interest is the fact that an ex parte re-examination of US 7,089,201 has been granted by the U.S. Patent and Trademark Office and is in process. A reexamination of an issued patent may be requested at any time by people who believe they have prior art relevant to the patent that was not considered when the patent application was originally examined. Currently, no office action on this reexamination has been produced.
A reexam, simply stated, is a redo of the original patent office examination taking into consideration the new prior art provided. If the USPTO on reexam should find Lincoln’s claims in US 7,089,201 invalid in light of the prior art, then, of course insurance companies that issue variable annuities with GMWB benefits would have less to worry about. But, remember that Lincoln still has two other issued patents covering very similar IP and, as noted above, their most recent lawsuits claim infringement of all three.
So far, the presence of the Lincoln GMWB patents has not appeared to have had much impact on the insurance industry. Lincoln’s win in this lawsuit, however, ought to give insurers with GMWBs in their portfolios something more to think about.
The protected IP is in the details of the patents so it is difficult to make any kind of generalized statement about how or whether any particular GMWB benefit may or may not infringe. However, any insurer with a GMWB that guarantees fixed withdrawals over a period of time from the variable account regardless of the value of the account will, probably, need to look closely at the Lincoln patents.
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Tom Bakos is an independent consulting actuary and can be reached at [email protected]
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