`______________
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`BEFORE THE PATENT TRIAL AND APPEAL BOARD
`______________
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`LIBERTY MUTUAL INSURANCE CO.
`Petitioner
`
`v.
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`PROGRESSIVE CASUALTY INSURANCE CO.
`Patent Owner
`______________
`
`Case CBM2012-00003
`Patent 8,140,358
`______________
`
`Before the Honorable JAMESON LEE, JONI Y. CHANG, and MICHAEL R.
`ZECHER, Administrative Patent Judges.
`
`REBUTTAL DECLARATION OF MARY L. O’NEIL ON BEHALF OF
`PETITIONER LIBERTY MUTUAL INSURANCE CO. REGARDING U.S.
`PATENT NO. 8,140,358
`
`I, Mary L. O’Neil, hereby declare under penalty of perjury:
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`I. Qualifications
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`1.
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`I am currently Principal of O’Neil Consulting Services, Inc. (OCS), an
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`independent actuarial consulting practice, which I established in 1986. I have over 30
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`years experience as a property casualty actuary in the insurance industry. My CV is
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`attached as Ex. 1033.
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`2.
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`OCS provides actuarial consulting services to a variety of clients from
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`both the regulatory and private sectors. For example, the regulatory agencies in which
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`Liberty Mutual Exhibit 1032
`Liberty Mutual v. Progressive
`CBM2012-00003
`Page 00001
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`I have provided consulting services include the North Carolina Department of
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`Insurance (for which I have completed Private Passenger Automobile rate analyses
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`for more than twenty years), the New Jersey Department of Insurance, the New York
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`Department of Insurance, the Ontario Automobile Insurance Board, the Texas Office
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`of Public Insurance Counsel, the Georgia Department of Insurance, the Pennsylvania
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`Department of Insurance, and the Wyoming Department of Environmental Quality.
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`3.
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`Individual insurers or insurance pools for which I have provided
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`consulting services include Integrity Insurance Company in Liquidation (on behalf of
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`liquidator), Home State Holdings, Inc. in Liquidation (on behalf of liquidator),
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`Security Indemnity Insurance Company in Rehabilitation (on behalf of rehabilitator),
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`Pennsylvania Millers Mutual Insurance Company, several small insurers, and several
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`self-insurance pools.
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`4.
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`The services I have performed on behalf of OCS include analysis of
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`proposed rates by insurers, analysis of required insurer reserves in conjunction with
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`regulatory examinations of insurance companies, evaluation of loss reserves for
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`purposes of reinsurance commutation, preparation of required reserve opinions for
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`individual insurers and pools, evaluation of legislation, and other special projects.
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`5.
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`Rate analyses have included private passenger automobile, homeowners’,
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`dwelling fire, title, and workers’ compensation. These projects have been completed
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`for individual rate filings or full industry rate filings in selected states. I have also
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`estimated the required loss and loss adjustment expense reserves for a multibillion
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`dollar multi-line insurer group, a number of insurers in conjunction with financial
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`examinations, for purposes of commutations, several small insurers, and self-
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`insurance pools. These analyses have sometimes addressed the issues of mass torts or
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`catastrophes.
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`6. My previous work experience includes insurance actuary positions at the
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`New Department of Insurance (“NJDOI”), Prudential Property and Casualty
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`Insurance Company, and General Reinsurance Corporation.
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`7.
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`During my nearly two years at NJDOI, I served as the Department’s
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`Chief Actuary. My responsibilities included supervision of the actuarial aspects of
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`regulation for all lines of insurance: personal lines and commercial lines rates and
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`forms, life contracts and health rates. In addition, I supervised the life valuations and
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`supplied assistance to the Examinations Division in valuing property/casualty insurer
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`reserves. I also served as an advisor to the commissioner and other department staff
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`on all issues before the department.
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`8.
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`For the eleven years I worked at Prudential, I had a variety of
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`responsibilities, which included insurance pricing, marketing, reserving, financial
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`analysis, and various special projects. I started as an actuarial student and rose to the
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`level of Vice President and Assistant Actuary. Finally, at General Reinsurance
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`Corporation, I spent one year doing mostly statistical insurance work.
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`9.
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`I have also worked with several law firms in a consulting and/or expert
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`capacity. My attached CV lists all the matters in which I was involved, including my
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`testimonial experience. See Ex. 1033.
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`10.
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`I have the professional designations of Fellow of the Casualty Actuarial
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`Society (FCAS), Member of the American Academy of Actuaries (MAAA), Chartered
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`Life Underwriter (CLU), and Chartered Financial Consultant (ChFC). I am also a
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`member of the Casualty Actuarial Society (CAS), American Academy of Actuaries
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`(AAA), and the International Association of Insurance Receivers (IAIR).
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`11. My education includes a B.S. in Mathematics from Pennsylvania State
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`University, and an M.A. in Statistics, also from Pennsylvania State University.
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`12.
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`I have been retained on behalf of Petitioner and real party in interest,
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`Liberty Mutual Insurance Company (“Petitioner” or “Liberty Mutual”), I have been
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`asked by Liberty Mutual to respond to certain assertions and opinions offered by
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`Michael Miller and Progressive Casualty Insurance Co. (“Progressive”) concerning
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`U.S. Patent No. 8,140,358 (“the ‘358 patent”) in this matter.
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`13.
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`I am being compensated at a rate of $500 per hour for my services, after
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`expert service fees. My compensation does not depend on the outcome of this
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`Business Method Review Petition or the pending litigation between Petitioner and
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`Progressive in the U.S. District Court for the Northern District of Ohio.
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`II. Scope of Rebuttal Declaration
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`14.
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`I have been asked to respond to certain assertions and opinions of Mr.
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`Michael Miller expressed in his declaration of June 12, 2013 as Exhibit 2005, his
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`supplemental declaration of June 26, 2013 as Exhibit 2013, and certain assertions of
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`Progressive in its Patent Owner’s Response of June 12, 2013.
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`15.
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`In developing my opinions below, I have considered the following
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`materials:
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` Declaration of Michael Miller (Ex. 2005);
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` Supplemental Declaration of Michael Miller (Ex. 2013);
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` Patent Owner’s Response (Paper 33) (“Opposition” or “Opp.”);
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` Board’s Decision on Institution of Covered Business Method Review
`(Paper 15);
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` Progressive’s U.S. Patent No. 8,140,358 (“the ‘358 Patent”) (Ex.
`1001);
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` United States Patent Application Publication No. 2002/0128882
`(“Nakagawa”) (Ex. 1005);
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` United States Patent Application No. 09/571,650 (“the
`Application”) (Ex. 2004);
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`‘650
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` United States Patent Application No. 10/764,076 (“the
`Application”) (Ex. 2012);
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`‘076
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` All other materials referenced as exhibits herein.
`III. Analysis and Opinions
`A. Mr. Miller’s Opinions and Progressive’s Assertions Regarding
`“Actuarial Classes” and Determining Auto Insurance Premiums
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`16. Although I have not addressed certain of Mr. Miller’s arguments in his
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`declaration here, that does not mean I agree with them. Mr. Miller repeats many of
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`the same arguments related to “actuarial classes” as in CBM2012-00002 and
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`CBM2012-00004, related to Patent No. 6,064,970. Although I still disagree with
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`many of his points, as I stated in my declarations in those covered business method
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`proceedings (Ex. 1022 in each of CBM2012-00002 and CBM2012-00004), I do not
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`believe addressing these issues is necessary to demonstrate the errors in Progressive’s
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`arguments in this proceeding, as addressed below.
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`B. Mr. Miller’s Opinions and Progressive’s Assertions Regarding
`“Rating Factor”
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`17. Claim 1 of the ‘358 patent recites “generat[ing] a rating factor based on the
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`selected vehicle data stored in the database,” and dependent claim 19 further recites
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`“calculat[ing] an insured's premium under the insured’s insurance policy based on the rating
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`factor, or a surcharge or a discount to the insured's premium, based on the rating factor.”
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`18. The Board construed the term “rating factor” as “a calculated insurance
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`risk value such as a safety score or a usage discount” and added the clarification that
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`“an insurance risk value would be a value that reflects an associated level of insurance
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`risk and therefore, also a corresponding insurance premium.” ID at 6. Mr. Miller
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`opines that “[a] person of ordinary skill in the art would interpret the Board's
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`reference to ‘insurance risk’ to mean expected claims losses, and ‘an associated level of
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`insurance risk’ to describe rating factors associated with actuarial classes.” Ex. 2005, ¶
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`38.
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`19.
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`I disagree with Mr. Miller’s interpretation of the Board’s construction.
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`Progressive and Mr. Miller are improperly adding “expected claims losses” and
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`“actuarial classes” to the Board’s construction. A POSITA would understand the
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`Board’s construction of the term “rating factor” to mean exactly what it says: “. . . in
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`the context of the specification of the ‘358 patent, a “rating factor” is a calculated
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`insurance risk value such as a safety score or a usage discount, which reflects a level of
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`insurance risk and a corresponding insurance premium.”
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`20. Mr. Miller opines that the ‘650 application “inherently” discloses “rating
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`factors (as has been defined by the Board) based on selected vehicle data.” Ex. 2005, ¶
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`42. Mr. Miller cites to the following portions of the ‘650 as disclosing “actuarial
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`classes based on driver safety data,” which Mr. Miller alleges “inherently” disclose
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`“rating factor”:
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` “The subject invention will base insurance charges with regard to current
`material data representative of actual operating characteristics to provide a
`classification rating of an operator or the unit in an actuarial class which has
`a vastly reduced rating error over conventional insurance cost systems.”
`‘650 Application, 6:15-18.
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` “One benefit obtained by the use of the present invention is a system that
`will provide precise and timely information about the current operation of
`an insured motor vehicle that will enable an accurate determination of
`operating characteristics, including such features as miles driven, time of use
`and speed of the vehicle. This information can be used to establish actual
`usage based insurance charges, eliminating rating errors that are prevalent in
`traditional systems and will result in vehicle insurance charges that can be
`directly controlled by individual operation…It is another object of the
`present invention to generate actuarial classes and operator profiles relative
`thereto based upon actual driving characteristics of the vehicle and driver, as
`represented by the monitored and recorded data elements for providing a
`more knowledgeable, enhanced insurance rating precision.” ‘650
`Application, 8:1-7; 12-15.
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` “Examples of data which can be monitored and recorded are:
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`1. Actual miles driven;
`2. Types of roads driven on (high risk vs low risk); and,
`3. Safe operation of the vehicle by the vehicle user through:
`A. speeds driven,
`B. safety equipment used, such as seat belt and turn signals,
`C. time of day driven (high congestion vs. low congestion),
`D. rate of acceleration,
`E. rate of braking,
`F. observation of traffic signs.” ‘650 Application, 10:28-11:5.
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`21. The following explanation was provided to me to inform the
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`development of my opinions concerning whether the ‘650 application “inherently”
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`discloses certain claim limitations of the ‘358 patent: when an explicit limitation in a
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`claim is not present in the written description whose benefit is sought, it must be
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`shown that a person of ordinary skill would have understood, at the time the patent
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`application was filed, that the description requires that limitation.
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`22.
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`I do not agree that the ‘650 application “inherently” discloses the
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`generation of a “rating factor.” I further do not agree that the ‘650 application
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`“inherently” discloses the generation of a “rating factor” based on the “selected
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`vehicle data” or calculation of insurance premium or surcharge/discount based on the
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`“rating factor.” That is, a POSITA would not have understood, at the time the ‘650
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`application was filed, that the disclosure in the ‘650 application cited by Mr. Miller (or
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`any other disclosure in the ‘650 application) “requires” the generation of a “rating
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`factor” based on the “selected vehicle data” or the calculation of insurance premium
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`or surcharge/discount based on a “rating factor.”
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`23.
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`In the absence of specific mention of the calculation of rating factors, a
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`POSITA could conclude that direct calculation of insurance costs was intended by the
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`‘650 patent application. For example, the ‘650 application discloses type of roads
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`driven as an example of monitored vehicle data. If type of roads driven was utilized
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`to identify two appropriate actuarial classes, high risk and low risk, it would not be
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`necessary to generate rating factors in order to determine the cost of insurance for
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`each group. Instead each group could be analyzed separately and an appropriate
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`insurance cost could be derived directly using standard actuarial ratemaking
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`procedures, e.g., using each group’s premium experience, claim loss experience, and
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`expense experience. The same concept would apply to each of the examples of
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`monitored data provided. Hence, there would be no requirement to generate a rating
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`factor.
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`24.
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`Progressive and Mr. Miller also argue that determining insurance charges
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`(such as surcharges and discounts) “necessarily involves generating and using a rating
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`factor.” Opp. 48-49; Ex. 2005 ¶ 39 (“use of an actuarial class within an insurance
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`context necessarily involves generating and using a rating factor”). This is incorrect.
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`Insurance costs, (i.e., premiums including discounts and surcharges) may be
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`determined based on detected driving characteristics without generating a “rating
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`factor” prior to such determination, for example, by a direct estimate using standard
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`actuarial ratemaking procedures, e.g., using the premium experience, claim loss
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`experience, and expense experience of each group. Additionally, a person of ordinary
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`skill would not understand the cursory references to insurance cost determination in
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`the ‘650 application to disclose the additional calculation of a “rating factor” as
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`construed by the Board. On the contrary, insurance costs can be determined without
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`the generation of rating factors, as explained above.
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`25.
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`Furthermore, Mr. Miller states that the surcharges and discounts
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`disclosed in the ‘650 application disclose the generation of rating factors. Ex. 2005 ¶
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`43. However, claim 19 of the ‘358 patent makes it clear that surcharges and discounts
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`are based on rating factors; they are not the rating factors themselves. Mr. Miller and
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`Progressive seem to be confusing these calculated surcharges and discounts with the
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`“usage discounts” included in the construction of “rating factor.” These usage
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`discounts of the ‘358 patent, however, are percentages applied in calculating insurance
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`charges, and thus “rating factors,” while the surcharges and discounts of the ‘358
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`patent are calculated insurance costs, and not “rating factors.” Ex. 1001 at 22:21-24,
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`23:29-59, Fig. 8.
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`C.
`Progressive’s Assertions and Mr. Miller’s Opinions Regarding
`Nakagawa
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`26.
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`Progressive alleges that Nakagawa’s “usage data” is not the “selected
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`vehicle data that relates to a level of safety or an insurable risk in operating a vehicle”
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`as recited in claim 1 of the ‘358 patent. Opp. 20-22. I do not agree. Nakagawa clearly
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`states:
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`In step S2, the on-board control part 12 determines whether the
`operation and installation statuses of a vehicle are safe or dangerous
`based on data collected from operating status detection means 7 and
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`installation status detection means 8. When it determines that both the
`operating and installation statuses are safe, the degree of safe operation
`is recorded in point form (step S3). When it determines that the statuses
`are dangerous, the danger status is recorded in point form (step S4). The
`data stored in steps S3 and S4 are stored in the memory provided in the
`on-board control part 12 as “usage data” (step S5).
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`Ex. 1005 at [0065]. Contrary to Progressive’s assertions, a POSITA would find that
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`Nakagawa’s “usage data” “relates to a level of safety or an insurable risk in operating a
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`vehicle” because it includes “degree of safe operation” and “danger status” that are
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`based on determinations of “whether the operation and installation statuses of a
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`vehicle are safe or dangerous.”
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`27. Based on Mr. Miller’s improper understanding of “rating factors,” he
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`asserts that a POSITA would find that Nakagawa’s “operating levels” are not “rating
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`factors.” Ex. 2005 ¶ 44. However, that is incorrect. The Nakagawa reference clearly
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`states:
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`Here, user operating levels … are based on data relating to the driver
`operation of the car from the start of the month to the present. That is,
`at the end of the month, the evaluation of operating levels for one
`month is calculated in numeric form and displayed to reflect the amount
`by which the insurance premium will be multiplied. The operating levels
`show driving techniques and the level of safe driving as points which are
`then evaluated as number.
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`Ex. 1005 at [0076]. Contrary to Mr. Miller’s assertions, a POSITA would find that
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`Nakagawa’s “operating level” satisfies the Board’s construction of “rating factor”
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`because it shows “driving techniques and the level cy‘r.cy% d:rz'w's:g” and is a calculated
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`insurance risk value.
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`28.
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`Even under Progressive’s and Mr. Miller’s added requirements that
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`“rating factor” must be “based on or tied somehow to expected claims losses or
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`actuarial classes” (Opp. 29, Ex. 2005 fll 44), l‘Cakagawa’s “operating level” satisfies
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`such requirements. In fact, the ‘358 patent itself ties the level of safe driving to
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`expected claim losses:
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`0 EX. 100i at 3:40-55: describing that metrics and monitoring can, for
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`example, "be used to mearme the relative mfigy qf[cz machine 337 c‘per.:z.!:z'mz” and
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`“generate data that may cferarrrzine the core‘ roproiea‘ agazflrta riraé qf£o.m‘.”
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`0 Ex. 1001 at 3:61-63: “The data may establish a safe driving record [sic,
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`and] a lower risk of being subject to a claim.”
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`0 Ex. 1001, Figs. 8-13: depicting driving techniques (3.32, “Aggressive
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`Accelerations,” etc.) and level of safe dfiving (dag, “Safety Score”) used in
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`determining premiums.
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`Dated:
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`8,/15/2013
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`Page 00013