An Update on Blackboard Calling Desire2Learn Customers

A while ago, I noted D2L’s claim that Blackboard General Counsel Matt Small (whose title either is going to be changed or has already been changed to “Chief Business Officer”) was calling D2L customers and encouraging them to switch over. I requested that readers contact me with any information that they have. I got a few responses. The first was from Matt Small. As you might imagine, he has a different account of what happened. I didn’t speak to Matt directly, but he sent me an email with his side of the story:

The summarized version is that several D2L client general counsels called me to ask what would happen if the court holds D2L in contempt for violating the injunction. I told them that Bb never wants to see a school disrupted, that there are options in the market and that Bb would always be here to serve as a safety net if the schools prefer us. The point of my message was to ease any fear that schools might be caught in the crossfire between Bb and D2L. Each GC [General Counsel] was very appreciative of our commitment and thanked us. I reached out to a few other GC’s myself where I thought they would appreciate that information, some of which are also Bb clients. D2L’s blog is completely false–my intent was neither FUD nor sales. It was simply a courtesy call to allay fears. Please feel free to share this info as you feel appropriate.

I also heard some of the same rumors that Barry Dahl cites–i.e., that at least a couple of D2L customers are concerned about the continuing uncertainty surrounding the outcome of the trial as it affects them. But I’ve held off posting about them because the information I’ve been getting from the universities themselves has been mostly sketchy, third-hand, and/or highly off-the-record.

Until now, that is. A gentleman who is in-house counsel for one of D2L’s major customers was kind enough to speak with me about the conversation that he had with Matt Small and to share his own assessment of the overall legal situation, on the condition that I do not name him or his university. (For simplicity’s sake, I’ll refer to him as “John” for the purposes of this post.) In addition to being a lawyer at a school that licenses both D2L and Blackboard, John has a background working for software companies and is well versed in the legal and business issues surrounding software patents. So his comments should be taken as those of an expert.

The gist of the conversation between John and Matt, as John characterizes it, is as follows:

• Matt called John. John’s university, as a Blackboard customer, previously has had difficulties getting the company to be responsive at any level of the organization in a variety of contexts (including the RFP that eventually led to the selection of D2L), so John was surprised to get the call.
• Matt said that he was calling some D2L customers because he had been contacted with questions about about what Blackboard’s intentions are regarding the patent. He wanted to assure John that Blackboard had no intention of harming D2L’s customers.
• Nevertheless, Matt argued, D2L’s customers are in harm’s way. Matt suggested that D2L is going to lose the patent fight in the end and that they are in serious and imminent financial jeopardy. He was apparently still citing the ex parte patent challenge statistics at the time, despite having been repeatedly and publicly called on the fact that the current USPTO challenge is inter partes by that point. John once again called him on his numbers. (As an aside, I am looking at some new analysis of inter partes challenge rates and may blog about it at some point.)
• Matt suggested several times that he thought he could get John’s university “a really good deal” if they wanted to move to Blackboard.
• John, who believes that Blackboard’s patent is not likely to survive the patent challenge in a commercially useful form, engaged Matt in a bit of a debate over Blackboard’s legal position, covering some of the same points that have been published here and elsewhere. Neither one succeeded in changing the other’s mind.

Notice that the basic facts of the conversation are broadly consistent with both D2L’s and Blackboard’s versions of the story. The difference between them lies in the percieved intent of the call. John was definitely of the impression that he was getting a sales pitch and that the picture that Matt was painting on D2L’s legal and financial situation was far more dire than the facts support. However, he also confirmed that other D2L customers have responded differently, depending on their level of nervousness about the legal situation and their more general levels of risk tolerance.

Which brings me to the issues that are confronting current D2L customers. They face two types of uncertainties–short-term and long-term. In the short term, there is the question of what happens in the case of customers that are still on version 8.2.x (if any still are) after the injunction goes into effect. Now, one of the few rules that both Blackboard and D2L agreed to was that the injunction should not force D2L customers to stop using the software. (The judge interpreted this agreement as a positive concession on Blackboard’s part.) As I understand it, the two effects of the injunction will be that (1) D2L can no longer license the infringing version of their product (8.2.x) to customers in the United States and (2) D2L will be required to pay a royalty to Blackboard until its customers upgrade to a non-infringing version. The direct impact to D2L customers should be little to nothing, but there seem to be some lingering concerns among at least some customers about the practical risk and pressure facing those customers based on unresolved questions about D2L’s financial burden. Also, the judge has declined to rule on the question of whether customers who are hosted by D2L in Canada are infringing on US patent law. (The installation for John’s university is hosted by D2L, as is the case for many D2L customers.) Again, D2L should theoretically have far more reason to care about this than their customers should, but any financial risk to D2L can be perceived as an indirect risk to their customers. So, depending on how risk-averse the schools are, this may or may not matter to them.

The bigger concern is the longer-term risk. D2L claims that version 8.3 of their product does not infringe on the patent. Matt told John that Blackboard is convinced that it does and at least implied that Blackboard would likely challenge it in court. However, to date, Blackboard has not filed a legal challenge. The problem is that, until Blackboard does so, there is no way to resolve whether 8.3 does, in fact, infringe. This represents an ongoing risk to the customers. Again, the size of that risk is somewhat in the eye of the beholder and depends partly on how likely you think it is that Matt is right. For what it’s worth, John believes that 8.3 is very unlikely to infringe, based on the outcome of the Markman hearing before the trial and what he knows about the new version of the product.

In a follow-up to their phone conversation, John requested that Blackboard challenge 8.3 as quickly as possible (or, presumably, announce that they have no intention of challenging it) in order to reduce uncertainty for D2L customers. Matt declined to say when Bb will file the challenge. It would be in the clear best interests of D2L customers and consistent with the spirit in which Matt says he made the phone calls if Blackboard would clear up this uncertainty as quickly as possible.

One other interesting angle came up in my conversation with John. He mentioned the possibility of mounting a Constitutional challenge of Blackboard’s injunction on Eleventh Amendment grounds (i.e., states’ rights). Several of D2L’s larger customers, including Ohio State University, University of Wisconsin, Tennessee Board of Regents, and Minnesota State Colleges and Universities, could theoretically be in a legal position to bring such a challenge. I have no ability to assess its legal merits. For one thing, I’m not sure exactly how they would join the current suit. Furthermore, Jim Farmer has suggested to me that some state universities might not want to establish the legal precedent of being treated as state agencies. (That was the case with Cal State when he was CIO there.) So the complexities go well beyond my layman’s knowledge of the law. But an Eleventh Amendment challenge would certainly be a dramatic and fascinating turn of events. Blackboard has worked hard to avoid any direct legal confrontations with universities so far. A Constitutional challenge by a university could open up a substantial new front in their public relations battle.