Blackboard v. Desire2Learn: The First Final Judgment

This is a guest post by Jim Farmer.

Delayed several days by a database failure at the District Court for the Eastern District of Texas Friday, May 2nd, the Final Judgment and associated orders for Blackboard v. Desire2Learn are now publicly available.

This text is based upon publicly available records. Because much of the record is “sealed” and not available to the public, and the transcript is available only upon payment to the court reporter, the complete record, as available to counsel, may provide a different perspective.

Permanent Injunction

The permanent injunction was issued March 11 and automatically stayed 60 days until May 12 (May 11 was Sunday). On May 7th Desire2Learn made a sealed “Emergency Motion for Limited Extension of Stay of Permanent Injunction.” Judge Clark did stay the permanent injunction an additional 30 days until June 11th. However the judge ordered Desire2Learn “…notify its present clients and all persons and entities with whom Desire2Learn is offering to provide online education products, methods, or services of the injunction and that court does not intend to issue any additional extensions.” The Judge also required Desire2Learn to pay Blackboard $194,769 as “appropriate reasonable royalty to be paid for the ongoing infringement and anticipated post judgment interest during the pendency of any appeal.”

The permanent injunction requires Desire2Learn to pay $3,130,000 in damages plus $135,633 for pre-judgment interest. Desire2 Learn would not be permitted to sell for use in the United States Desire2Learn version 8.2.2 and earlier versions and “all other methods for providing online education that are not more than colorably different therefrom.”

The permanent injunction and its stay has no practical consequence for current users. Blackboard never requested that current users “cease and desist” using Desire2Learn software or services, but rather asked only to receive royalties from Desire2Learn from this use. The judge subsequently commented: “I mean, Blackboard wanted to win the case but appear to be a nice guy by saying, oh, well, we’re not going to interfere with these other companies. If you want to do that, you [Blackboard] work out your own deal [with Desire2Learn]. I’m not going to help you be the nice guy.”

While Blackboard could, as many research universities do, request and receive such an order and could request that infringing products be barred at the border, at this point it would require a motion and, because of the record, not likely to be granted.

The stay does permit Desire2Learn to continue selling and delivering in the U.S. 30 more days.

Royalty

At least two times Judge Clark required the two litigants to “meet and confer” on a royalty rate. During the March 27th hearing, he said “I gather that there has been not much success in coming to an agreement on the royalty amount.” Subsequently Blackboard agreed to pay $30,000 royalty for the sixty days—the amount suggested by Desire2Learn. Blackboard was hesitant to agree saying that number could set the royalty rate for the future. The judge commented: “So, I mean, are we really – I mean, we’re having a fight, it looks to me like, over $60,000 with a judgment of something like $3 million.” Desire2Learn attorney Dasso suggested that “Magistrate Judge Hines participate and have some discussion in front of him.” Judge Clark said” When my preliminary figures come out that it is –-what?-– like one-third of a percent of the total judgment, I’m not even sure I’m interested in asking Judge Hines to take a day or two to learn what’s going on here and then meet with you.”

So Blackboard gets $30,000 royalty for the sixty days and avoids a delay in final judgment. But when Judge Clark ordered an additional 30 day stay, the “Appropriate reasonable royalty to be paid for the ongoing infringement by Desire2Learn … is $194,769.00.” The Order did not reveal the basis for this increased amount.

Scope of the Patent

Desire2Learn requested and the Court did declare claims 1 through 35 of the ‘138 patent invalid. However, on appeal the Court of Appeals for the Federal Circuit may do claims construction from the beginning and could reach a different conclusion.

New Trial

Desire2Learn requested a new trial. In the “Procedural History and Background” of his May 5 Order, Judge Clark quoted other cases saying “A motion for a new trial should not be granted unless the verdict is against the great weight of the evidence, not merely against the preponderance of the evidence. Dresser-Rand Co. v. Virtual automation, Inc. Echoing Barry Dahl’s interview of Michael Smith (“Desire2Pod Cast 18 – East Texas Law School Lecture,” April 2, 2008 on Desire2Blog), he continues: The court must not substitute its opinion for the collective wisdom of the jury. Smith, 773 f.2d at 613.

Desire2Learn moved for a new trial based on the court’s construction of the term “user.” Quoting from the trial transcript, Judge Clark writes: “Desire2Learn admits that the court’s claim construction order rejected Blackboard’s proposed construction of the term “user” and instead adopted Desire2Learn’s position that a user must refer to a physical person who interacts with the system.” Then he comments: “It is a recognized tactic for a party to claim confusion about, and request construction of, as many terms as possible. Since the reversal rate on claim construction is about 38%, this multiplies the chance of having an error to fall back upon if the trial goes badly.” After a lesson in grammar and the meaning of words, Judge Clark concludes “Defendant’s motion for a new trial on invalidity is denied.”

Motion to Stay

Desire2 Learn again moved to stay proceedings pending reexamination. The judge wrote:

This is Defendant’s third [emphasis in the original] motion to stay proceedings pending the reexamination of U.S. Patent No. 6,988,138 by the United States Patent and Trademark Office. The court orally denied Desire2Learn’s motion to stay on December 8, 2006, and denied Desire2Learn’s motion to reconsider in an Order signed March 12, 2007.

Now that trial has completed and a judgment has been entered on all claims and counterclaims, there is absolutely no indication that a stay would result in any savings of time or resources. See Sovereign Software LLC v. Amazon.com, 356 F.Supp.2d 660, 662 (E.D. Tex. 2005). In fact, it is hard to imagine a more useless grant of a stay at this stage of the proceedings.

Desire2Learn stated that it would be easy and inexpensive to create a design-around. Thus, the court gave Desire2Learn 60 days to implement such a design-around, and Desire2Learn has made representations that the design-around is now complete and in its final stages, namely the quality assurance aspect. See March 27, 2008 Hearing Tr. [Doc. #386 at 4]. After repeatedly arguing to the court that no infringement will occur after the design-around is implemented, there is certainly no real value to staying any injunction.

Moreover, the PTO has issued only an initial [emphasis in the original] office action. Blackboard Inc. has not yet had an opportunity to respond to the PTO. There is no guarantee that the three claims at issue (claims 36-38) will undergo any changes, whereas Blackboard will certainly be harmed by a stay if the claims are upheld. The court finds that factors in deciding whether to stay litigation pending a reexamination by the PTO weigh heavily against a stay.

The Judge’s Perspective on the Case

The May 5th “Order on Desire2Lern’s Motion for Judgment As a Matter of law and Motion for New Trial” provides some insight into the trial itself. A few quotations may add background.

“The question is not how a judge might review the cold record, but how the jury assesses the credibility of the witnesses. In this case, the demeanor of the [Desire2Learn] witnesses, their reluctance to give straight answers to some questions, and the way they answered others would have supported a juror’s decision to discount what could easily have been perceived as self-serving testimony of some Desire2Learn employees and officers.”

“The testimony of [Blackboard’s expert witness] Dr. Jones on infringement was controverted by some of Desire2Learn’s employees and officers. But this was contradicted by other employees or former employees of the company.” The order gives examples.

Referring to the CourseInfo ILN v1.5 and Serf 1.0 learning software: “Desire2Learn had to provide invalidity by clear and convincing evidence. That standard must be applied to the evidence that was actually presented to the jury at trial, and not to pages of lengthy documents not actually shown or explained to the jury.”

“The court does not intend to cast aspersions upon an expert with advanced degrees and many years in academia and government. However, Desire2Learn’s expert was ill-prepared for his first venture in testifying in a patent case, to the point of not being familiar with the burden of proof that should be used in evaluating anticipation.” … When two corporations represented by experienced and competent counsel are before the court, it is not the judge’s place to repeatedly instruct counsel or the witness on effective presentation of testimony, nor to remind a well-paid expert witness of information in his report or buried in exhibits that might clarify and support his opinion.” “Not to put too fine a point on it, a jury would have been fully justified in discounting Desire2Learn’s expert testimony on invalidity.”

“For example, the cross-examination of Mr. Fred Hofstetter about the Serf system prevented his testimony from being clear and convincing evidence [emphasis added] of invalidity.” At the trial Fred thought it was his testimony that was not well received. Now we know the judge’s impatience was the attorney’s cross-examination.

“Even minimal research would reveal that the statute does not preclude the application of a contractually agreed-upon rate of interest between the parties. See In re Lift & Equipment Services Inc.” … The court asked about the use of prime twice, and both times counsel confirmed that was their intent. It is not just courts in the United States which frown on those who attempt to renege on their agreements.” Then citing a Canadian case: “it must not be forgotten that … man of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of Justice.”

Version 8.3 and Infringement

Desire2Learn said the design-around would take 30 days; the judge granted a 60 day stay but continued to ask if that date gave sufficient time. The judge also asked if Desire2Learn had considered distributing only the design-around. Desire2Learn insisted on distributing a new version of the software.

In his March 14th blog “Seeking Clarity about D2L Work-Around,” on Desire2Blog, Barry Dahl listed three alternatives: Court agreeing the work-around is “colorably different” ending any further royalties unless Blackboard challenges that ruling, is not “colorably different” which would continue royalties (and, unlikely though possible, a cease and desist order) unless Desire2Learning challenges, or not determined which leaves to Blackboard the issue of whether to initiate a new patent suit.

According to the clerk’s records, the Court asked Blackboard’s expert witness Dr. Jones to testify during the March 10th hearing (15 minutes—10:45 to 11:00 according to the record). The transcript is sealed, but likely he was asked to give an expert opinion on Desire2Learn’s Version 8.3. If he had said it was not infringing, the Desire2Learn patent Web site likely would have said so. This suggests further litigation on the enforcement of the final judgment.

On March 27th Judge Clark said: “If what you’re calling a work-around or design-around, in fact, is not and was I to find it was not, they you would be looking at a different measure of damage, including whatever I decide to award for contempt. I mean, I ‘m not trying to threaten you [to reach agreement on royalty], but I think that’s how the law would work, is that you would be in contempt of court, obviously deliberate contempt based on the fact that I’ve had endless testimony on how easy and how cheap it’s going to be to do this work-around. I could only assume that if you didn’t do it, after telling me endless times how easy and cheap, then it would have to be deliberate.”

Court Costs

The Final Judgment says: “ …costs are taxed against Defendant Desire2Learn Inc.” On the following day Blackboard filed its costs. The Nolo Web site defines court costs: “The fees charged for the use of a court, including the initial filing fee, fees for serving the summons, complaint and other court papers, fees to pay a court reporter to transcribe deposition and in-court testimony and, if a jury is involved, to pay the daily stipend of jurors. Often costs to photocopy court papers and exhibits are also included. Court costs must be paid by both parties as the case progresses, but ultimately, the losing party will be responsible for both parties’ costs.”

There are statutory limits on costs. For examples, the cost of expert witnesses cannot exceed $40 per day. According to the filing, the total costs were $658,799.84 including $515,77.46 for documents and $88,383.79 for transcripts.

Next Year

At this point litigation between Blackboard and Desire2Learn over version 8.3 is possible. If so, Blackboard would likely return to Lufkin either for contempt hearings where the court has jurisdiction or filing a new case. It would take more than a year for a new case to be heard.

On March 27th Judge Clark references an appeal saying: “I’m interested in getting in a — or entering a final judgment so either or both sides can start working towards whatever appeal they’re going to work on.”

If there is an appeal to the Court of Appeals for the Federal Circuit, it would take about a year. The hearing would be held in Washington, DC.

If either party appeals the combined patent reexamination, then the appeal would first go to the U.S. Patent and Trademark Office’s Board of Appeals and Interferences. Again a year.

In the meantime there are more formidable e-Learning cases that will be heard.