Barry Dahl read the Sakai Foundation’s recent announcement about the Blackboard patent pretty closely and is concerned that it sounds like they think the fight is over. I completely understand why he interpreted it that way, but I read it a little differently. If you look closely at the specifics of the legal situation, the Foundation’s position begins to make a lot more sense.
Tag: edupatents
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Interview with an East Texas IP Lawyer on Blackboard v Desire2Learn
A few of the usual suspects have pointed to this one already, but in case you haven’t seen it yet, Barry Dahl has a fantastic podcast interview up (about 30 minutes) with Michael C. Smith, an intellectual property lawyer in the district where the case was filed and author of EDTexweblog. Both interviewer and interviewee did a terrific job of really illuminating some of the legal nuances.
There is one point that bears revisiting, though. Michael, in answering Barry’s questions about the USPTO re-examination, appeared to assume that the re-exam was ex parte. This is a perfectly reasonable assumption, since ex parte is far more common a challenge type than inter partes. Nevertheless, the D2L/SFLC challenge is actually inter partes (or, to be more specific a weird hybrid of ex parte and inter partes that mostly follows inter partes rules). Some of Michael’s answers would probably be unaffected by this difference, e.g., the likelihood that the USPTO ruling will affect the prior court ruling. But some, like the probability of a successful USPTO challenge, how this challenge fits into a larger litigation strategy, and how the judge might react to the challenge going forward, could. I’d be really interested to hear whether any of Michael’s answers change based on this information.
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Blackboard Fails Statistics 101
Blackboard has posted their response to the USPTO ruling. They make some claims about how this will impact the trial, which I’m not in a position to evaluate just yet. They mention that all of the claims in the re-examination request “were unsuccessfully raised by Desire2Learn during recent litigation,” which is irrelevant since these are different forums operating under different rules with different burdens of proof. But what really gave me pause was their statistic. They claimed that “more than 90% of patents that undergo reexamination of this kind ultimately are upheld.” That didn’t seem consistent with the statistics that I remembered. Where did that number come from?
Funny story, that…
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All 44 Blackboard Patent Claims Invalidated by USPTO
On March 25, the U.S. Patent & Trademark Office issued its Non-Final Action on the re-examination of the Blackboard Patent. We are studying the document, found here, but in short, the PTO has rejected all 44 of Blackboard’s claims. We caution that this is a NON-final action; both Blackboard and Desire2Learn will have an opportunity to comment before a final action will issue, and after that, the decision will be subject to appeals.
This decision actually should have come before the trial verdict but was held up because the USPTO had to decide what to do about the separate filings from D2L and SFLC. Now, in addition to the fact that Blackboard will be able to argue against the ruling with the USPTO, there are a number of questions regarding how this affects the court case. Will the damages finding still stand? Will the USPTO ruling render moot D2L’s post-trial motion before the judge regarding invalidity? If not, will it imact that ruling? What happens to the issues of royalties and injunction going forward? I think that I know the answers to some of these questions but don’t want to post anything until I have some more authoritative information.
Stay tuned.
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Desire2Live
There’s a very interesting interview of Desire2Learn CEO John Baker and General Counsel Diane Lank in T.H.E. Journal. It’s a particularly good read if you haven’t been keeping up on the details of the trial, but there’s also good stuff in it for people who have been following closely. For me personally, the biggest bit of news in the article was this from John Baker:
$3.1 million is a lot of money, but it’s certainly not putting us in any financial jeopardy whatsoever. We’ve been very fortunate to have incredibly strong clients over the years, some of which pay almost that much money as an individual client. So we’ve been very, very fortunate to have good clients and good cash flow–no debt–we’ve got a very strong cash position. So we could pay that, without actually skipping a beat, and continue to be profitable this year and going forward. So from a financial perspective, it’s one of the concerns people have raised over [the course of the trial]. In the early days, $3.1 million was a lot of money for us. Today it doesn’t even come close to our R&D budget within our organization.
So we’re quite comfortable; we’re still hiring a lot of people; we still intend on growing; we’ve obviously launched new products; and we’re actually going to be launching more later in the year. So we’re intent on keeping our innovative edge and [focusing on] the clients and client success.
What’s interesting is we actually think that by all of our clients moving to 8.3, it’ll actually result in us having to support less versions of our application. Instead of being like Blackboard, where they’re probably supporting about 20 different versions of the application, at tremendous cost, we’re going to be supporting one, which will probably shave millions off of our costs [which will be applied to] new projects, new technology. We’re going to better support our existing clients. Or to focus our energy on the next version, the 8.4 version, or the 9.0. So we’re actually quite excited. We’re actually trying to find the silver lining in this and put ourselves in a better position than we were [in at the start of this]. Now, it’s not what we wanted to go through, but we can afford to pay it.
And then, what might happen is that if we lose on appeal, there’s nothing else we have to pay. We’ve got that workaround put in place. So that one-time cost for us is something that we can absorb. Some of the things we’re going to be asking the judge to do is to reduce that as well, if he doesn’t eliminate it altogether.
Because D2L is not a publicly traded company, we’ve had no visibility into their financial situation and how the suit was affecting them. If they can manage to get the injunction cleared up (particularly it is cleared up by the judge accepting their workaround), then they may come out the other side of this just fine.
Also, they’re still cranking out product. Version 8.3 appears to be a fairly robust release with a lot more functionality than just the patent workaround, and they have a new and impressive sounding ePortfolio product. (I highly recommend Barry Dahl’s podcast interview with D2L’s lead product manager Kenneth Chapman.) Their management team must be really good, because I never would have predicted that a company their size would have the cash reserves to manage under this sort of financial burden and the focus to keep developing with this much distraction.
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The Latest on the Edupatent Front
As I noted in an earlier post, I’m traveling this week, so this post is going to be relatively short and light on analysis. If you’re trying to get a comprehensive picture of what’s happening, I’d start with the article in The Chronicle. (Incidentally, Katherine Mangan, who is new to the edupatent beat at The Chronicle, has been doing a good job of capturing some of the legal nuances that I haven’t seen covered in most of the other mainstream media stories.) Next, you’ll want to check with Al and Barry. Like both of these guys, there are some aspects of the ruling that I’m still trying to process. The judge came down with a pretty tough injunction against D2L along with some strict orders about how and when D2L must inform customers and prospects. The judge has placed an injunction on D2L regarding existing customers as well as new ones, which was more than Bb asked for. On the other hand, he also gave D2L a 60-day grace period to try to implement a work-around and pushed the two parties to negotiate a royalty settlement. You can find the rulings here and here.
To my mind, there are two crucial details that we’ll find out in the short term. First, we have to see whether D2L’s work-around allows them to get a non-infringement ruling. In addition to being crucial for D2L and their customers going forward, this will be another indication of just how hard the patent is to get around and therefore how much liability risk other systems will face. Second will be the royalty settlement. If Blackboard gets a royalty anywhere close to the 25% that they are asking for, that will be very tough for D2L or any other competitor found to infringe. If outcome breaks for Bb in both of these outcomes, then Bb will effectively have a legal stranglehold on the product category.Update: D2L has a new post up on the orders. Here is their interpretation of them:
The combination of these orders is consistent with Desire2Learn’s expectations from the hearing. On March 10, the Court discussed two activities: first, that Desire2Learn go to market as soon as possible with a product that would not infringe, and second, that the parties make a good faith effort to talk about what payment should be made for use of any infringing products that may still be in use. Blackboard has consistently represented that it intended for Desire2Learn to be able to serve existing customers; that it was seeking not an injunction, but rather a reasonable royalty, for those clients. The Court’s order for the parties to meet requires discussion about a reasonable royalty.
Moreover, the 60-day stay period provides Desire2Learn with the opportunity to finalize and to implement its design-around, as we mentioned yesterday. At the hearing, the Court based its willingness to issue an injunction in part on the fact that we could easily, inexpensively and quickly design around the Blackboard patent claims. The product that we anticipate will include the design around – Learning Environment version 8.3 – will be available to all clients and prospects quite soon. Further, since the trial we have not, and will not, sell any product found to have been infringing.
Finally, the stay period provides an opportunity for Desire2Learn to file its post-trial motions to limit the scope of the injunction and request other relief. For example, we intend to file a motion that, that as a matter of law, D2L does not in fringe the patent respect to clients hosted in D2L’s Canadian facilities. The injunction should be narrowed and damage award reduced to reflect this.
In related news, Katherine Mangan has a report on the new edupatent suit (the one in which universities are being sued) that confirms the details that I had posted earlier. A lawyer representing the patent troll is quoted in the article as saying, “Nonprofits don’t need to worry about us chasing them. We’re an ally of theirs.” Recall that Bb promised D2L’s existing higher education customers would not be impacted by their request for an injunction. Clearly, children should not be allowed to play with loaded guns. Unfortunately, many of the parents are too busy loudly defending their right to bear arms while not paying attention to the fact that they left their own gun cabinets unlocked and in easy reach.
We’ll have more here as soon as we can, including some analysis from Jim Farmer on the long-term big picture.
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The Other Shoe Drops
Al Essa informs us that there is a new edupatent suit by a new player. The critical difference here is that this time universities are being sued. At the moment, the company asserting the patent has confined itself to suing for-profit universities (University of Phoenix, Inc, The Apollo Group, Inc., Capella Education Company, Laureate Education, Inc., and Walden University, Inc.). But there’s nothing that legally prevents it from suing any university. Nobody is exempt from liability exposure.
I have argued from the very beginning of the edupatent mess that the problem is much bigger than one patent. Nor will this next one be the last.
Here’s what I know so far, what the implications are, and what we need to do about it: