While most folks paying attention to the Blackboard patent scandal have sympathy for Desire2Learn, I’m not sure how many people realize just how altruistic the company is being by fighting the patent. From a purely financial perspective, it is clearly in D2L’s interest to settle and pay a royalty, even though doing so would harm the rest of the community. I’d like to lay out exactly why I think Desire2Learn is doing an enormous public service and what we can all do to help ensure that their good behavior pays off in the marketplace.
Let’s start with cost. A lawsuit of this nature can easily cost $1 million to $2 million. Is that a lot of money for Desire2Learn? Let’s do the math. D2L’s annual revenues are generally cited in press reports as being between $9 million and $10 million. (Since they are a private company, they are not obligated to publish their financial data.) For the sake of making the math easy, let’s assume that it’s $10 million and that it’s US dollars rather than Canadian dollars. (Note that these two assumptions combine to give us the most optimistic picture of their revenues.) The industry average net profit margin is five percent. Assuming that D2L is typical, that means they bring in about five percent of $10 million, or $500,000 annually as their net profit. The lawsuit with Blackboard could easily eat up two to four years’ worth of profits. Yikes!
If Baker and D2L prevail in court and invalidate the patent, then they won’t have to pay a royalty on top of their litigation costs. (The legal fees will still be gone, though, regardless of whether they win or lose.) However, they also will not have gained any competitive advantage in the marketplace, since they will have (theoretically) removed the threat of patent litigation from all of their competitors as well as from themselves. If they lose, on the other hand, they will lose two to four years of profits in legal fees and still have to pay Blackboard a license fee and possibly damages.
Now consider the alternative. Suppose that Desire2Learn settles out of court. They will pay a license fee, yes, but it will probably be significantly less than their litigation costs. They will also gain an advantage in the marketplace, since some of their competitors may not be able to afford to pay the license fee when Blackboard goes after them next. Sadly, D2L would be better off settling out of court even if they are certain that they will win the lawsuit. And the pressure is on for them to make a decision quickly; as much as fifty percent of the total litigation costs happen by the end of pre-trial discovery.
That’s not good for you and me. Settling would clearly not be in the consumer’s best interest. It would establish a toll road for anyone who wants to build an LMS. As my colleague Patrick Masson pointed out to me, just about every LMS commercially available in the higher education marketplace started off as a homegrown university system that was later commercialized. Blackboard itself started at Cornell, WebCT at University of British Columbia, ANGEL at Indiana University, D2L at Waterloo, and so on. The same is true on the Open Source side. Will universities continue to innovate, creating more and better choices in the marketplace, if they have to pay Blackboard an entry fee? I doubt it.
So John Baker and Desire2Learn are doing us all a tremendous service by fighting the Blackboard lawsuit at signficant cost and risk to the company. If we want them to continue to fight for all of us, then we must find ways of rewarding their good behavior, just as we are finding ways to punish Blackboard’s bad behavior. Consider doing the following:
- If you have a blog or a web site, or if you write for a journal or magazine, write a piece highlighting D2L’s altruistic behavior.
- If you are a D2L customer, write them a letter expressing your appreciation for what they are doing. Better yet, get your boss to write the letter. Give D2L permission to publish it.
- If your institution is in the process of making a purchasing decision, insist that D2L’s good corporate behavior be a factor in the evaluation.
It’s not very often that a multi-million-dollar corporation takes a bullet for the little guy. If we want it to ever happen again, we need to do our part.
How about a legal defense fund?
If Desire2Learn sets one up I’ll put $5K in the pot. I’m sure a lot of other people will put some money up too.
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Thanks for this article! We use D2L at my school and I asked our system administrators if they didn’t think D2L would be taking a financial hit because of this legal action – they said they were not concerned about it, but I really am. D2L is far from perfect, and I know they have some good improvements in development (I’ve heard a blogging tool is coming, where the student blogs will have real URL’s on the open internet, not locked up in the virtual classroom) – but development like that will be slowed if D2L has to divert money to a lawsuit. I have been really grateful for all the news that the ed-tech-bloggers have shared about this lawsuit. Many thanks for the time and energy you put into the reporting and commentary! Per your suggestion, I have posted something in my own blog about this and shared your very informative post with the D2L system administrators at my school.
Thanks for moving this forward at your institution, Laura. I want to emphasize that Blackboard may well back down before the case goes to trial. Pressure on them to do so is significant and building rapidly. (A letter to Blackboard from your school’s administrator expressing how their actions may impact your future purchasing evaluations could also help in this regard.) I do not want to imply that D2L is committing some kind of financial suicide. But yes, the lawsuit unquestionably diverts resources that could be spent on innovation.
I am a Blackboard customer and certainly won’t defend the lawsuit against Desire2Learn (don’t know enough about it and am not a patent attorney). However, I did spend some time speaking with Bb’s corporate counsel, Matt Small, yesterday and learned a bit more about the patent. The only claims in the patent that really matter are #1 & #36. The other 42 claims are dependent on those two. In other words, the Bb patent is really for course management systems that utilize multiple user roles (for a given user) to control the release of content. According to Bb, they filed that patent in 2000 to protect their interests in an enterprise level course management system. If those two independent claims are infringed, then the other 42 (fairly standard features for CMS’s) may also be included, but those 42 cannot be infringed otherwise. Consequently, I’m not sure that the angst expressed over the Bb patent is as grounded as some may think.
I’m afraid that doesn’t make me feel any better, Joel. First of all, every course management system I can think of uses multiple roles to control release of content. So Small’s clarification doesn’t in any way narrow the practical scope of the patent vis-a-vis Blackboard’s current competitors. Furthermore, roles and permissions for education systems were hardly novel in 1999. For example, my own institution was using Lotus Notes (and later Lotus Domino) to do the same thing way back into the mid-’90s. Matt Small can repeat his assertion that the patent is narrow and justified as many times as he wants. That doesn’t make it so.
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http://www.martignoni.net/blog/2006/08/brevet-sur-le-e-learning-la-communaute-se-mobilise/