Blackboard Inc. v. Desire2Learn Inc.: “Grey” Monday March 10, 2008

Yesterday, Desire2Learn submitted its response to Blackboard’s request for injunction (which was apparently submitted under seal) and accompanying letters from various school and university officials arguing that preventing D2L from selling their product in the United States would be against the public interest. Barry Dahl has done a terrific job of summing up the case that D2L makes in the filing. I definitely recommend reading his post. You’ll also want to read Jim Farmer’s post, below, which summarizes the current state of play with regard to the ruling on these filings that the judge will issue next Monday, based on what we know from the public court record. After reading both Barry and Jim, then I recommend that you read the two court documents themselves. They’re well written and pretty accessible–even more so after you’ve had tutorials from these two guys.

– Michael

On Monday March 10, 2008 attorneys for Blackboard Inc. and Desire2Learn Inc. will meet in Beaumont, Texas for a court hearing implementing the jury verdict reached Friday, February 22nd in Lufkin. In its February 29th proposed order Blackboard has asked for prejudgment interest. Other remedies would be included in the sealed motion filed with the Court at the same time. Desire2Learn filed a response to the Blackboard motion and proposed order today, March 6, 2008. Some of Blackboard’s remedies can be inferred from Desire2Learn’s response and from the public interviews of Blackboard officers. This analysis assumes Blackboard’s sealed motion and its public statements are consistent.

Implementation of the jury verdict likely will be harsher than the community of higher education software developers and education technologists want and, only by inference, less than the maximum Blackboard could have asked for under the law in some cases.

The jury found:

  1. The Claims 36, 37, 38 of the ‘138 patent were valid. (Jury Verdict Questions 4 and 5) Claims 1-35 were declared invalid by the Magistrate and confirmed by the judge.
  2. Desire2Learn’s course management system directly infringed the Blackboard patent. (Question 1a) Desire2Learn’s software modification available in the November 21, 2007 software continued to directly infringe the Blackboard patent. (Question 1b).
  3. Users of the Desire2Learn software or services in the U.S. were induced to and contributed to indirect infringement of the Blackboard patent. (Question 2 and Question 3 both before and after November 21, 2007).
  4. Blackboard requested $1,635,232 in royalties on revenues of $6,540,929 (representing 25% of revenues) but the jury awarded $630,000 (representing 9.63% of revenues. (Question 6B).
  5. Blackboard requested damages from lost profits of $15,455,375 in damages but the jury awarded $2,500,000 instead—an 83.8% reduction. (Question 6C).

Subsequently Blackboard requested prejudgment interest of $320,076 plus $515 per day until a judgment is entered. The amount would be determined by the judge.

The judge can:

  1. Award damages and interest up to US$3,450,076 plus the $515 per day until judgment is entered.
  2. By injunction, require Desire2Learn users in the U.S. discontinue use until Desire2Learn products either provides non-infringing software or has licensed the Blackboard patent.
  3. By injunction, require users in the U.S. of Desire2Learn “software as a service,” regardless of what country the servers may be located, discontinue use until the service is provided by non-infringing software or has licensed the Blackboard patent. (Desire2Learn disputes this was a jury finding).
  4. Other actions as determined by the judge, including treble damages for willful infringement if requested by Blackboard.

Desire2Learn has requested:

  1. Royalty not be applied to customers included as “lost profits” as double recovery—included in Blackboard’s computation as both “lost profit” and royalty on the product. (Note the inference; Blackboard’s request is “under seal” and not available to the public. Blackboard’s computation is inferred from Desire2Learn’s response. This applies to other requests as well).
  2. The Court should deny Blackboard an injunction to prohibit sales in the U.S. There are several arguments: The harm is reparable and legal remedies are adequate, the balance of hardships, and public interest.
  3. If an injunction were to be given, then narrowly craft it to permit D2L to sell non-infringing products and services in the U.S. D2L also argues the jury’s verdict did not determine hosted services outside the United States would infringe the Blackboard patent. In public statements, Blackboard limited the scope of the proposed injunction to the course management system itself.
  4. The compulsory license should not be 25% as Blackboard requested, but 10%. (Based on the jury award, the inferred rate would be 9.6%).

The judge may consider the “public interest.” Since the no one filed to join the case—such as a state’s attorney general, “public interest” can be considered only insofar as presented by attorneys for either party. That is, “public interest” becomes part of the record. Desire2Learn included statements from staff at Oklahoma State University, Minnesota States Colleges and Universities, Southern Regional Education Board, Maryland State Department of Education, Tennessee Board of Regents and Pacifica Graduate Institute supporting the “public interest.” [Many of t]hese are statements of individuals, not a position of the organizations themselves—likely because of the few days available for the statements, a limitation the judge may consider.

The Court may also delay the injunction to give Desire2Learn time to develop a “workaround” (Verizon v. Vonage FAFC 07-1240).

The judge may rule on Monday, March 10th “from the bench” or subsequently issue orders.

If Desire2Learn files for an appeal, the judge may be asked and could grant a stay of any order.

Blackboard’s requests are sealed until the Monday hearing. They could include the process to be used in determining if a subsequent version of Desire2Learns course management system infringes, such as an intermediate review by Blackboard’s experts.

Reporting on a February 25th interview with Blackboard General Counsel Matthew Small, The Chronicle of Higher Education wrote: “Mr. Small said colleges have nothing to fear. Blackboard isn’t seeking an injunction against any of Desire2Learn’s already-installed products. It is hoping, however, to persuade the court during a hearing scheduled for March 10 to ban the company from future sales of its course-management system in the United States.” Blackboard could require a “reasonable” royalty of current D2L customers in the U.S. so long as the U.S. user is using the infringing software or service. Imputing the royalty rate from the jury’s decision, this would be 9.6% or less. This is a concession by Blackboard.

The Chronicle of Higher Education also reported: “Blackboard’s president, Michael L. Chasen, testified during the trial that his company will not sue colleges that use open-source software to create their own online learning systems.” This report is consistent with the Blackboard Patent Pledge. Whether open source infringes and the applicability of the Patent Pledge is not an issue of this trial; inferences would be speculative. The Pledge is a concession by Blackboard based on their earlier discussions with Educause, Moodle and Sakai that resulted in the Blackboard Patent Pledge and not relevant to Monday’s hearing.

It is not clear what may happen to those colleges and universities that selected Desire2Learn after the patent was announced in July 26, 2006, or even after the patent was issued in January 2006, but do not yet have a signed license agreement for the software or contract for the service. Likely this will be in the details of the implementing order as requested by Blackboard.

Blackboard may have requested “treble damages.”

Update: While there is no public court record of it at this time, several newspaper accounts indicate that Blackboard did ask for treble damages (for “willful infringement) and that this request was denied by the judge.

Commenting on willful infringement, John R. Harris or Morris, Manning & Martin, LLP, advising developers writes:

However, once you [developers] have knowledge of patents that you might infringe, legal duties arise. This knowledge may also make you liable for increased damages if you are found to be infringing the patents.

The patent laws authorize a court to increase the damages in patent infringement lawsuits up to three times the amount found or assessed. This is known as the “treble damages” award. A decision to increase damages is discretionary with the court.

Usually requested, rarely given.

If an appeal is filed from the Eastern District to the Court of Appeals for the Federal Circuit, Fiscal year 2007 data suggests a median time for disposition of cases from the District Courts of 11.6 months. Commenting on the results for calendar year 2006, the University of Houston’s Patstat writes: “The most striking feature of the 2006 rulings is the continued poor results for patentees on the infringement issue. On literal infringement there were 182 rulings for accused infringers and only 57 for the patent owners. At the appellate level the score was 80 to 16; at the lower tribunal level it was 102 findings of noninfringement to 42 findings of noninfringement (sic).” However, detailed data from 2006 on direct infringement shows 15 appellant affirmances and 1 reversal (7%) when the patent owner had prevailed on the issue and 76 affirmances and 4 reversals when the accused infringer had prevailed on the issue. In only five of the 80 cases were the results of the District Court reversed on direct infringement (as classified by the University of Houston’s authors).

On appeal the claims construction (interpretation of the patent), done by the Magistrate and confirmed by Judge Clark, can be done again de novo.

There are two re-examinations of the ‘138 patent underway. If either determines the patent invalid, then any royalties or injunction would be terminated. But no refunds, as Research in Motion, a Desire2Learn neighbor, learned in its litigation with NTP, a U.S. patent holder.

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Jim Farmer is an engineering economist at instructional media + magic inc. His interests include educational technology, academic research, and information standards. He also writes for Intellectual Property Magazine. For more information, see his profile page.
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