EduPatent Fight As Complicated As Ever

As you might imagine, Blackboard and Desire2Learn have somewhat different interpretations of what the recent USPTO ruling means in the bigger picture. And there certainly is plenty of room for interpretation, given the complexity of the situation. There are now no less than three separate, parallel, but not entirely unrelated fronts in the legal war between Blackboard and Desire2Learn. There are many possible permutations of outcomes based on how each is resolved and in which order.

Fasten your seatbelts, folks. This is getting even more complicated. I have spoken with a few experts over the past week to get some perspective. None of them wanted to be quoted on the record, and most preferred to remain anonymous. (I can at least acknowledge and thank Peter Zura for being very generous with his time and providing me with some great background information on patent law.) What follows here is my own, non-lawyer’s interpretation of the sometimes conflicting input I got from these experts. I don’t promise that I’ve gotten every nuance right here, but I’ll do my best to lay out the basics.

Let’s start with the US Patent and Trademark Office. As I said in my previous post, the USPTO has now ruled against Blackboard’s original patent twice. After the preliminary ruling, Blackboard attempted to rebut the USPTO’s rejection and introduced a bunch of new claims (which is very common in these sorts of challenges). Desire2Learn responded to Blackboard’s rebuttal, and the USPTO ruled again that the patent is still invalid. Blackboard now has 30 days to try to change the USPTO’s opinion one more time. I’m not entirely certain that I had 100% consensus from my experts on exactly what Blackboard is allowed to rebut and what happens from there. My best understanding is that Blackboard may only address the new claims. The invalidation of original 44 is a done deal as far as the USPTO is concerned, (although what a “done deal” means in this context is complicated, as I’ll get to in a minute). After Blackboard makes its argument, D2L has 30 days to make a response. Here again, there may be some minor disagreement between the lawyers. I got different answers on whether the USPTO could ask for a third round of responses. However, I say it was a minor disagreement because there is consensus that, whether or not the USPTO could theoretically order another round, it would be highly unusual for them to do so. I don’t know how quickly they need to make the ruling after D2L’s final argument is submitted, but one would hope that it will be relatively quick.

If the patent is once again held to be invalid, this time in a “final action”, then Blackboard has a long appeal process still open to it, starting with the Board of Patent Appeals and Interferences and theoretically stretching all the way up to the Supreme Court. But the counterparty would be the United States government, not Desire2Learn. What is likely to happen from here is a matter of some dispute. Blackboard has argued that very few inter partes challenges have been litigated to their conclusion to date, and that there are opportunities for them to prevail and even strengthen the patent in the process. This is all true. However, while we have very little data on the inter partes process (because it’s still fairly new), we have a much larger data set regarding how likely the US court system (particularly the Federal Circuit) is to overturn a final ruling by the USPTO in general. The relevant standard of proof is that the USPTO must be shown to be “arbitrary and capricious” in its ruling. That’s a tough standard to meet. I’ve been told that it is “very rare” for the courts to overturn the USPTO under this standard of proof.

What would happen with the patent while the appeal is ongoing? It would remain on the books until Blackboard’s appeal process is exhausted (or until they are exhausted and give up). Theoretically, the company could continue to assert it against other companies. But as a practical matter, the courts would be overwhelmingly likely to issue an immediate stay pending the final resolution of Blackboard’s fight with the USPTO. The patent wouldn’t necessarily be dead forever, and it’s at least theoretically possible that some claims could survive the entire process. But even if they did it’s hard to know in advance what the practical implications of this would be, though. Sometimes the patent claims that survive a re-exam are so weak by themselves that they have no practical value. The experts tell me that, if Blackboard’s patent claims are ruled invalid in the USPTO’s final action, their experience suggests that the chances of their patent surviving in a commercially useful form are not good.

So, while it’s fairly complicated, it seems like there’s a process in place with at least a decent chance of resolution in the foreseeable future, right? Not so fast.

First of all, while this USPTO fight is going on, Blackboard and D2L are fighting out the original ruling in the Federal Circuit court. Desire2Learn is hoping that the court will reverse the earlier ruling and make Blackboard give them their money back. Blackboard is hoping that the court will uphold the earlier ruling and re-affirm the validity of the patent. As we learned earlier, the Federal Circuit can trump the USPTO, and because the USPTO has not yet issued a final judgment, the standard of proof is different. Blackboard has a better shot in the Federal Circuit if it rules first, which is why they (unsuccessfully) sued the USPTO to shut down the proceeding. If the court unequivocally upholds the patent and does it before the USPTO issues its final ruling, it could pre-empt that final ruling and render it moot. The patent would be considered valid. (By the way, if the USPTO rules first, that does not have the opposite effect of cutting off the appeal process. Under the law, the patent is valid until it is ruled invalid. Therefore, D2L could be held to have infringed on a patent that is no longer valid, because it was valid at the time of infringement.) 

The court could uphold the patent, it could side completely with D2L, or it could take any one of a variety of actions somewhere in the middle, including sending the case back to the lower court for re-litigation. My understanding is that final arguments have been made in this case and that the court could issue its ruling at any time now. 

Parallel to all of this, Blackboard has received a continuation patent, which is based on the original patent but presumably different from it in ways that are significant enough that the USPTO would issue the new patent. Blackboard has already filed suit against D2L based on this new patent. This is where I got confused on the relationship between the old patent and the new one. I wasn’t sure what relationship the new claims added to the old patent have to the claims in the new patent. I’m still not sure exactly what the relationship is on a semantic basis, since I can’t read the documents, but the consensus of legal opinion is that the two patents are considered separate from and must be litigated separately (although it is conceivable that the details of the USPTO’s ruling on the original patent could have material bearing on the interpretation and validity of the new one).

At any rate, this one is at the very beginning of its life, and it is very hard to know what could happen here. The resolution to any of the parallel strands may or may not have bearing on the direction that the fight over the new patent takes, depending on the specifics. By the way, this continuation patent business is apparently fairly typical. If a company has a patent that is being challenged, they can keep amending it and filing for continuation patents with new claims in order to keep their patent alive.

Long story short, there is no reason to believe that this is anywhere near over. You can see it is very complicated, and I have already simplified it a fair bit here. Meanwhile, the amount of money being spent is staggering relative to the size of the industry. I have gotten a range of estimates from the different lawyers about the total cost of litigation in Blackboard v Desire2Learn. Ten million dollars spent by both parties seems like a mid-range guess, although at least one of my experts thinks that amount has been spent already. Then there’s the TechRadium patent fight, where Blackboard allegedly spent $17 million to buy a new patent as the basis for a countersuit. I have no clear sense of what their legal fees for this fight will be on top of cost of the patent itself, but let’s make a modest guess that it will cost half as much as the fight with Desire2Learn, or $5 million. That leaves us with a conservative estimate of the total cost to all parties in both of these suits of about $32 million. (This doesn’t count Blackboard’s pre-emptive lawsuit against iParadigms, which probably didn’t cost much since it was settled quickly.) Thirty-two million dollars is a lot of money in the educational technology space. It’s probably about three times Desire2Learn’s annual revenues and about eleven times Blackboard’s annual net income. It’s enough to build a new LMS from the ground up several times over.

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About Michael Feldstein

Michael Feldstein is co-Publisher of e-Literate, co-Producer of e-Literate TV, and Partner in MindWires Consulting. For more information, see his profile page.
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9 Responses to EduPatent Fight As Complicated As Ever

  1. Jeff Bohrer says:

    Thanks Michael for summarizing and working to clarify the issues and events.

    I continue to be mystified by a few things in this ongoing drama — the likes of which educational technology has not experienced till now.

    1) How long can Bb attempt to put D2L out of business, especially considering D2L’s viability as a competitor was used to support Bb’s case when acquiring WebCT? At what point does the Dept. of Justice enter the picture?

    2) How can the USPTO issue a second patent to Blackboard that is very very similar to the original one that the USPTO has now invalidated?

    3) For how long will Blackboard customers accept Bb’s litigious nature? When will their customers see the effects of the costs associated with Bb’s lawsuits?

  2. Jeff, I can respond to some of your questions better than others. To answer the first question, Blackboard can continue the litigation for a long, long time. I don’t believe there are any mechanisms here that would trigger the Justice Department’s involvement. It’s hard for me to answer the second question with specifics since I can’t look at the new patent. But keep in mind that we’re talking about the law, where the change of a word or two can have significant ramifications. It’s very common for this sort of thing to go on. And I have the least insight of all into your final question. I can only tell you that there’s no good evidence that customers are leaving Blackboard because of the lawsuits.

    Now, here’s a related question: What is the attitude of Blackboard’s shareholders toward this legal strategy? Do they see it as profitable or unprofitable for them?

  3. Anon says:

    I wonder if this is leading to Blackboard reducing total compensation for all its staff? Freezing salaries and cutting the matching for the 401K… ouch!

    http://www.corporate-ir.net/seccapsule/seccapsule.asp?m=f&c=177018&fid=6279763&dc=

  4. Anon says:

    Also their recent 10k filing tells exactly how much they have spent in the litigation: “As of December 31, 2007 and 2008, we had capitalized $5.2 million and $8.2 million, respectively, in costs of defending and protecting patents, due to expenses incurred in a suit against Desire2Learn, Inc. in which we have alleged infringement of one of our patents.”

  5. Jeff Bohrer says:

    Not sure if you’ve seen this, but here’s Bb’s second patent (#7,493,396):

    or

    http://tinyurl.com/cwh4r7

  6. I can’t look at it, Jeff. My employer forbids me from reading patents because my doing so would make them more vulnerable under patent law.

  7. Jeff Bohrer says:

    And now, here’s yet another wrinkle:

    “Blackboard Files New 337 Complaint Regarding Certain Course Management System Software Products”

    Link: http://www.itcblog.com/20090422/blackboard-files-new-337-complaint-regarding-certain-course-management-system-software-products/
    or http://tinyurl.com/cyx7tz

    This one is different as the complaint is filed with the US International Trade Commission….not a federal court, and not the US Patent Office.

    OK, Michael…help us understand an ITC 337 complaint!

  8. anonymouse says:

    The ITC filing argues explicitly that some US D2L customers (those using D2L’s hosting service) should have their access to the D2L software shut off altogether. It calls out Tennessee explicitly. Bb is making a straightforward argument that the ITC should make all of TBR’s LMS use go completely dark, immediately.

    Think about that for a second: Bb is petitioning a federal agency to cause immediate, serious harm to American universities.

  9. Pingback: Another Victory for D2L, Another Opportunity for Blackboard