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.