Desire2Learn CEO Makes Case Against Blackboard Patent, Court Ruling

A conversation with Desire2Learn's John Baker and Diane Lank

• By David Nagel
• 03/17/08

Desire2Learn recently became the first education technology provider to fall victim to litigation stemming from Blackboard's patent covering learning management systems. In February, the company lost a patent-infringement lawsuit filed by Blackboard and in March was enjoined by the court from selling any versions of its learning management system containing the "infringing" code. In this exclusive interview, John Baker, Desire2Learn's president and CEO, discusses the case with us, its impact on the company and its customers, and the implications for education technology as a whole.

While this discussion is one-sided, it should be noted that we have published extensive interviews with Blackboard representatives and others in the past. (See links at end.) This is the first forum we've provided to Desire2Learn on this issue. It is unusual (to say the least) for commercial software developers to discuss ongoing litigation with the press, and both companies have proved open to sharing their perspectives with our readers, who stand to be impacted by the final outcome of these matters.

For this discussion, we were joined by Desire2Learn's general counsel, Diane Lank.

Background on the Patent
In a field in which intellectual property is contributed freely by so many, Blackboard's patent covering certain LMS technologies seemed to some to be out of place, and it was greeted with anger and distress by many in education and in the education development community.

Between June 1999 and March 2000, Blackboard filed applications for learning management system technologies with the United States Patent and Trademark Office (USPTO) and was finally awarded patent No. 6,988,138 in January 2006, with several items from previous application removed. The company announced its patent publicly July 26, 2006 and filed a patent-infringement suit against rival Desire2Learn the same day.

In December 2006, Desire2Learn filed a request with the USPTO to reexamine the validity of Blackboard's patent. It was granted that request in February 2007. A similar request was filed ex parte by an organization representing open-source LMS developers, the Software Freedom Law Center. That group's reexam request was also accepted in March 2007. Both reexaminations are still currently underway, and, as of this writing, the outcome (or even a timeline for the outcome) is entirely unknown. Many expect a decision from the USPTO before the end of 2008.

Blackboard has since pledged non-assertion of its patent against open-source developers but would not relinquish its patent and said it would target commercial developers.

Blackboard v. Desire2Learn
Meanwhile, Blackboard's case against Desire2Learn went on. In February, a jury in the U.S. District Court for the Eastern District of Texas awarded Blackboard $3.1 million from Desire2Learn for patent infringement (considerably less than what was sought) and refused to invalidate Blackboard's patent. Last week, the court enjoined Desire2Learn from selling its Desire2Learn Learning Environment 8.2.2 or earlier in the United States, giving the company 60 days to comply. Soon after, Desire2Learn released Learning Environment 8.3 as a "workaround candidate." The company also released a new version of its Learning Repository and also rolled out Desire2Learn ePortfolio on the same day.

Desire2Learn's next moves include seeking approval for the release candidate from Blackboard (voluntarily), filing motions in court, and, failing the success of those motions, filing for appeal.

The Blackboard patent saga is far from over.

David Nagel: Right after the injunction, your immediate response was to come out with a new version of the Learning Environment that isn't subject to the injunction. Is it required for all of your clients to upgrade?

John Baker: It's not a requirement for all of our clients to upgrade. The key here is that we never thought any of our technology was infringing. However, what we are asking our clients to do is make the transition to our 8.3 version as soon as they possibly can.

Nagel: What happens if they don't upgrade?

Baker: Now, this is only for what we believe to be self-hosted U.S. clients, which is a small number of our actual total number of clients. Many of our clients in the [United States] use our hosting facilities, which we believe are outside of the [scope of the injunction].

Nagel: For the self-hosted customers, what happens if they don't upgrade? Does that mean that you're paying royalties on that, or is something else implied?

Baker: That's our assumption from both what we understand of Blackboard's perspective as well as ours. We've never talked about an injunction against existing clients or any of our clients. All Blackboard's ever said that they've been seeking is a reasonable royalty for the ongoing use. We're trying to make sure we minimize that by having clients upgrade as soon as they can.

Nagel: When the clients do upgrade, what changes for them?

Baker: Key with the 8.3 release is that it's not just a workaround. There's been about two years of research and development that's gone into it. This is probably going to be the highest-quality release we've ever done. It's had six months of [quality assurance] because we've been waiting for the trial to wrap up before releasing it.

We also listened very carefully to the expert testimony at the trial, as well as the expert testimony that was presented in reports. Because we didn't know what Blackboard was accusing us of doing until that trial, we couldn't really change the application to address what they're accusing us of infringing. Now after the trial wrapped up within about a week or just a little bit over we were able to fully [address] all of the different elements that Blackboard was claiming were infringing the patent.

We used to ship our application with things like sample roles or default roles (depending on who was saying the terminology). We've eliminated those. In that sense, if you draw the analogy to a camera, instead of shipping a camera with some sample pictures on it, now we ship the Learning Environment without roles. And our clients can decide whatever roles they want to create. They can create them themselves. Which is interesting enough. During the trial we did the research, and none of our clients actually used any of the sample roles in the first place. They always made changes and modifications. And in fact we had one client that has 86 roles instead of the three samples we had actually sent.

Nagel: Okay, so that works out. As far as when they do upgrade, will anything about those roles that they've created themselves change, or will they just remain the same?

Baker: We don't know. It's really up to the client in terms of what they want to define as permissions [for the] different roles they create. We're not dictating what they should look like.

Nagel: What I'm saying is by default when they install the upgrade it's not going to wipe out any of the roles they've created?

Baker: We can't comment on that at this point. We're still waiting on legal wording around how to communicate around that....

Nagel: I see. Let's get back to 8.3 in a little bit. I wanted to talk about....

Baker: Maybe just to touch on that a little bit more. The new version that we're shipping to any new clients--and we have a number of new clients we hope to be shipping this to soon--will not come with roles, and the clients themselves can create them, and they can also import permissions. We have some great tools around managing roles and permission sets within our application. One of [the] bigger selling features is the fact that we have the ability for them to create as many roles as they want. So [you] can have homeroom teachers if you're in K-12; you can have parents. If you're in higher education, you can have coordinators, supervisors, librarians, registrars, guest lecturers. You can create as many roles as you want. We're not telling you what you want to create or what roles you implement in the system. But the system does allow the use of as many roles as the client wishes to create.

The key ... with new clients is they're going to come without; with existing clients it's going to be up them them in terms of how they manage their roles.

Nagel: You raised a point I wanted to bring up. You have, I believe, a few percent of the LMS market share in the United States. Is that accurate?

Baker: We're not sure exactly what the market share is that we have, but I would imagine we have probably a few hundred individual campuses that are using [our] technology.

Nagel: As a percentage, would you say it's in the single digits?

Baker: Probably, yes.

Nagel: Do you know what the breakdown is--just of your own clients--between higher ed and K-12?

Baker: The overwhelming majority is higher education in the United States. But we do have a lot of statewide virtual schools....

Nagel: In K-12, what are they using it for? LMSes are not used in the same way in K-12 that they are in higher ed. Is it more on the professional development side?

Baker: Interesting enough, we have clients that are in the K-12 environment that are making more use of it than we typically see in higher education. So it depends on the client in terms of where they are in terms of the maturity of their e-learning model. Some are using it for every student in every class. But that's pretty rare. The majority of them are using it for professional development for teachers. In other cases it's being used for students, whether it's for distance programs or online programs. And in other cases, it's a great mechanism for them to be communicating with parents. Some students, for example, will have their grades posted immediately [so] parents can see it. It really changes the parent-teacher night, if you will. Quite dramatically. Parents are a lot more engaged in the educational process.

Nagel: And that's eventually going to apply to ePortfolio too?

Baker: The ePortfolio really does open up a number of opportunities for other people [who] want to participate or the individual user wants to participate with--to create social networks to invite in parents to invite in friends to open up the learning to a different ... group of stakeholders [from] what's traditional in the classroom.

Nagel: Back to market share. Regarding your percentage there, basically your small market share in the United States was part of your argument against the injunction. Would you explain that?

Baker: I don't think we used the small market share as a major reason against the injunction.

Nagel: The way I read it, you were saying that when Blackboard wanted to merge with WebCT, their argument was they weren't going to stifle competition because you guys exist, and you have a small market share. I thought that was part of the argument.

Baker: I think the key part of the argument we were making was: Around the department of Justice work with Blackboard when they were merging with WebCT, ... they justified the merger by ... playing us off as their most significant competitor in their marketplace. And then, while they had this patent, ... literally [with] the same lawyers ... Blackboard turned around a few months later and sued us to prevent us competing in the marketplace. Or to attempt to prevent us from competing in the marketplace.

It was an amazing strategy where they engaged PR firms and others to come up with strategies around containing and controlling us and prevent us from, in their words, competing against them for clients and for potential clients.

Nagel: All right. Right now you guys are working with Blackboard to resolve some of the issues in the case. What are you doing right now with them?

Baker: Right now we've been asked by the court to have a meet-and-confer with our counsel to come up with a potential "reasonable royalty" to allow existing and new clients to license Blackboard technology.

Nagel: This is an open-ended question. Answer it any way you want. What happened in Texas?

Baker: I personally think I learned a tremendous amount. I was actually trying to use our new ePortfolio product while I as down there, but our lawyers told me that would be discoverable, so I had to stop. But I wanted to share what I was learning. It was an incredible experience. I learned so much about the court system in the U.S.

I found it troubling to understand how a jury could be asked to understand ... all the elements of the law that goes around patents, as well as understanding the technology in question. It was pretty hard for me to sit through some of the testimony. I can only imagine what jury members would have been thinking.

For me it was fairly frustrating because we tending to be focusing on the words that were within the patent. So we tried to talk about prior art that met the definition, the claim construction the court uses to define [elements of] the patent. And Blackboard fought against us by using words that weren't in the patent and weren't in the claim construction. They were almost creating smoke and mirrors around the actual, real heart of the matter. We were trying to define what's in the patent; they were trying to do everything they could to avoid using the words that were in the patent to make it abundantly difficult for a jury to, in my opinion, make the right decision.

Nagel: Ultimately was the validity of the patent ever in question in the trial itself?

Baker: Absolutely. We put up prior art that should have invalidated that patent.

Nagel: I don't mean what you presented; I mean what the jury was asked to consider.

Baker: Oh yes. The jury was certainly asked to consider the validity of the patent.

Diane Lank: Now, remember with that, Dave, that the standard of proof there was "clear and convincing." It's not what they call "mere preponderance of the evidence." To invalidate a patent in court, the party challenging the patent has to prove by clear and convincing evidence that the patent should be invalidated.

One of the things--and I think this goes to what John said--is we tried to focus on the patent. And I think it's fair to say Blackboard tried to focus on anything but the patent. And one of the things that we heard several times in the trial from Blackboard was that the clear and convincing evidence standard is the same standard that they use in Texas to take a child away from its parents. And that's the kind of thing that, I'm not sure, that that kind of language advances the ball in terms of helping the jury.

So that's a bit of an example. But John is right. We absolutely challenged the validity of the patent.

Nagel: Were you the trial lawyer on this case?

Lank: Oh no, no. We have outside counsel. I was at counsel table the whole time, but no....

Baker: And I think I was the only corporate representative from both sides that actually sat through the entire trial.

Nagel. Okay. In terms of your legal options, where are you going from here?

Baker: I think the two main things that we're doing right now is, one, we're going to be filing some motions in terms of dealing some judgments as a matter of law with the current judge. And secondly we're going to be putting this in for appeal to take it to a higher court.... We'll have a much better chance of pleading our case there in that forum than necessarily what we had in the jury verdict.

[Baker then went on to praise the efforts of the jury, the judge, clerks, and others involved in the trial at some length. This kind of information can be read at D2L's Patent Information Blog.]

Everyone keeps referring to Blackboard as winning here. But really they only got about 20 percent of what went to the jury and less than 10 percent of what they originally wanted, which was over $50 million, by the way, not the $17 [million] that's been reported so far to date. The judge threw out their willful case before it went to jury verdict....

It was shocking to me listening to our case being presented because there was certain evidence I had never seen until it went into an open trial, and it was incredibly frustrating at the same time to understand what this competitor was doing to get one win against us.

Nagel: Can you give me a timeframe for the motions you want to file and also filing for appeal? You can ballpark it.

Baker: The motions should be probably in within the next week or two. And the appeal, if it's heard, probably within the next year or so.

Lank: Well, back up a little bit: Only if we don't prevail on our post-trial motions will it go to appeal. So if we don't get the remedies we seek through the post-trial motions, then it will go to appeal. Now, I think it's likely it will go to appeal because I expect that the judge won't give us everything we want.

Baker: But we never know.

Lank: But you don't know.

Baker: This judge seems to ... really understand the case a lot better now after ... hearing us talk about it for probably two or three weeks. We have high expectations of this judge.

Nagel: I'd like to talk about the patent a little bit. What's going on with the reexamination? Correct my Latin if I'm wrong, but you filed an inter partes reexam in February 2007?

Lank: No, we filed our inter partes reexam application in December of 2006. It was in February of 2007 that our petition for reexam was granted.

Nagel: And now are you just completely outside the process at this point?

Lank: No. That's the benefit of an inter partes reexam as opposed to an ex parte reexam. As you may recall, the Software Freedom Law Center did an ex parte reexam, and that's basically you put some prior art at the doorstep of the PTO, and they grant it or don't grant it, and then you're out of the picture.

With the inter partes reexam, you bring forward the prior art, and it's an interactive process. So once the initial Office action takes place, both parties will have an opportunity to respond, and there's back and forth.

Since our petition was granted in February of 2007, we have not yet received an Office action from the USPTO. So right now we don't know what is going on there.

Nagel: And you've received no updates whatsoever.

Lank: We have received no updates whatsoever.

Baker: We really hope an examiner does pick it up at some point.

Lank: Yeah, well, we know it's been assigned to an examiner. We also think that it's in a bit of a peculiar procedural situation because an ex parte and an inter partes reexamination was filed at approximately the same time.

Nagel: They were month apart, right?

Lank: Actually I think they were about two weeks apart. And nobody really knows ... see the whole inter partes procedure is fairly new, and there haven't been a lot of them yet. So I'm sure the Patent and Trademark Office is a bit challenged with how to work this.

But I was reading their annual report--I believe it was for 2006--that stated that the typical length for an inter partes reexam is about 15 months. Now, I think we're not going to make that average, but it did give me some hope that the Patent and Trademark Office will be doing some [work on it].

Nagel: Do you believe something will be coming down in 2008, or do you just have no clear idea?

Lank: We have no idea, but I would be surprised if something didn't come down by the end of the year.

Nagel: Related to that, are you working out some kind of mechanism to recover the royalties you're going to have to pay Blackboard when their patent is overturned?

Baker: I think one of the things we've told our clients very clearly, and I think there was some confusion early on, one of the things we've always said very clearly is that we will never ask our clients to pay for the royalties. That is something that we will bear as a company.

And also, the royalties themselves are not paid directly to Blackboard. I would imagine they're going to go into an escrow account pending appeal. Blackboard shouldn't count on that revenue.

[The conversation at this point turned to corporate financials and legal fees, which we'll spare you.]

Nagel: Have you had any response from Blackboard since the release of 8.3? I know it's only been a day or two.

Baker: No, but we do anticipate that we will be proactive in sharing with Blackboard that release, so that we can also put their mind at ease that this is a workaround. I think they indicated that they want us to have a workaround to continue to do business with our clients. We're going to take them up on that offer. So we're going to share with them what we've done: all of our documentation. We're going to make sure their expert--under a protective order--gets access to the source code and to the application. But it's only going to happen after our expert first gives an official stamp of approval that this is what we refer to as a workaround.

We're volunteering to do that; that's not something that we're forced to do by any stretch of the imagination. Blackboard does not have to approve this as a workaround. We made that determination.

Nagel: You also released it, what was it, about 58 days before the injunction [will go] into effect?

Baker: Yes, we did. Now keep in mind that 8.3 is a workaround candidate today, and it was released--I think you're right--about 58 days prior to the expiration of the stay. And the judge anticipated that. I mean, we told the judge we could have this workaround out within 30 days, and we believe that we're going to hit that. We hope that [it's] only two weeks before we officially call it a workaround.

Nagel: Okay, and what do you need to have happen to be able to make that call?

Baker: We're having our external expert take a very close look at all of the things that Blackboard was claiming that we were infringing. And then they [can] take a very close look at all of our source code, documentation, the application, talk to our architect to ensure that he's comfortable how we've addressed the infringement that Blackboard's claiming.

Nagel: I'm going to ask you to get a little philosophical. Just assume the worst-case scenario where the patent stands, and you lose on appeal. What does it mean to you, and what does it mean to the LMS development community as a whole?

Baker: I think there's two things. One is from a financial perspective: $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.

That's from a financial perspective. From the industry side of things, we can't lose. We have to--we have to--win here. Otherwise it puts all of our other competitors in jeopardy. If we lose, Blackboard's patent becomes stronger. Their stated intent [is] to go after others. That's why they were seeking the injunction ... to allow them to go after others and seek royalties or injunctions against them. And we don't want to let that happen.

We're in a very fortunate position to be probably No. 2 behind Blackboard in the marketplace, and we've got enough financial strength to continue this fight. And we need to because there are a lot of very small [organizations] that are just not capable, programs that are just getting started. There's a lot of individual institutions that don't have the protection of the vendor in front of them. And we don't want to let Blackboard go after any of the institutions or any of the other players in this space.

What we're hoping is that other competitors of ours or others in the industry will continue to help us fight Blackboard in what is a very important patent battle. We really don't believe that patents are bad. It's something that comes up a lot. We don't think patents are bad. We actually respect intellectual property. We create our own intellectual property, and we hope others will respect ours.

But what we do have a lot of lack of respect for is a company that is trying to enforce what is an incredibly bad patent just to contain and control the marketplace so that they can build a monopoly. Blackboard's representative at that trial said with a straight face that if [Desire2Learn] weren't here, [Blackboard] would have the entire market. They have 90 percent market share, and [Blackboard] would get the other 10 percent if Desire2Learn weren't here. That's what they were saying at trial. We don't want to allow Blackboard to have a monopoly because you know what happens with monopolies. One thing that they've been trying to do is raise pricing on clients and to control the marketplace.

All we want to do is say: "Blackboard, agree to this workaround." And then we can compete fairly on our own merits: on support, on services for our clients, on great products and innovation, building partnerships and relationships. And so that we can get back to what we really want to do, which is improve human potential, to help build better teaching and learning environments, to launch ePortfolios that would get people highly engaged in the learning experience. That's what we want to get back to. We want to focus all our energies on that.... We want this distraction to end.