When Bad Things Happen to Good Startups: Education Regulations

The education space is one of the fastest growing areas in online entrepreneurship.  The rising costs of education and the increase in online education tools have combined to turn the education industry on its head.  Nonetheless, pitfalls for the nascent entrepreneur remain.  Education, like any public good, is heavily regulated.  Consequently, entrepreneurs with great ideas still need to do some due diligence.  For instance, in October, the startup Notetopia was shut down by the California State University (CSU) system for violating California law.  Why?  Because Notetopia allowed students to sell their classroom notes to other students.

Recently, the LA Times ran an article on Notetopia’s founder, Ryan Stevens.  Stevens had a seemingly innocuous idea: let students sell their class notes to each other.  Not long after setting up his company Notetopia, however, Stevens was served with a cease and desist letter by CSU.  CSU claimed Notetopia violated the California education code, which “prohibits students from selling or distributing class notes for commercial purposes.”

Put another way, I can give my class notes to a classmate, but I can’t sell my class notes to him.  To be sure, schools can and do pay students to take notes under the auspices of the American with Disabilities Act for other students.  But since the schools are not selling the notes, these laws don’t apply.

Making the matter more complicated is that there is no one rule for the entire country.  The law invoked by CSU against Notetopia was a California law.  Other states, such as Nevada might not have this law and allow commercial sales.  As a result, an entrepreneur of an online service is, theoretically, required to check the laws of every state in order to be sure their business conforms to local rules.  A huge expense for a new business.

Later this month, Udemy will be speaking to Sean Conway, of Notehall about his thoughts on the matter.  Notehall, which is based in Massachusetts, operates a very successful commercial marketplace that allows students to sell their class notes online.

So what’s an entrepreneur to do when outdated laws complicate the innovation business?  We at Udemy don’t advocate breaking the law of course. But we do know that innovation is all about finding creative solutions to problems, whether those problems are technical or legal.

What we will say, is that the innovative tsunami in the online education space is something that cannot be stopped, nor should it be.  Removing the physical constraints of education and making education more accessible is a value we believe in.

We’re sure the original law was created without any thought of the “interwebs” and it’s impact on society. But society has changed and maybe the law should too.  But whatever the original reason for the law, advances in technology have changed the way we think about education.