Google Classroom and Picking Economic Winners and Losers

My daughter is a senior in high school. Today she asked me to print a paper she had written and forwarded the link to me. The link was to an eLearning application called Google Classroom. 

I worked for Dell in the late 1990’s when the internet was still young. I was an HR guy and eLearning companies were just starting up and peddling their wares. I took part in evaluating many of these systems. There were dozens of companies each with some twist that solved a problem or created an efficiency in training employees. None of them were Google. In fact, Google didn’t exist at that time. 

Google ventured into eLearning around 2011 but formalized their effort with the announcement of Google Classroom in May 2014. And why not? According to Global Market Insights, “E-learning market size is was valued over USD 165 billion in 2015 …” And it was a good decision. According to Boost eLearning, Google has “… an astounding 41% growth rate, which has actually started accelerating in the past year. Maintaining this rapid adoption of Google Apps for Education would result in 110 million users by 2020.” Certainly, there is a lot of money to make in eLearning. Google knows this.

So why is the high school in my little Indiana blue collar town using Google Classroom and not one of those companies that pitched to Dell in the 1990’s? I think the answer lies in how the government is picking the winners and losers of the internet.

eLearning technology is the type of technology that is likely to be invalid as an abstract idea under Alice. After all, education has been around for centuries and just adding a computer to it does not make the system patent eligible, or so a few misguided federal judges have decided.

Most of the eLearning startups in the 1990’s had patent pending technology. They were founded by educators, software engineers, corporate HR folks and others who understood the intricacies of learning, most of whom were not independently wealthy. They bet the farm on a new unproven market. They filed for patent protection for the twists they invented under the impression that patents would help them attract the capital and would keep competition at bay long enough to establish their space in the market. They had no idea what was to come. 

Over the next decade, the Supreme Court would eliminate injunctive relief and then for all intents and purposes, invalidate their patents first under Bilski and then under Alice. The courts also changed the way claims were written, thus invalidating thousands of patents retroactively. The America Invents Act’s PTAB procedures are now invalidating nearly 90% of all patents they evaluate. The courts also radically reduced damages for patent infringement. 

Whether their patents were specifically invalidated or not is a distinction without a difference. The effect is that they are. If you are small and don’t have a spare couple of million dollars, the decision to defend a patent is made by contingent fee attorneys and investors who have the time, experience and money to put at risk. These professionals base their decision on risk versus reward. The government increased the risk that a patent will be invalidated to astronomical levels and at the same time radically reduced damages. There is no longer economic incentive and most contingent fee attorneys and investors either avoid what are often called software inventions like eLearning, or have left the patent business altogether.

To put eLearning to scale, I did a quick non-scientific search at the USPTO. When using “educational AND student AND school AND online” there are 644 patents and 44184 applications. By any measure, this is a very low number of issued patents given the huge number of applications. I suspect the bulk of the pending applications are in perpetual examination and appeal at the USPTO, or have been abandoned due to an unending supply of rejections by the examiner.

Is this the government picking economic winners and losers? Absolutely. And that shows clearly with the meteoric rise of Google in the eLearning space. Google need not be concerned with any potential eLearning patents. There are no injunctions so if they steal it, they keep the market. The odds of an inventor being able to defend patent rights are slim at best. If it is defended, the inventor will be litigated into oblivion and in the end the patent will most likely be invalidated. On the outside chance that the patent survives a potential five year battle with the PTAB and few more years in court, and infringement is actually proven, then an English major in a robe will decide the economic damages. 

For most inventors, there is little or no way to defend patent rights. So the coast is clear for Google to enter the eLearning space. It is likely that no Google engineer did a search at the USPTO to see what property rights they might trample. Most large multinationals have internal policies directing their engineers to avoid patents and to never search the USPTO. This helps when they are sued to avoid treble damages by appearing unaware they stole someone else’s property.

Google certainly has the horsepower to drive themselves into the number one position in the eLearning market. They have at least one of the world’s best known brands and are one of the wealthiest multinational corporations on the planet. No inventor today can compete against the likes of Google based solely on their market presence and deep pockets, at least not without a defendable patent.  And now that a patent cannot be defended there will be no investment to start the company up and none to defend the patent rights. The winner is picked. The government chose large multinational corporations over small inventors.

Picking winners and losers does not come without problems. Large multinational corporations by and large do not invent new products. They commercialize for profitability. That means their main focus is driving costs down and manufacturing/distribution capability up.  Instead of inventing new stuff, big multinationals buy up successful startups after they have proven the market. The multinational then commoditize the product. Inventing new stuff for new unproven markets is not what they do.

With China strengthening its patent system, the task of inventing is moving to China. Already they lead the world in new patent filings and we will start buying stuff invented there more and more over the next couple of years. What fools we are.