So I am discontinuing the publication of this blog at the end of this month. You can find the most relevant content from this blog imported to this location: https://www.richardgranat.com/blog, where I will continue to write on the intersection of the legal profession and digitization.

If you are a subscriber to this blog, and want to continue receiving blog posts, we will subscribe you to our new blog. You can opt out.

To clear my mind for the future, I also sold my interest in www.directlaw.com and www.smartlegalforms.com, companies which I founded. Both companies are now in the very capable hands of Gregor Weeks, the chief technology officer for both companies, and the developer of the DirectLaw virtual law firm platform. I am still involved in both companies, but as an advisor and not involved in day-to-day operationswhich can be very time-consuming.

A new focus for me is an AI start-up called Intraspexion , of which I am a co-founder,  with Nick Brestoff, the CEO and moving force. Nick has put together a patented “deep learning” technology that enables corporations to avoid or reduce litigation. Rather than spend an average of $400,000 a case in legal costs, Intraspexion’s technology identifies risks before they explode into a full blown case. The technology gives general counsel a radar screen that points the way to investigation, nipping a conflict in the bud. I would love to make a dent in the legal fee spend of large corporations and shake-up the litigation departments of large law firms. This company is an early stage startup.  Keep tuned for more developments.

“Unbundled Legal Services” is one way for solos and small law firms to tap into a latent market for legal services and to monetize unbilled hours. One of the barriers to implementation for law firms is knowing how to integrate this business model into their traditional practice.  To increase awareness of this concept and to provide tools and techniques to enable lawyers to offer unbundled legal services to their clients, the ABA Standing Committee on the Delivery of Legal Services is teaming with the Institute for the Advancement of the American Legal System to produce a conference on Unbundled Legal Services at the University of Denver on October 26 – 27.

Over the past several years, state and national reports on narrowing the justice gap and improving access to affordable legal services have advocated an expanded use of unbundling, where lawyers partner with their clients to divide the tasks to accomplish a legal solution. Research indicates there is a consumer demand for this type of service, lawyers can expand their client base and courts are able to have better prepared pro se litigants. We are near the tipping point and hope the conference will create an environment for the expansion of this model.

The Conference, entitled “Better Access through Unbundling: From ideation to implementation,” will assemble national experts and state leaders in an effort to advance the creation of strategic plans to broaden limited scope representation throughout the states. Topics will cover

• Research on what we know about unbundling, including very recent data on the perspectives of practitioners,
• Outreach efforts, best practices and collaborations;
• The practitioner’s perspective;
• The role of technology in unbundling; and
• The need for policy and rule changes that enable lawyers to expand access.

Details about the conference and registration information are at http://iaals.du.edu/honoring-families/events/better-access-through-unbundling

LegalZoom® which started as a legal document web site based on individual transactions is gradually shifting towards a new business model based upon recurring revenue. Under the guidance of Premira, a private equity fund and now the majority shareholder of LegalZoom®, the company has launched a legal plan that adds legal advice to the purchase of its documents. Premira, is a specialist in helping companies create recurring revenue streams, it’s most recent success being Ancestry.com.

The Legal Service Plan business model is the future for LegalZoom®. A network of lawyers in every state has been created with capability of providing legal advice both for personal documents and business documents.

See for example the services now offered in the estate planning area:
http://www.legalzoom.com/personal/estate-planning/last-will-and-testament-pricing.htm

or in the small business area:
http://www.legalzoom.com/business/business-formation/llc-pricing.html

Here is the message by LegalZoom® about what you get when you purchase a Wills package bundled with legal advice:

“Membership includes: 30-minute phone consults with independent attorneys on an unlimited number of new legal matters. Attorney review of any completed LegalZoom documents. FREE revisions for as long as you maintain your membership. 10% OFF future LegalZoom purchases.

The price for the LegalZoom® estate planning package is $149.00, which includes a Will, Power of Attorney, and Living Will. This is a good value proposition for the consumer, if the client’s estate requires no complicated tax planning or has special circumstances that need to be incorporated into the documents. For a large percentage of U.S. consumers this set of estate planning documents will satisfy their needs.

I hear from lawyers occasionally that they make a business of cleaning up documents purchased from LegalZoom®. I don’t believe it. I think it is just defensive talk by lawyers who convince themselves that they offer a superior service, but at a much higher fee. Maybe this comment refers to documents purchased without legal advice and review, but I doubt it will apply to the enhanced service that now includes legal advice. Solos and small law firms will find it hard to compete against this value proposition unless they learn some lessons from LegalZoom®.

Lawyers can Learn from LegalZoom®

Solos and small law firms can learn from LegalZoom®. Ignoring Legalzoom’s approach to the marketplace will cause a continued decline in solo and small law firm income. [See Clio’s Legal Trends Report for support of this assertion ].

[See my old post at: What Lawyers Can Learn from LegalZoom®   I stand by these recommendations first made in 2010, but would add that adding the benefit of in-person personalization is a feature that LegalZoom can’t offer.]

Is the LegalZoom® Business Model Ethically Compliant?

A final note on the ethical compliance of the LegalZoom’s offering. It is well-established that a profit-making company can create and administer a network of attorneys, commonly known as a Legal Access Plan. See for example: CLC Legal Access Plans  and Legal Access Plans . These plans traditional provides legal advice services as part of Employer Assistance Programs and sometimes offer their plans directly to the public.

What is different about LegalZoom’s® advertising is the statement you can purchase “Best Value + Attorney Advice” which implies that you can purchase your legal documents with legal advice. This is an ethical violation as organizations that are not law firms, may never advertise legal services as part of the services they offer. Accounting firms can’t advertise legal services. Financial advisory firms can’t  bundle  legal services with their services. Banks can’t advertise legal services, or bundle legal services with their other services. So, on what theory can LegalZoom® advertise legal services in a bundle with their other legal services?

A network of law firms is prohibited from making claims that a law firm cannot make directly. Bar disciplinary bodies can’t censure LegalZoom® for this infraction, but they can go after the lawyers participating in their plan who expose themselves to disciplinary action by participating in a “branded” network not ethically compliant.

If I am wrong about this, LegalZoom® is invited to submit a comment explaining their theory of how this messaging complies with ethical rules that deal with advertising and representations about legal services.

Note: LegalZoom® is a trademark of LegalZoom, Inc.

The restrictions are so severe that the result is to deprive North Carolina’s citizens of low cost solutions to solving many legal problems, inhibits innovation in developing legal solutions by an emerging self-help legal software industry, stifles competition to attorneys from self-help legal software publishers in the State of North Carolina, and will eliminate any possibility of private investment in self-help legal software development.

The new legislation can be found here: http://www.ncleg.net/Sessions/2015/Bills/House/PDF/H436v5.pdf

Also see also previous blog post on efforts by the North Carolina Bar to stifle competition..

The U.S. Justice Department (DOJ) and the Federal Trade Commission (FTC) submitted a joint statement (.pdf) to North Carolina urging lawmakers to consider the benefits of interactive legal forms.
In its letter to the North Carolina legislature, DOJ and the FTC stressed that:

“The Division and FTC staff believe that “the practice of law” should mean activities for which specialized legal knowledge and training is demonstrably necessary to protect consumers and an attorney-client relationship is present. Overbroad scope-of-practice and unauthorized-practice-of-law policies can restrict competition between licensed attorneys and non-attorney providers of legal services, increasing the prices consumers must pay for legal services, and reducing consumers’ choices.”

The Agencies also stressed within their findings:

“Such interactive software products may raise legitimate consumer protection issues. The Agencies recommend that any consumer protections, such as requiring disclosures, be narrowly tailored to avoid unnecessarily inhibiting competition and new ways of delivering legal services that may benefit consumers.”

The North Carolina Legislature, with the support of the North Carolina Bar have ignored these warnings.

The North Carolina legislation results from the settlement of a dispute, between the North Carolina Bar and LegalZoom, over whether its services constitute the practice of law. The conditions of the settlement agreement with LegalZoom were subsequently incorporated into the North Carolina’s legislation. The new framework provides an exemption for legal software publishers and web-based legal document preparation companies like LegalZoom, from the definition of the practice of law, provided certain requirements are satisfied.

Here is the text of the exemption:

“The practice of law, including the giving of legal advice, as defined by G.S. 84-2.1 does not include the operation of a Web site by a provider that offers consumers access to interactive software that generates a legal document based on the consumer’s answers to questions presented by the software, provided that all of the following are satisfied…”

The problem with this analysis is that there is a fundamental misunderstanding of the LegalZoom’s business model when compared with the products sold by self-help legal software publishers to the general public.

By a “self-help legal software publisher”, I mean web-based legal software used directly by consumers to resolve a legal problem or a legal issue through automated legal document assembly applications, expert system applications, decision-tools, intelligent databases, smart calculators, and other software applications that manipulate legal sources and legal information to generate a legal solution for a user from facts provided by the user.  Web-based automated legal document software programs are now widely used on the Web and is a target of this legislation. While the NC legislation is aimed at web-based document assembly software, the next challenge will be the attempt to regulate automated legal advice.  Automated legal advice and other artificial intelligence applications are already becoming a reality, according to Michael Mills, co-founder of NeotaLogic.

Self-help legal software can be distinguished from legal document preparation services that are delivered with the assistance of a non-lawyer directly to a consumer, whether or not aided by a legal software application.

LegalZoom is a legal document preparation provider, as distinguished from being a self-help legal software publisher.  At LegalZoom a “document scrivener” adds the element of a “peace of mind” review of the prepared document for mistakes and errors and therefore LegalZoom is a service, and not just a self-help legal software publisher. LegalZoom makes this distinction clear on its own Web Site.

Lumping together self-help legal software publishers in the same category as legal document providers is alarming and an error in legal analysis.

California already requires posting a bond and compliance with requirements by “Legal Document Assistants” serving the public directly in California..LegalZoom is now longer licensed in California under this licensing scheme, after 13 years of being licensed in California as a “Legal Document Assistant” entity. It has now moved its principal place of business to Austin, Texas, which has no comparable licensing scheme.

In Austin, LegalZoom employs over 500 people to review and process documents. This high level service makes LegalZoom a legal document preparation company, not a self-help legal software publisher.

The Self-Help Legal Software Industry

The self-help legal software industry that serves consumers directly has been growing dramatically during the last decade.  Entrepreneurs, non-profit groups, legal aid agencies, and courts are developing legal software applications to serve consumers directly as a alternative way of solving their legal problems at low cost.

Here is a short list of companies, among others,  that now make available self-help, interactive legal forms and will now be required to be licensed under the NC statute: Nolo Press,    RocketLawyer,   Avvo; Epoq, US, Inc., Staples, SmartLegalForms, Inc.,  U.S. Legal Forms, Inc.,  CompleteCase, Inc., Neota, Inc.,  Bridge, US ,  FormSwift, ShakeLaw, and LawDepot.

In addition, public and legal aid agencies provide interactive legal forms.  Many non-profit organizations, e.g, ResponsiveLaw,  state courts, and government agencies fall in the category of legal software publishers. See also, for example: https://lawhelpinteractive.org/, http://www.uscourts.gov/forms/bankruptcy–forms, https://www.uscis.gov/forms, the Center for Computer-Assisted Instruction (CALI)., and also see generally the Self-Reprseneted LItigation Network. The North Carolina legislation also conflicts with the recommendations of the U.S. Legal Services Corporation’s Report of the Summit on the USe of Technology to Expand Access to Justice. A major recommendation of the report is to expand the availability of web-based document assembly software.

Self-Help Legal Software as Protected Speech

Self-help legal software sold directly to consumers for their use is akin to a publication and arguably is protected speech under the First Amendment. The arguments for protecting self-help legal software from prior restraint are summarized in a pair of articles by Marc Lauritsen that appear here:  Liberty, Justice, and Legal Automata, 88 Chi-Kent L. Rev. 917 (2013) and Are We Free to Code the Law? – August 2013 Communications of the Association for Computing Machinery.

Lauritsen argues that legal software applications, including automated legal documents, dynamic legal information tools, and expert system web advisors, are computer code and therefore “text” and entitled to First Amendment free speech protections. The “speech” contained in legal documents is not “commercial speech”, it is “speech”, like a song, a video game, a book, an interactive book, or a static legal form, and deserves First Amendment protection.

There is a difference between a “software publisher” which publishes and distributes legal self-help software applications and a Web Site that offers legal document preparation services which involve a person reviewing the document or legal form for errors and omissions.

It is arguable that software programs are immune from state bar and legislative regulation on constitutional grounds and require no exemption from the definition of the practice of law in order to be sold or distributed in the stream of commerce.

Besides the significant restrictions on consumer choice and increases in consumer costs that flow from an overly-broad definition of the practice of law, such restrictions are also likely to impede substantially the growth of e-commerce and self-help software-based solutions. The Internet is changing how many goods and services are delivered, and consumers benefit from the increased choices, convenience, and decreased costs that the Internet can deliver. Yet over-broad restrictions on the practice of law can impair the growth of e-commerce by (1) prohibiting or increasing the costs of electronic provision of forms or other legal self-help computer programs,  (2) restricting the ability of providers to experiment and develop new forms of Internet services touching on legal matters that could benefit consumers directly, (3) stopping the flow of investment capital into start-ups in this field.

Draconian Restrictions

So how restrictive is the North Carolina legislation? Sufficiently restrictive that if this legislation were replicated by state bars and their supporting legislatures nationwide, it would wipe out an emerging self-help legal software industry.

Here’s why:

1. The legislation requires that: “The provider does not disclaim any warranties or liability and does not limit the recovery of damages or other remedies by the consumer.”  Comment: I do not know of any software publisher that does not license its software without an “AS IS” warranty. Moreover, this requirement would be a condition that would render null and void Internet Liability  Insurance. No rational publisher would expose themselves to this unlimited liability.

2. The legislation requires that: “An attorney licensed to practice law in the State of North Carolina has reviewed each blank template offered to North Carolina consumers, including every potential part thereof that may appear in the completed document. The name and address of each reviewing attorney must be kept on file by the provider and provided to the consumer upon written request.”  Comment: This is a very cumbersome requirement that would increase dramatically the cost of development, particularly if software publishers had to comply in every state where they distribute. It is arguable that this requirement is “compelled speech.”.
3. The legislation requires that: “The provider must communicate to the consumer that the forms or templates are not a substitute for the advice or services of an attorney.”   Comment: This is another instance of compelled speech. Free speech includes the right not to say anything at all. The First Amendment includes interactive legal document software, and interactive legal advice tools are a substitute for the advice or services of an attorney.
4. The legislation requires that: “The provider does not require the consumer to agree to jurisdiction or venue in any state other than North Carolina for the resolution of disputes between the provider and the consumer.”       Comment: This is another burdensome requirement. If a software publisher seeks to publish a nationwide        product, this requirement compels the publisher to defend itself in every jurisdiction.

5. The legislation authorizes any private attorney in the State of North Carolina to sue a provider or a person if there is an alleged violation of “unauthorized practice of law.”  See:  “§ 84-10.1. Private cause of action for the unauthorized practice of law. If any person knowingly violates any of the provisions of G.S. 84-4 through G.S. 84-6 or G.S. 84-9, fraudulently holds himself or herself out as a North  Carolina certified paralegal by use of the designations set forth in G.S. 84-37(a), or knowingly aids and abets  another person to commit the unauthorized practice of law, in addition to any other liability imposed pursuant to this Chapter or any other applicable law, any person who is damaged by the unlawful acts set out in this section  shall be entitled to maintain a private cause of action to recover damages and reasonable attorneys’ fees and  other injunctive relief as ordered by court. No order or judgment under this section shall have any effect upon  the ability of the North Carolina State Bar to take any action authorized by this Chapter.”   Comment: This is a license to North Carolina’s attorneys to harass self-help legal software publishers – ultimately driving them out of business.

6. The legislation also requires that: “(b) A Web site provider subject to this section shall register with the North Carolina State Bar prior to commencing operation in the State and shall renew its registration with the State Bar annually. The State Bar may not refuse registration. (c) Each Web site provider subject to this section shall pay an initial registration fee in an amount not to exceed one hundred dollars ($100.00) and an annual renewal fee in an amount not to exceed fifty dollars ($50.00).”  Comment: This is a prior restraint. Do book publishers have to register in every state where they sell their  books? What about legal software on CD/ROM sold in Staples or Office Depot?

Conclusion

Marc Lauritsen eloquently summarizes the argument for insulating self-help legal software publishers  from prior restraint:

“Forbidding the distribution of self-help legal software is not only of dubious wisdom, it is offensive to First Amendment values. …It is hard to make a principled case for suppressing freedom of expression about how the law works…Free expression, be definition, need not be authorized.

“Coded law is not something like “hate” speech at military funerals, that we should have to tolerate out of concern for higher values.

It is an affirmative good we embrace. There should no more be limits about what we can code and publish than what we can write about and publish. The state should not be in the business of regulating knowledge distribution.

Its understandable right to regulate professions should not extend to censoring what knowledge people can communicate.

It is in the enlightened interests of lawyers, and the best interest of society in general, to enable programmatic expression of legal knowledge. We should be free to write code, run code, and let others run our code.  If concerned citizens, law students, and entrepreneurs want to create tools that help people access and interact with the legal system, let them do it.”

There is a sound argument for the proposition that the concept of “unauthorized practice of law” should be simply limited to policing individuals who claim or represent themselves as a lawyer but who are not licensed to practice law. One commentator has argued that the legal profession is no more entitled to a monopoly on the delivery of legal services than an SEO (Search Engine Optimization) consultant.

The vagueness of the definition of “the unauthorized practice of law” in every state has the practical result of simply protecting the legal profession from innovation and competition. Extending a regulatory regime to self-help legal software publishers that offer legal solutions to consumers directly will be viewed by the public as another form of lawyer protectionist legislation. It damages the prospects for closing the “access to justice” gap in America.
It’s a bad idea and in the fullness of time will harm the reputation of lawyers and the legal profession.

Disclosure: Our company, SmartLegalForms, Inc., has provided interactive legal forms to North Carolina residents for many years. As soon as we received notice of the North Carolina legislation, we removed our North Carolina products from all of our Web sites rather than comply with the North Carolina legislation — for all of the reasons cited above.

The University of the District of Columbia, David A. Clarke School of Law is having an 81st birthday celebration for Prof. Edgar S. Cahn, the founding Dean of what was then Antioch School of Law, (founded 1972), the nation’s first clinical law school.

I first learned of Edgar and Jean Cahn (deceased) as a 2L at Columbia Law School in 1964. At the time I was involved in creating a law students civil rights organization, with colleagues from other law schools, (LSCRRC),  and Edgar and Jean helped us establish a chapter at Yale Law School.

At the time  I  was wondering what my alternatives might be for a career in law that would be meaningful and purposeful.  Then I read the Cahn’s ground-breaking article titled: The War on Poverty: A Civilian Perspective [The Yale Law Journal, Vol. 73, No. 8 (Jul., 1964), pp. 1317-1352 ], which introduced the concept of a neighborhood law office dedicated to increasing access to the legal system for all.

This was an idea I could relate to and a way for me to have a career in law consistent with my core values.

In 1964 Edgar became Special Assistant and main speech writer to Sargent Shriver, the new Director of the Office of Economic Opportunity, (“the War on Poverty”),  and Jean Cahn, became a consultant to the Office of Economic Opportunity to create a national legal services program.  When I graduated from law school in June, 1965, Edgar helped me secure my first job in the General Counsel’s Office of the Office of Economic Opportunity, for which I am forever grateful.

Edgar and Jean’s breakthrough thinking continued to shape my thinking and my career for many years thereafter.

In 1996, they co-authored another ground-breaking article titled: What Price Justice: The Civilian Perspective Revisited  [Notre Dame Law Journal, Volume 41 Issue 6 Symposium Article 8 7-1-1966 ]. This criticism of the legal industry could apply today:

“We would contend that – the product we are selling – quality legal services – is virtually unusable for the purpose for which sold. – the production and distribution system we are currently attempting to expand is basically obsolete. – And, the manpower supply is curtailed sharply by unnecessary, nonfunctional protectivist guild restrictions. ”

and:

“If Justice under law is to become a product for mass consumption, rather than a luxury item for the privileged and for private enterprise, we will not bring the price down within general reach by a straight exponential increase in the present supply of legal services as currently rendered the poor – or even the middle class. More neighborhood law firms, “judicare” programs, sliding scales of indigency, expansion of law school enrollment, increase of legal technicians, a massive increase in federal expenditures – none of these will produce more than the appearance of due process where the endless proliferation of rules and safeguards masks our underlying misgivings above the humanity and fairness of the system itself. (p. 940).

These were new ideas I could also relate to.  I owe Edgar Cahn a great debt as much of my own career has been  working on a variation of the ideas he and Jean first introduced  me to in these two landmark articles and many personal conversations. Edgar was my best teacher even though I was never  a formal student in one of his classes. His friendship and support enabled me to make a commitment to increasing “justice” in our society. Edgar and Jean helped me to find my right path.

The Cahn’s criticism of the legal profession, written over 50 years ago, is just as relevant today. Many innovative concepts that can be traced directly to their work:

• a national, federally funded-legal services program;
• clinical programs in every major law school;
• the use of non-lawyers to deliver legal solutions directly to consumers;
• neighborhood law offices staffed by “incubator” lawyers;
•  “unbundled or limited legal services”
• neighborhood court systems
• online dispute settlement systems accessible without lawyers
• self-help legal tools for citizens;
• maximum feasible participation of citizens in legal systems governance  and regulatory systems. (Rather than only lawyers governing lawyers).

It’s quite a legacy. Even though it is Edgar Cahn’s 81st Birthday — which often marks a lifetime of achievement — Edgar continues to innovate with the TimeBanking concept which seeks to build caring communities through the exchange of time and talents – another breakthrough idea that is expanding worldwide.

Edgar — The best is yet to come!.

Issue Paper on Unregulated LSP Entities and “Legal Start-Ups”.

An Issues Paper was released  by the Commission on the Future of Legal Services on March 31 which solicits comments from the public and the profession on an approach to impose a regulatory regime on “non-regulated legal service providers entities” such as independent legal technician and document preparers serving the public directly, on-line automated legal document preparation service companies, legal software publication companies, and other “non-lawyer” entities that provide legal solutions to consumer. Many “legal start-ups” fall within the scope of the Issues Paper. The Issues Paper can be viewed here.  The deadline for submitting comments is April 28, 2016.

The way the paper is written it could include in its concept of an “unregulated LSP entity,” legal software application providers (“legal software publishing companies”)  that provide legal solutions directly to the consumer as an alternative to the services that could be purchased from a lawyer. Examples might include: automated document assembly companies, legal expert systems developers, intelligent calculators, legal decision tools, intelligent data bases, consumer- centric legal analysis tools, and automated legal advice applications.  New rules could apply to many legal software publishing entities from larger companies such as http://www.nolo.com; http://www.avvo.com; and http://www.rocketlawyer.com to smaller publishers and providers such as http://www.neotalogic.com, http://www.shakelaw.com,  http://www.completecase.com; and http://www.lawgeex.com.  Our market research indicates there are hundreds of these new entrants to the legal service marketplace offering legal software applications that enable consumers to do legal tasks themselves.

There are also important developments within the courts, government agencies, and the national legal services program designed to provide software powered legal solutions for use directly by consumers.

All of these entities provide “software only solutions” – not services, so as a category I consider them to be “software publishers”.  [ Disclosure: I am the CEO of SmartLegalForms, Inc., which is a legal software publisher ].

Services vs. Legal Software Applications

My colleague, Marc Lauritsen, has written extensively and in-depth about how regulating legal software publishers would be unwise, and probably unconstitutional as a prior restraint under the First Amendment of the Constitution. His analysis of the wisdom and the right of the state regulation of legal software publishers and software developers can be found in these law review articles:  Liberty, Justice, and Legal Automata, 88 Chi-Kent L. Rev. 917 (2013)  and Are We Free to Code the Law? – August 2013 Communications of the Association for Computing Machinery . Other commentators have cautioned about extending the regulation of legal services beyond the legal profession itself.

The Role of Private Capital in Legal Service Innovation

One bright spot in the move towards innovation in the delivery of legal services has been the interest by private investment and the venture capital community in legal start-ups.  See:
http://www.lawsitesblog.com/2016/04/number-legal-startups-nearly-triples-two-years.html. Legal software application development is a capital intensive process. Very few solos and small law firm have access to capital that can be dedicated to creating new applications that translate into low cost solutions for the under-served.  It is for this reason that most innovation in the delivery of legal solutions to consumers has been outside of law firms and within private companies or the public sector. (except within Big Law firms where internal capital resources are available). Capital is the fuel of innovation.

Regulation is a Barrier to Innovation: Bye Bye Legal Start-Ups

I predict that if the ideas proposed in the Issues Paper are translated into policies and regulations the impact will be to dry up sources of investment capital for legal start-ups. The regulatory constraints that are being discussed to protect the consumer, would make it impossible for one category of legal service provider – legal software companies that serve the public directly – to operate a sustainable business. These requirements include among others:

• registration by the legal software publishing company in every state that the company serves in;
• waiver of “as-is” liability in Terms and Conditions Statements;
• enabling consumers to sue the publishing company in the state where the consumer lives;
• prohibitive insurance coverage to cover potential claims;
• requirements that legal software companies disclose whether a lawyer is involved in the production of the software product, the name of the lawyer, and the jurisdiction where the lawyer is licensed to practice;

If I were a venture capitalist thinking about investing in a legal software publisher that intends to serve the public directly, I would be hesitant to invest now because these ideas are being floated by the Commission  and could become a reality in the not to distant future.

“Legal Start-Ups” – Speak Out

If the authors of the Commission’s Issue Paper did not intend that “unregulated LSP entities” should include legal software publishers, I suggest that they make this clarification now. If they authors intended  that”unregulated LSP entities” include legal software publishers and legal application develolpers then this is alarming.

If you are a legal software publisher that serves the public directly with a legal solution, I suggest that you make your views known by commenting on their Issues Paper directly.

Th

Now Avvo has launched a “law store” that offers many fixed fee legal services from legal document review to no-fault divorce that ranges in price from $149.00 to $995.00. The legal fee is passed to the lawyer through the Avvo platform and Avvo charges the law firm a marketing fee for connecting the firm with a client. [For a detailed discussion of how this service works see Robert Ambrogi’s blog post on this subject at LawSites].

Today’s legal consumer’s want legal services from their lawyers on demand. In a previous post I discussed the coming Uberization of Legal Services a trend that now seems to accelerate with the launch of this service.

Consumers want from their lawyers:

• fixed and affordable fees;
• the opportunity to have more control over the relationship between lawyer and client;
• purchasing just the legal services they want and no more- often called the “unbundling of legal services”;
• speed and convenience;
• transparency.

Solos and small law firms need help in identifying prospects and converting them to clients without spending a fortune on client acquisition.

The new Avvo Legal Service offers these benefits to both the consumer on the demand side, and the law firm on the supply side.

The Avvo Business Model

Avvo is evolving into a classic platform business model like UBER, Facebook, Airbnb, and eBay:

A platform is a plug-and-play business model that allows multiple participants (producers and consumers) to connect to it, interact with each other, and create and exchange value.” –Platform Thinking.

It’s important to note that the single most important attribute of a platform business: a platform does not partake in any transactions or interactions with its customers. This differs greatly from the traditional “pipe” model, where businesses ( e.g., the law firm) transact directly with customers, and and services flow from law firm to client. In the Avvo model lawyers still deal directly with their clients, but the entire relationship, including the payment of legal fees, is facilitated by the platform technology.

The platform business model can help with two major problems facing solos and small law firms: (1) liquidity; and (2) efficiency. By providing a large source of potential clients with legal issues that must be solved quickly, solos and small law firms can convert dead time into revenue. The platform can also provide on-line tools to law firms that enable them to provide legal services efficiently and still maintain reasonable profit margins. Solos and small law firms are challenged to develop these on-line tools and applications on their own. The platform provider can provide these tools at a cost which is much less than the firm can develop on their own.

We know from our experience in working with solos and small law firm’s through our own DirectLaw Virtual Law Firm Service that the pain point for many law firms is client acquisition.  Most law firms don’t have enough clients. Marketing directly to clients online —the pipe business model — has proved to be a challenge. Now comes AVVO with its huge base of consumer traffic. Avvo claims that over 8 million visitors to its web site a month with 50% having an urgent legal problem. Solos and small law firm can tap into this huge potential market with no up-front cost. Prospects and clients acquired through the Avvo platform through the consumption of fixed price legal services can result in building trusted relationships with clients that lead to the purchase of additional legal services outside of the Avvo platform. Law firms should think of the Avvo on-line fixed fee legal service as a way to market their full-service practice.

Solos and small should explore testing out the new Avvo Service as another low cost route to market. Lawyers typically wait until early adopters in the legal profession try out a new service or technology first before leaping in with both feet. Here is a good example where being early, getting good reviews, and becoming experienced with providing services over the Avvo platform can cause higher platform visibility resulting in more powerful market positioning.

The major obstacle to making more capital available to law firms, is the prohibition on investment in law firms by non-lawyers enshrined in the ABA’s Model Rules of Professional Responsibility and replicated in the state rules of professional responsibility that regulate lawyers in their state. [ See Rule 5.4 – Professional Independence of a Lawyer ].

There has been little innovation within solo and smaller law firms to develop client-centered, web-based applications that provide a low cost solution to low and moderate income clients. Instead innovation is centered in the vendor community that provides tools to law firms, usually as a SaaS service for a monthly subscription fee. A good example is our own DirectLaw virtual law firm platform that provides a client-centered document automation application, and other tools that enables a law firm to unbundled legal services for a fixed fee to clients online. While the value of innovation outside of the law firm, within the vendor sector of the legal industry, is not to minimized, it is the lawyer within the law firm that has the most nuanced view about what their clients need and want. The lawyer within the law firm also has the primary interest in figuring out how to develop and manage the delivery of legal services so that for certain kinds of legal problems a scalable, volume-based business model can be implemented.

Innovation requires capital. It is capital intensive to develop software applications and new delivery systems for legal services. Solos and small law firms that serve individuals and families do not have access to capital. Whatever innovation is taking place in the delivery of legal services is happening outside of the legal profession in organizations like LegalZoom financed by venture capital, or the within legal aid programs funded in part by the Technology grant program within the Legal Services Program, or outside of the United States. [See also, blog post from Lexicata – How Law Firms Can be More Like LegalZoom ].

There has been much controversial discussion with the legal profession on modifying the ownership rules that apply to law firms, with little result. For example, the American Bar Association created last year a Commission on the Future of Legal Services to address the access to justice problem, under the under the leadership of then ABA-President William C. Hubbard.   The Commission convened a National Summit on Innovation in Legal Services, in May, 2015 where private investment in law firms as a prerequisite to innovation was on the agenda. But I have yet to see any progress on this issue within the American Bar Association. Unlike other countries, private investment in law firms as a way to develop new ways of serving a latent market for legal services is dead on arrival when it reaches the ABA’s House of Delegates, although 80% of the U.S. population can’t afford the cost of legal services and is unserved by the legal profession.

The evidence we have seen in the United Kingdom, where the legal profession has moved towards de-regulation, and where capital can flow freely into law firms, suggests that the United States will remain a laggard in innovation in the delivery of legal services until this problem can be fixed. In the UK, LegalZoom is taking advantage of this de-regulation by becoming an ABS [ Alternative Business Structure ].  As a private company, operating in the UK, LegalZoom can offer legal services directly to the public. LegalZoom plans to use this opportunity to develop and experiment with new end-to-end legal services for consumers with the idea that in the far distant future these innovations can be imported into the U.S. legal market.

The bottom line is that you can’t really innovate without access to capital – it is the fuel of innovation. For solo and small law firms that serve people, rather than large corporations, capital is not available for innovation unless the lawyer or law firm has generated capital from their practice and makes a conscious decision to invest in software automation and web-based solutions.

An example of a law firm that has accumulated capital because of litigation against the mortgage servicing companies and the banks in the robo-signing scandal during the U.S foreclosure crisis, is IceLegal, P.A., a small law firm based in Florida. IceLegal under the leadership of Thomas Ice,  is launching its own access to justice initiative at: http://www.legalyou.com.  The firm has also created its own LegalYou video channel for educating pro-se litigants.  This is a project of the law firm (not of a private company), and will  provide low cost legal solutions to Florida residents. If LegalYou is a success it will serve a new latent market ignored by most of Florida’s law firms. LegalYou is the exception rather than the rule.

One would think that Internet-savvy, recent law school graduates would be motivated to serve a latent market for legal services by developing innovative solutions, but handicapped by large student loans they are forced into career roles that provide sufficient cash flow to amortize those loans. Risk-taking is not an option for them.

A Proposal Safe Harbor for Law Firms Serving Low and Moderate Income Clients

To increase the flow of capital to law solos and small law firms who wish to serve just low and moderate income clients with automated legal solutions I propose that:

• The American Bar Association amend Rule 5.4 to permit private investment in just those law firms that serve low and moderate income clients exclusively.
• Personal injury and other contingent fee practices would be excluded from this exception as capital is self-generating for successful firms in these practice areas.
• To comfort to those who are concerned that the independence of the lawyer is compromised by this proposal, the law firm must remain at least a 51% owner of the law firm. Private investors can be minority shareholders only.
• It is relatively easy to create an income generation screen to capture just low and moderate income clients for the law firm, and exclude those of higher income. The data from this intake process can be archived and audited to comply with the exception to the rule.

Creating this exception opens up the opportunity for smaller law firms to take advantage of crowd-funding opportunities, the angel investor community, and the new SEC rules that permit crowd-funding investment. Further, the rich relatives and friends (if they exist) of a young lawyer could fund the new lawyer’s law firm, and get a return on investment, without the lawyer risking disbarment because of violation of the 5.4.

An argument can also be made that enabling law firms that serve primarily corporate entities can create capital on their own without additional incentives and should not be able to take advantage of this safe harbor. Most large law firms represent corporate entities (banks, insurance companies, health care organizations, drug companies,  manufacturers, financial organizations) whose legal positions are opposed to many consumer interests.  These firms should have to use their own capital to become more efficient so as not to tip the balances against the consumer even more than it is.

One would think that this modest proposal to enable innovation designed to increase access to the legal system for clients who can’t afford the high cost of legal fees would be an idea that that American Bar Association and state bar associations might entertain or even discuss.

However, given that the structure of regulation of the legal profession is controlled by the legal profession, this idea will probably be dead on arrival.

So what are client-centric legal services? 

The concept of client-centric legal services is part of a consumer revolution that puts the purchaser at the center of a commercial transaction shifting power from supplier to consumer. Power in the legal profession has always been on the supply side, but the legal profession is not immune from the consumer revolution and the demand by consumers for more transparency, information,  and control over the lawyer-client relationship. Consumers want fixed fee pricing so they can control their legal expenses and when possible be a co-producer of legal services to keep legal fees reasonable and manageable. This translates into “unbundled legal services” or “limited legal services”, powered by online delivery systems.

Internet based applications that either enhance the client’s understanding of their legal rights, or enable them to represent themselves with the assistance of an attorney, are examples of client-centric legal services.

A short list would include:

• web-enabled document automation;
• client-facing calendars and appointment systems;
• legal expert systems that provide automated legal advice;
• on-line calculators;
• client portals that facilitate online communication, collaboration and file-sharing between lawyer and client;
• educational videos;
• participation in branded networks that reduce friction between lawyer and client;
• free legal advice or unbundled legal advice for a fixed fee;

A law firm web site that consists of information only about a lawyer’s practice and biographies of the law firm’s lawyers is not client centric because it is solely focused on the supplier and provides no tools that empower the client as consumer.

Here are good examples of client-centric law firm web sites: The Rosen Law Firm in North Carolina – a family law firm; and The Baker Law Firm – an estate planning firm also in North Carolina.

Large law firms and their corporate clients are not immune from these developments as Big Law seeks to provide tools that enable corporate legal departments to service their internal clients more effectively.

For example Seyfarth and the Littler, Mendelson law firm  are developing expert systems applications on the NeotaLogic platform that can be used by their clients to more efficiently access legal advice at low cost. See Human Resources Compliance Application.

Prof. Stephanie Kimbro, author of The Consumer Revolution: The Lawyer’s Guide to the On-Line Legal Marketplace   predicts that:

“The client-centric law firms that are transparent in their business practices and provide communication and delivery methods that clients expect from professionals in any industry will be the firms that survive in our quickly changing legal marketplace.”

To learn more about creating client-centric law firms, register for the Denver conference, here.

FTC Disclosures:
I am a speaker at the ABA Denver Conference and I am also a liaison member of the ABA Standing Committee on the Delivery of Legal Services, and the company I am CEO of- DirectLaw – provides a virtual law firm platform for solo and small law firms that enables these firms to deliver legal services online.

Think of “task rabbit for legal services” – legal services at the click of a button on your smartphone.

The new virtual marketplaces connecting lawyers with clients for the purchase of specific legal tasks will also accelerate this trend. These legal marketplaces are a response to the inefficiency of bar-sponsored legal referral programs (the subject of another blog post to come), and the desire of consumers to have a more transparent way of selecting attorneys to solve their legal problems. The last few years has seen the ascendency of these legal marketplace platforms.

To name just a few of these new legal marketplaces, look at:

• Avvo  – “Get legal advice from a top-reviewed lawyer on the phone – $39.00 for 15 minutes.”
• Bridge.US – “Top attorneys and easy-to-use software that make immigration delightfully simple”
• DirectLawConnect – “FInd a fixed fee online lawyer in your state now.”
• Fixed – “The easiest way to fix a parking ticket”
• Hire an Esquire – “Legal staffing redefined online.”
• LawDingo – “You won’t believe how simple and affordable it is to get a lawyer;s help.” “$50 for a telephone consultation. Other projects for a fixed fee.”
• LawGo – On Demand lawyers for a fixed fee in personal and small business matters.
• LawGives – “Get free quotes and consultations from trusted lawyers in 100+ cities”
• LegalHero – “Law Done Better. Experienced attorneys for your business at clear, upfront prices. ”  “No hourly rates. No retainers.”
• LawKick – “Find the right lawyer at the right price”
• LawNearMe – “Law Near Me offers an attorney referral service to help you find the legal representation you need in a variety of areas.” “ZocDoc for lawyers”
• LawZam -“Free legal consultations by video-conference.”
• LegalZoom – “Find an attorney you can trust for your family for $9.99 a month”
• PrioriLaw – “lawyers hand-picked for your business.”
• RocketLawyer – “Legal Made Simple”
• SmartUpLegal – “Quality Legal For Startups and Business.”
• UpCounsel – “Hire a great attorney for your business. Fixed fee projects”

Some seek to link consumers with lawyers who charge their regular hourly rates, but the marketplaces that will scale are those that offer limited legal services for a fixed fee, ideally powered by technology to keep legal fees low. These new vertical marketplaces will serve what Richard Susskind has called, “the latent market for legal services.”, but in the fullness of time, the “limited legal services” approach will move up the value curve serving small business and eventually larger business entities and more affluent clients.

Not all will survive as many cannot generate the traffic to justify the fees charged to lawyers or consumers to participate in a particular platform. Survivors will be those platforms that can generate consumer traffic and which can scale their offerings. A likely winner could be AVVO as it leverages its huge consumer traffic and large lawyer data base into delivering legal services for a fixed fee.

Some larger law firms will adopt this independent contractor labor model using contracted labor to perform tasks for their clients. This is already happening in the United Kingdom. See: Lawyers on Demand; RiverviewLaw; and Peerpoint from Allen & Overy

The services that will scale the most will be smart legal software applications that can do a task for the fraction of the fee that a lawyer can charge for the same work.

As the idea of offering limited legal services goes mainstream, powered by these new marketplaces, consumers will benefit through more affordable, accessible, fast, and transparent legal services.

The legal profession, particularly solos and small law firm practitioners, will not benefit as much as the consumers they serve. Here are some of the negative consequences:

• A downward pressure on legal fees;
• More competition for solos and small law firm practitioners;
• Lawyers will have less or no social structure to support collaboration and cross-communication with peers;
• Newly admitted lawyers will lack the training and professional development structure for them to really learn how to practice law. (as law schools don’t really train lawyers to practice law).
• Less organizationally sponsored fringe benefits for lawyers.
• Loss of control of a client base, as clients are attracted and owned by the new legal marketplaces;
• Reduction in the size of the legal profession as it becomes harder to make a living as a lawyer, with a consequent reduction in the number of law schools – particularly those that turn out lawyers for solo and small practice but continue to teach the a purely doctrinal approach to law and law practice.

Recent litigation in California where California judges have ruled that the issue of whether drivers for Uber and Lyft are independent contractors or employees will have to be decided by a jury suggest that the rules that apply to the new ‘sharing economy” are not so clear. It will be interesting to see at some point in the future whether a group of lawyers -so-called independent contractors- might sue their platform provider or an AxiomLaw, on the theory that that the platform that they are using exercises so much control that they are really employees and entitled to the benefits of being an employee. See generally:  1099 vs. W-2 Employee Classification Infographic from Hire An Esquire.

Surely, the legal services industry is continuing to evolve driven by Internet-based innovations.