Passing judgment: Lawyernomics year in legal 2014

Posted in Ethics, Technology

2014 was a year of both old and new for law. A shifting paradigm in legal education and legal ethics both continue to feature prominently in news stories, as they have for the last few years. Newcoming trends like legal tech and unbundling of services remind us that the profession is moving – though many would argue about whether it’s moving “forward.”

Nonetheless, here’s our take on what we’ve seen this year and how these events may influence what’s coming in 2015 and beyond.

Silicon Valley is disrupting law

2014 wasn’t the biggest year in outside funding for legal technology companies (that’d be 2011, at least in dollar figures) but 2014 did seem to constitute a watershed, at least insofar as attention given to the legal technology sector. As Dan Katz and Josh Kubicki have both noted, the number of startups that categorize themselves as “Legal Technology” grew from 15 in 2009 to 800+ today (that’s via Angelist).

Reflecting back on funding, though, Josh Kubicki has kept a great list of legal tech funding events in 2014. Here is a sampling of those that are most interesting:

  1. Ravel Law’s $8.1 million round of funding in February is intriguing. Both as one of the largest in the year (probably top five, definitely top 10) and as a disruptor in visualized legal research and case law analysis, it will be exciting to see what they do with their money.
  1. While we acknowledge the self-serving nature of this statement, Avvo’s $37.5 million round of funding should be acknowledged. As the largest venture financing of the year in this area, the investment indicates that there is still significant financial opportunity in the legal technology space for those with the right idea and the ability to execute.
  1. Finally, Microsoft’s reported but not yet finalized $200 million acquisition of Equivio is not on Josh Kubicki’s list but is significant both because of its size and because Microsoft was involved. To most Silicon Valley insiders Microsoft doesn’t carry nearly the innovation swank of Google or Facebook. However, Microsoft is a tech juggernaut that retains the ability to predict and drive seismic changes in the technology landscape. Regardless of whether Microsoft co-opts the Equivio technology for a different use outside of legal, makes a straight-up e-discovery play, or incorporates it into a suite of broader legal technology offerings, the Equivio acquisition was a big deal in 2014.

Whither legal education?

Legal education continued its identity crisis in 2014. While it’s hard to right a ship that is so firmly entrenched and undyingly focused on “the way that things have always been done,” we did see some notable changes in Legal Education in 2014.

First, the law firm incubator movement continued and perhaps even accelerated its growth in 2014. A recently updated list by the ABA places the number of incubators at 30+ and this trend is only going to continue as law schools struggle to rectify the lopsided supply-and-demand dynamics of the legal hiring market.

Although law school applications continue to decline, those who choose to brave the storm and attend law school are getting increasingly creative about how to pay for their education. To wit: the crowdfunded law school lender. Companies like Pave, SoFi, and CommonBond offer crowdfunded law school loans to law students and some recent graduate debtors. With the rise of the sharing economy (more on that a bit later) and the IPO of crowdfunded lender Lending Club, we’ll likely see more “creative” lending and borrowing approaches in the future.

Stanford’s Codex continued its position as the leader in both legal informatics and the nexus between law and technology in 2014 with the founding of the Stanford Program on Law, Technology & Design. Led by legal innovators Ron Dolin, Margaret Hagan and others, even if this unconventional interdisciplinary program is short-lived, it has planted seeds and spurred key conversations about law and technology that will influence legal education for years to come.

Ethics quagmire

2014 also marked the beginning of a changing landscape of attorney regulation, as the irresistible force of consumer demand and innovation met the immovable object of legal ethics rules (and rulers).

We begin with the Texas Ethics Committee, who handed down Texas Ethics Opinion 642. Opinion 642 concluded that Texas law firms could not use the terms “officer” or “principal” in job titles for non-lawyers working at the firms. After everyone – ranging from representatives from 53 firms with lawyers in Texas, to the Association of Legal Administrators, the American Association of Law Libraries, the International Legal Technology Association, the International Practice Management Association, and the Legal Market Association, to pundits and legal technology thought leaders such as Monica Bay from Law Technology News – wrote to protest to the opinion, the committee announced an intention to reconsider Opinion 642.

This episode is not remarkable for the logic that the committee relied upon to reach its conclusion, nor for the committee’s later decision to reconsider the opinion, but rather because of the swift and loud outcry it caused from both Texas locals and national pundits. What would have otherwise been a little-regarded opinion from a relatively unknown Texas state bar committee instead received a loud, rapid and resounding negative reaction from not only those in Texas but others throughout the country. In the Internet age, local jurisdictions, particularly those with a large number of lawyers, may not be regulating nationally but, increasingly, they are regulating on a national stage.

2014 also saw the Carolinas take on LegalZoom, each with differing results. In May in North Carolina, a Special Superior Court Judge ruled that LegalZoom effectively engaged in the unauthorized practice of law. Coincidentally, two weeks earlier and to much greater fanfare, LegalZoom announced that a South Carolina Court had approved its business model when Circuit Court Justice Clifton Newman compared LegalZoom’s software to the work of a scrivener who transcribes the information without giving advice or consultation.

Like the Texas opinion, neither the reasoning, nor the legal conclusions of these rulings in the Carolinas is surprising. Instead, these cases are remarkable for a few other reasons:

  1. First, it’s almost humorous to realize that bar associations continue to fight LegalZoom when there are hundreds, maybe even thousands of free legal forms websites doing almost exactly what LegalZoom does. Sure, LegalZoom was first, and many of these ongoing cases stem from a time when LegalZoom was one of the only entities engaged in this activity. However, the unwillingness of those fighting LegalZoom on unauthorized practice grounds to recognize that the Internet has revolutionized the online legal services landscape borders on ridiculous.
  2. Second, that two states (which, interestingly, happen to be neighbors, if not siblings) can litigate nearly the exact same question and come out with opposite results suggests that, at least in this situation, the cases are not being decided based upon the facts or even the law but the relative political influence of bar associations either striving to protect their outdated monopoly (in the case of North Carolina) or coming to grips with the new economic and technological reality (in the Case of South Carolina).

Finally, the Federal Court in the Southern District of Florida recently ruled that the Florida Bar Association’s ban on the use of past results in attorney advertisements is a violation of the First Amendment and, thereby, unconstitutional. While many have long argued that the Florida Bar Association’s advertising rules are arcane, it’s significant that a Federal Court has now gone on record in agreement.

Unfortunately, these cases represent the beginning, and not the end, of what will be a painful attempt by bar associations and legal regulatory authorities to grapple with the new 21st century economic and regulatory reality. It’s also unfortunate that the mess and complications that these regulatory efforts will create are likely to get worse before they get better.

Rise of unbundling and packaged legal services

Outside of law, 2014 was the year of the “sharing economy” to be sure. With the explosive revenue growth and significant PR attention given to companies like Uber and AirBnB, even if they don’t take advantage of them, consumers are increasingly aware that there is a market for almost everything, and that those markets can bring them what they want, when, where and how they want it.

While coming more slowly, changing consumer expectations are also rising to the fore in the legal industry. The most obvious example of this is the increasingly wide proliferation of limited scope representation rules in many, if not most, jurisdictions that allow lawyers to begin to “unbundle” full representation into “packages” of legal services more effectively than they did in the past. And lawyers and others are taking advantage of these opportunities as well: here in Seattle Foundry Law Group and InVigor Law Group both offer flat fee startup packages for small business entrepreneurs. Other lawyers have already been offering wills and various estate planning packages at flat rates for years, but the increasingly friendly regulatory framework combined with increased consumer demand is driving an uptick in the rate and number of these transactions for basic estate planning documents. It will also likely drive expansion of packages into other practice areas, such as small business services and, even, litigation.

Although LegalZoom has been offering legal forms and in some cases some limited legal representation to consumers at flat, bargain-basement rates for years, they’ve never had much of a physical presence. Until now. While the collaboration with Sam’s Club is notable because it gives LegalZoom a “retail storefront” so-to-speak, the partnership is even more interesting as it represents a new milestone in the commoditization of legal services. Whereas lawyers used to laugh, or more recently cringe, at the notion of a department store loudspeaker declaring: “Get your will on aisle six,” the LegalZoom/Sam’s Club partnership makes that punch line a reality. It will be interesting to watch how the partnership evolves.

Other legal technology companies are also taking advantage of these changes:

  • LawGives is designed to enable lawyers to offer unbundled legal services over the Internet as standardized, set-priced products, or “packages.” LawGives will also help lawyers create and price custom packages tailored to their own practices.
  • Avvo Advisor is a phone service through which customers can get fifteen minute of advice from a local, pre-screened lawyer for a flat fee of $39.
  • Lawdingo is a similar service where consumers can ask advice from lawyers starting at $30, with services at $100.
  • A number of other platforms, such as UpCounsel and Hire an Esquire, are also working to aggregate consumer demand for limited scope or otherwise flat-fee “packaged” services and then “sell” that demand to lawyers in their networks. Note that these services also offer by-the-hour pricing.

All told, 2014 was a huge year in legal. Between financing, legal education, ethics, collaborations and unbundling, the landscape is truly changing.

Here’s to 2015!