Web-Enabled Document Assembly

Legal Start-Ups and the ABA Commission on the Future of Legal ServicesThe American Bar Association Commission on the Future of Legal Services was created last year by then ABA President William C. Hubbard to explore ways to meet the legal needs of the underserved. The Commission does its work by holding public hearings on an issue, creating discussions and conversations among different stakeholders, issuing Issues Papers, soliciting comments on these papers, and depending on the issue  —  proposing new rules or policy approaches sometimes approved by the ABA’s House of Delegates where they become “official”. Some policies will be adopted by State Bar Associations which govern the conduct of lawyers and which regulate the legal profession and the legal services industry. As discussed below I believe that the ideas discussed within the Issue Papers will have an immediate impact on the ability of some “legal start-ups” to raise investment funds for their companies.

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.comhttp://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

Greedy Lawyers A bill was introduced in the North Carolina legislature that would narrow the definition of the “practice of law” to exclude sell-help legal materials, including books, software, and legal information. [ See House Bill 663 ]. The text of the amendment is:

“(b) The phrase “practice law” does not encompass any of the following:” …  (2) the design, creation, assembly, completion, publication, distribution, display, or sale, including by means of an Internet Web site, of self-help legal written materials, books, documents, templates, forms, computer software, or similar products if the products clearly and conspicuously state that the products are not a substitute for the advice of an attorney. “

The bill was reported out favorably of the Senate Committee on June 24, 2014, and will be voted on by the North Carolina Senate on July 9.  The North Carolina Bar Association is opposing passage of the bill.   The real reason for this opposition is  protecting lawyer’s incomes at the expense of easier access to the legal system for consumers. 

Texas has had a similar exemption from the definition of the practice of law for years with no demonstrable harm to the public.

It is well documented that 80% of the U.S. consumer public can’t afford the high cost of legal fees, so self-representation, a constitutional right, is one way for consumers to get access to the legal system. [ North Carolina Const. Art 1 § 18:  [ “All courts shall be open; every person for an injury done him in lands, goods, person, or his reputation shall have remedy by due courts of law, and right and justice shall be administered without favor, denial, or delay.” ].

Self-representation enables consumers to resolve their legal problems at low cost. The U.S. Legal Services Corporation has endorsed this approach and funded over 40 states to enable citizens to assemble their own state-specific documents powered by a national document server managed by LawHelp Interactive.com. The Legal Services Corporation has also supported state-wide legal information Web sites. North Carolina also maintains a state-wide legal information Web site to provide tools to self-represented litigants and a legal forms site sponsored by the North Carolina Administrative Office of the Courts.  North Carolina has also automated three sets of interactive forms using the National HotDocs Server designed to enable a self-represented litigant to a pro se litigant appeal an eviction or file for custody in court without a lawyer.

These are the software and legal information tools that the North Carolina Bar seeks to restrict by not clarifying that the provision of self-help  legal publications, interactive software, intelligent Web advisors, and other emerging software-powered tools are not the “unauthorized practice of law.”

Instead of making it easier for citizens to exercise this constitutional right, the North Carolina Bar wants to make it more difficult.

A growing body of academic scholarship suggests that the major obstacle to access to the legal system for those who cannot afford legal services is the legal profession itself. Afraid of competition from new forms of legal solutions enabled by the Internet and more powerful software, the unauthorized practice of law committees of state bar associations target non-law firm Internet legal form web sites, non-lawyer legal document preparers, and other innovative means of enabling access on the theory they are protecting the public interest from harm.

The North Carolina definition of the “practice of law” is so broad it is arguably unconstitutionally vague and includes within it almost any act that results in creating a legal document.  [ See Act ]. Categorizing self-help legal information materials as “the practice of law” is a slippery slope.

In a recent article from Professor Deborah L. Rhode, from Stanford Law School,  & Lucy Buford Ricca, Director of the Center on the Legal Profession, Stanford Law School, titled: Protecting the Profession or the Public? Rethinking Unauthorized-Practice Enforcement., where the authors conducted a national comprehensive review of  unauthorized practice of law enforcement, they conclude that:

A third problem is the lack of focus on the public interest. Although bar leaders and case doctrine insist that broad prohibitions on unauthorized practice serve the public, support for that claim is notable for its absence.  Outside a few contexts such as immigration, foreclosures, and trusts and estates, it is rare for customers to assert injury, or for suits to be filed by consumer-protection agencies.  As noted earlier, three-quarters of jurisdictions reported that fewer than half of their complaints came from consumers or clients, and two-thirds of respondents could not recall a specific case of injury in the last year. Of those who did identify a case, almost all involved immigration. So too, the vast majority of UPL lawsuits filed against cyber-lawyer products are brought by lawyers or unauthorized-practice committees and generally settle without examples of harm.

More directly relevant Professor Renee Newman Knake from Michigan State Law School argues in:  Legal Information, the Consumer Law Market, and the First Amendment, 

“The economic arguments for liberalizing lawyer regulation to facilitate the free flow of information support the First Amendment analysis. Perhaps one state will bravely implement a regulatory structure to expand access to legal information without intervention by the U.S. Supreme Court. If not, as this Article has shown, many of the restrictions governing the organizational form of law practice and the distribution of legal services are constitutionally vulnerable to the extent they constrain the creation and distribution of legal information…”

Marc Lauritsen writing in Chicago Kent Law Review, in an article titled, Liberty, Justice and Legal Automa , (See also, Are We Free to Code the Law?) , concerned that the obstructionism of the organized bar will chill innovation when access to the legal system has become critical, asks whether we are free to code the law.

“It is in the enlightened interest of lawyers, as well as 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, the government should not get in the way.  Are citizens at liberty to create and share software that helps others understand and interact with the legal system? Are we free to code the law?   We certainly should be.”

Professor Catherine J. Lanctot. from Villanova Law School concludes in an article on the same subject [ “Does LegalZoom Have First Amendment Rights: Some Thoughts about Freedom of Speech and the Unauthorized Practice of Law” Temple Political & Civil Rights Law Review 20 (2011): 255. ], that even if one assumes  that the practice of preparing routine legal documents for consumers runs afoul of many unauthorized practice statutes, however, there remains an open question of whether these statutes may themselves interfere with First Amendment guarantees.

“To the the extent that these statutes broadly sweep vast amounts of law-related speech within their scope, they may infringe on free speech rights. The article concludes with a “caution about aggressive pursuit of these online document preparers without careful consideration of the possible risks involved. A successful First Amendment challenge to an unauthorized practice statute could have repercussions far beyond the world of LegalZoom.”

Conclusion:  10 reasons the North Carolina Bar should support this amendment to the definition of the practice of law:

  1. The legal profession will be viewed more favorably as on the side of the consumer, rather than on then in the side of their pocket books;
  2. A challenge to a publisher that legal software is the unauthorized practice of law is likely to fail on 1st Amendment grounds;
  3. There is a difference between legal software (a “publication” ) and a lawyer providing legal advice. (‘conduct”);
  4. Technology innovation will be encouraged for the benefit of both consumers and lawyers;
  5. It will be clear that the publication of consumer facing web-enabled interactive legal forms by legal aid agencies in North Carolina, and other public agencies,  is not the unauthorized practice of law;
  6. The U.S Department of Justice and the U.S. Federal Trade Commission will have less reason to accuse the North Carolina Bar of anti-competitive behavior; [ See letter to Massachusetts Bar Association from the FTC on this subject ];
  7. Bar leadership can demonstrate that they understand that the legal profession is changing and can help prepare their members for 21st century law practice;
  8. With disclaimers, a consumer will understand the difference between using an interactive software application and receiving advice from a “live” person;
  9. The North Carolina Bar can avoid the charge it restricts access to the legal system;
  10. The North Carolina Bar can avoid the charge it is out of step with contemporary technological developments.
*Disclosure: My Company, SmartLegalForms, Inc.,   provides web-based interactive self-help legal forms directly to consumers and to non-lawyer companies nationally and in the state of North Carolina. [ See for example ]

Legal Documents On-LineThe American Bar Association’s eLawyering Task Force has compiled a draft set of best practice guidelines for legal document providers, which can be downloaded here*.  

An increasingly popular – and controversial – category of service providers are those that supply customer-specific documents over the Internet, using interactive software and/or human resources, without purporting to be engaged in the practice of law. There are literally hundreds of these legal documents Web sites. More of these legal document Web sites launch every month, of not every week on the Internet.

 

These Web sites include for example:

The Task Force believes that there are common principles that ought to guide these legal document sites, and practices that consumers should be able to expect.  The  eLawyering Task Force  also recognizes that consumers have different levels of knowledge in meeting their documentation needs.  Some believe, for instance, that it is simply a matter of getting “the” right form, and pay little attention to careful drafting and appropriate execution.  Others have a more sophisticated understanding of options and implications. Nevertheless there should be baseline expectations that meets the needs of all kinds of users. The goal is not to issue a "seal off approval" of these legal document Web sites. The objective is to encourage these Web sites to use acknowledged "best practices" in the development and delivery of their services.

These guidelines do not take a position on whether certain document services may constitute the unauthorized practice of law in certain jurisdictions if not performed by a licensed attorney, other than to urge providers to know and observe applicable law on that thorny subject.

The primary purpose is to aid consumers in making informed decisions about what they are buying.

Comments on these Guidelines are invited. They can be submitted on the eLawyering Task Force ListServ which any lawyer can join, Click here.

 

Hyatt Regency Incline Village Lake Taho, CaliforniaThe eLawyering Task Force is having a Quarterly Meeting at he Hyatt Regency Lake Tahoe Resort, Spa and Casino on Friday, October 19, 2012 between 9:00 – 11:00 A,M,

This is an open meeting and individuals who want to submit comments on these Guidelines are invited to attend and participate.

Additional Conference details can be found here.

 

 

*(Disclosure: I am Co-Chair of the eLawyering Task Force. The Co-Chair of the Task Force is Marc Lauitsen, of Capstone Practice Systems, who is providing leadership to this project.)

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In accordance with the   FTC 16 CFR, Part 255: "Guidelines Concerning Use of Endorsements and Testimonial in Advertising" I am disclosing that I have a material connection to some of the companies referred to in this Post. I am the Founder/CEO of  DirectLaw, a virtual law firm platform provider and SmartLegalForms, a web-based legal document provider. The opinions expressed here are my own. I did not receive any compensation from any source for writing this post. DirectLaw sponsors this blog by paying for the costs of hosting.

 

 

LegalZoom, the leading online provider of legal services to consumers and small business, as predicted here previously, finally filed for an IPO last week. The company is seeking to raise $120 million to expand their services both in the US and internationally.

LegalZoom’s data in the S-1 filing is now available for everyone to analyze:

  • In 2011, 490,000 orders were placed through their web site;
  • 20% of all limited liability companies in California were done by LegalZoom;
  • During the past ten years, LegalZoom has served over 2,000,000 customers.
  • Revenue in 2011 was $156 million.

These are impressive statistics and provide support for the proposition that consumers and small business prefer a very limited legal solution that is just good enough to get the job done, rather than pay the high legal fees charged by the typical attorney.

This is LegalZoom’s analysis of the legal market for consumers and small business, buried on p. 62 of the S-1 filing: 

"Making the right choices with respect to legal matters can be difficult, especially for those with limited time and resources. The U.S. legal system consists of overlapping jurisdictions at the city, county, state and federal levels, each of which has its own evolving laws and regulations. Businesses may be subject to additional laws, regulations and legal issues applying specifically to the industries in which they operate. In addition, the policies and procedures associated with the creation, filing and certification of legal documents are often arcane and confusing."

        "When in need of legal help, small businesses and consumers lack an efficient and reliable way to find high quality, trustworthy attorneys with the appropriate experience to navigate this complex legal system and handle their specific needs. Small businesses and consumers often do not understand their legal needs or know where to start looking for an attorney. Some are wary of attorneys in general, and others may have heard from friends or family about negative experiences with attorneys or the legal system."

        "The high and unpredictable cost of traditional legal services also presents challenges for many small businesses and consumers. In 2011, the average billing rate for small and midsize law firms was $318 per hour, according to ALM’s 2012 Survey of Billing and Practices for Small and Midsize Law Firms. Attorneys are frequently unable to predict the time required to address a client’s legal matter, sometimes billing thousands of dollars to research a legal issue they have not previously encountered. This can be particularly true of generalist attorneys that offer many disparate legal services to members of their local communities. Unlike attorneys at large global law firms or specialty boutiques who handle high volumes of similar matters and develop expertise in specific domains, generalists can find it difficult to efficiently address a client’s particular legal issue due to their lack of specialized expertise. Due to the high and unpredictable costs of traditional legal services, many small businesses and consumers limit their use of attorneys and instead often attempt to resolve legal issues without assistance."

       "As a result of these factors, many small businesses and consumers often are unsure of or dissatisfied with the legal services available to them, and many either elect not to seek help or take no action to address their important legal needs."

Many lawyers are in denial about the desire of consumers and small business to purchase their services. They will assert that consumers and small business are exposing themselves to liability by using LegalZoom’s limited services which will bring regret later. But consumer’s don’t seem to care. What they get from LegalZoom is "good enough." The numbers tell the story.

Solos and small law firms will find that it will be very difficult to compete against LegalZoom with its superior capital resources. The organized bar (State and ABA) has given up on trying to put LegalZoom out of business on they theory that the company is violating UPL (‘unauthorized practice of law") rules. Any organized bar attacks will be resisted by LegalZoom which will now have the capital to fight any challenges to its business model. The American Bar Association has created a Solo and Small Law Firm Resource Center, but it is too little and too late.

LegalZoom is here to stay and will expand its market share as the major provider of the delivery of legal solutions to consumers and small business.

LegalZoom will, inevitably, put many solos and small law firms out of business as it grows and expands its suite of services.  For a related analysis on my theory about the venture capital industry and disruption in the legal industry see video at: Legal Startups – An Overview at PointOneLaw ].

To survive in this fast changing environment, solos and small law firms need to figure out strategies that extend their brand online, without detracting in any way from their role as a trusted adviser in the communities where they live and work.  I see too many solos and small law firms that think they can emulate LegalZoom’s success but don’t have either the capital or the skills to compete in an online environment.

The competitive response for solos and small law firms should be to create a "click and mortal" strategy that combines what can be learned from LegalZoom with the best management practices of a law firm that has the capacity to deliver "limited" or "unbundled" legal services at a competitive price point, both in the office and online.

Here is a previous blog post which lists steps that solos and small law firms can take to become more competitive in this rapidly changing environment. The cost of adapting to this new competitive environment is not the cost of software, which is relatively inexpensive. The cost is the investment in time that the lawyer has to make to learn new online skills, create more efficient production procedures, and adopt marketing approaches that amplify a lawyer’s experti
se both online and offline.

It will be interesting to see what the legal landscape for solos and small law firms looks like five years from now. 

The Center for Computer-Assisted Legal InstructionThe Center for Computer-Assisted Legal Instruction (CALI) is offering a free online course on digital law practice, primarily for law students and law professors, but anyone can register.

 

I don’t doubt that most law faculty will find these topics to be irrelevant, but its connecting with law students, as over 500 law students have registered nationwide.

For lawyers interested in delivering legal services online, this course would be a good introduction to the subject.

The first session is February 10 at 2-3 EST. Stephanie Kimbro is doing a session on the virtual law office.

Later in the course, Marc Lauritsen is doing a session on document automation, and I am doing a session on “unbundling legal services”.

Here are some of the other sessions:

Week 5: Online Legal Forms in Legal Aid
Friday, Mar. 9, 2-3pm ET
Ronald W. Staudt, Professor of Law, Chicago-Kent College of Law

Week 6: Contract Standardization
Friday, Mar. 16, 2-3pm ET
Kingsley Martin, President, kiiac.com & contractstandards.com

Week 7: Free Legal Research Tools
Friday, Mar. 23, 2-3pm ET
Sarah Glassmeyer, Director of Content Development / Law Librarian, CALI

Week 8: Unauthorized Practice of Law in the 21st Century
Friday, Mar. 30, 2-3pm ET
William Hornsby, Staff Counsel at American Bar Association

Week 9: Social Media for Lawyers
Friday, Apr. 6, 2-3pm ET
Ernest Svenson, Attorney at Law

Here is the course description and the registration page:

http://www.cali.org/blog/2012/01/25/free-online-course-digital-law-practice

Legal forms, without the legal advice or assistance of a lawyer, continue to decline in value. As a pure digital product, a legal form follows the price curve of other digital goods eventually approaching zero.  Several new start-ups in the legal industry will accelerate this trend.

Docracy is a new legal document start-up, founded by Matt Hall and John Watkinson, that grew out of a TechCrunch Disrupt Hackathon in New York City. The idea is to provide a free depository of legal documents that meets the needs of small business and start-ups which are crowd sourced by individuals who register for the site. The concept is to provide an open source site for legal documents in the same way that GitHub is an open source site for code. The company is venture funded First Round Capital, Vaizra Seed Fund, Quotidian Ventures and Rick Webb by a group of investors who see opportunity in disrupting the legal profession. The documents are largely flat forms (MS Word or Adobe .PDF File format), with quality control provided by the "community." It’s not clear yet what the business model for this site will be. Online signing of legal documents is coming.

A second legal document start-up has emerged out of the New York City start-up web scene called Paperlex  .  Paperlex is also targeting the small business market. This site will contain standardized legal documents that can be modified within the web browser. A user will be able to store all of their documents online in their own private and secure web space, will be able to collaborate with third parties, and will have the capacity to execute/sign documents online.

Rather than crowd sourcing the legal form content, Paperlex will provide their own libraries of standard forms. Alison Anthoine, Esq., the CEO and Founder, hopes to provide an accessible legal document portal that small business can easily use with their customers and other parties at a cost that is much less that the cost of a custom document crafted by an attorney. The business model for Paperlex is a Saas subscription service provided for a low monthly fee.

DocStoc is another document repository that includes not only collections of legal documents, but collections of documents in other categories as well, such as human resource, travel, and personal finance documents. Documents are for free or can be purchased. The site is also built on crowd sourcing principles. Users can contribute documents and sell them through the site, with DocStoc taking a cut. Most documents are not automated and are provided in either MS Word or Adobe .PDF file format. However, a new feature called "custom documents" enables the user to answer an online questionnaire which generates a more customized document. The user can view the assembled document before making a decision to purchase a monthly subscription.Monthly subscriptions range from $9.95 a month to $39.95. The site claims to have 20,000,000 users.

Docstoc, Inc., was founded by Jason Nazar (bio) and Alon Shwartz (bio). The company was selected in September of 2007 to debut its product at the prestigious TechCrunch40 Conference. The platform was subsequently launched to the public in October 2007.

Docstoc is a venture backed company (Rustic Canyon) and received funding from the co-founders/investors in MySpace, LowerMyBills, Mp3.com, PriceGrabber and Baidu.

WhichDraft.com , founded by Jason and Geoff Anderman, brothers, and both attorneys, offers free contracts that can be assembled within the web browser. Legal documents can be easily shared with third parties, and you can build your  own Question and Answer templates. A nice feature enables a user the compare any two versions to see new and deleted text in the fee legal form. 

By A Legal Forms PLan frm MyLawyer.comMyLawyer.com, our  own consumer legal document portal, also offers legal document plans that are libraries of automated legal documents that when purchased in a bundle are less than the cost of a song on iTunes*.

 

 

In the nonprofit sector, LawHelp Interactive, a unit of LawHelp.org,with funding from the Legal Services Corporation, [ See Technology Initiative Grants ] has been working with a legal aid agencies nationwide to help the automate legal forms and publish them to state-wide legal form web sites which are available to any one within the state. The program is not limited to low income people. Hundreds of thousands of free legal forms are now created annually in more than 34 states. LSC has invested millions of dollars in the development of interactive legal form sites over the past 9 years.

Courts have also jumped into the free legal forms distribution game in response to the hoards of pro-se filers looking for free legal help. See for example: Online Court Assistance Program in Utah and Maryland Family Law Forms .

These free legal form web sites raise some interesting questions about the future role of the attorney and the changing nature of law practice.  What role will the lawyer play in this changing environment?  What is the impact of these relatively new sources of free or low cost legal forms on law practice, particularly the practice of solo and small law firms? Our own research provides support for the fact that solos and small law firms will continue to loose market share to these new providers.

"Unbundling" legal services by providing legal advice and legal document review for legal forms that clients secure from another source, may be a way of expanding access to the legal system, but it is also disruptive of law firm business models,  just like iTunes* was disruptive of the bundled album approach of the music industry. Value is shifting from the lawyer to the consumer and non-lawyer providers of legal forms. I can hear the sucking sound as law firm business models collapse.

Some questions to think about:

  • What risk do consumers and small business assume when they use a legal form without the advice or review of an attorney? The answer depends on the type of form, its complexity and the complexity of the transaction. If a user represents themselves in their own relatively simple name change, and their name ge
    ts changed by the court successfully,  then one can assume that self-representation worked.
     
  • But what about a Shareholder’s Agreement, where terms have to be negotiated, and the standard document doesn’t include the particular language required by the parties to reflect their intent? Should the parties now draft their own language? Should the parties simply ignore the need to include special language that reflects their intent hoping that there will be no situation in the future that will create a conflict between the shareholders because of a failure to include the language?
     
  • Who should negotiate the terms of the Agreement? The lawyer or the principal? Who would do the better job? How much shuld be charged for a successful negotiation?
     
  • How should the lawyer price services, when the client comes to the lawyer with their own standardized form and asks the lawyer to review it?
     
  • Will the lawyer refuse to serve the client, unless the client uses the lawyer’s form or document?
     
  • How important is the insurance that a lawyer provides that the document or form is valid for the purpose intended, accurate, and reflects the intent of the parties?
     
  • Lets assume that the 85% of the legal form content in many categories of documents is identical. [ This is what Kingsley Martin from KIIAC has concluded and he should know ! ] But 15% consisted of critical variable language not susceptible to easy document automation. Should the attorney charge on a fixed price for the entire project as if she drafted the entire agreement, although she only worked on several paragraphs? If the agreement fails because the variable paragraphs are incorrect for the particular case, why shouldn’t the attorney charge as if she he worked on the entire agreement?

If you have thought about these questions, and have some ideas on the impact of free legal forms on the legal industry, please share them here.

Document Automation as  DisruptuveTechnology

 

*iTunes is a trademark of Apple, Inc.

 

Virtual Law PracticeThe latest edition of the ABA’s Law Practice Today webzine has good articles on elawyering and virtual practice and a really innovative piece by Marc Laurtisen titled,  Dancing in the Cloud, and an introduction to the elawyering concept by Stephanie Kimbro —  Getting Started With eLawyering).

I also wrote a short article on Document Assembly Over the Internet , which as readers of this Blog will know is an old theme for me.

For our latest analysis on what is working in the virtual law firm space, download our White Paper on Virtual Law Practice: Success Factors.

 

 

Legal Software Program On August 2, 2011, Federal District Judge Nanette K. Laughrey, for the Western District of Missouri, the Judge presiding over the class action case against LegalZoom for unauthorized practice of law, released an opinion denying, in part, Defendant’s Motion of Summary Judgment. The Court held that document preparation by non-lawyers, under Missouri Law, is conduct, and not entitled to First Amendment protection. ( See full opinion here ).

This is consistent with my own view, expressed in a previous post. (Is LegalZoom just a self help legal software company?).

The court’s opinion rejects the logic in an article authored by Professor Catherine J. Lanctot, titled, "Does LegalZoom Have First Amendment Rights: Some Thoughts About Freedom of Speech and the Unauthorized Practice of Law." , which doesn’t surprise me, as it is hard to characterize LegalZoom’s activities as "speech", when they have 500 employees working on customer’s documents.

One paragraph in the Court’s opinion is troubling. On Page 21, the Opinion states as follows:

"Furthermore, LegalZoom’s branching computer program is created by a LegalZoom employee using Missouri law.  It is that human input that creates the legal document. A computer sitting at a desk in California cannot prepare a legal document without a human programming it to fill in the document using legal principles derived from Missouri law that are selected for the customer based on the information provided by the customer. There is little or no difference between this and a lawyer in Missouri asking a client a series of questions and then preparing a legal document based on the answers provided and applicable Missouri law. That the Missouri lawyer may also give legal advice does not undermine the analogy because legal advice and document preparation are two different ways in which a person engages in the practice of law. "

…..
"The Missouri Supreme Court cases which specifically address the issue of document preparation, First Escrow, Mid-America and Eisel, make it clear that this is the unauthorized practice of law. The fact that the customer communicates via computer rather than face to face or that the document prepared using a computer program rather than a pen and paper does not change the essence of the transaction."

This Opinion could be interpreted to mean that all legal software programs are a form of conduct, and not entitled to First Amendment protection. I would argue that the Court comes to this conclusion because the legal software is used in the context of a document preparation service, and is not a stand alone program. As the Court further explains that:

As in Hulse, First Escrow, Mid-America, and Eisel, LegalZoom’s customers are rendered passive bystanders after providing the information necessary to complete the form. Yet LegalZoom charges a fee for its legal document preparation service. …..The customer merely provides information and "Legal takes over."

The facts of this case make a difference, I would argue, in understanding the scope of the Court’s Opinion.

If we define a legal software program as a "product", where there is no service element and no conduct whatever, then it is hard for me to believe that the Court intended to ban legal software programs from distribution directly to consumers, whether on-line or off-line.

If that was the Court’s intent, then companies like Nolo and Intuit, would have to pull their products off the shelves of Barnes & Noble and Staples and Amazon, programs like LawHelp Interactive, supported by the US Legal Services Corporation, would have to be terminated, and the many web sites that offer interactive forms, without any service component would have to be abandoned. Courts that are experimenting with distributing interactive forms from their web sites, would have to consider whether this activity is the "unauthorized practice of law", a strange result.

A2J Guided InterviewsLaw Schools like Chicago-Kent Law School that are experimenting with new legal software interfaces that connect citizens directly with legal help through software, might reconsider their efforts.

Stop No Entry

The only way that such legal software could be used, would be by attorneys in the context of delivering of legal service through their law firms. I think this would be an unfortunate result.

 

Other possible negative consequences of such an interpretation would be:

  • The legal profession would be further attacked for attempts to restrict commerce and maintain higher legal pricing by the consuming public causing further damage to the profession’s already declining reputation;
     
  • Pro se litigants would not have access to tools that enable them to represent themselves, further restricting access to the legal system;

It would be helpful, if the Missouri District Court clarified its language on page 21 of the Court Order to distinguish between fact situations where interactive legal software is used as part of a document preparation service business and situations where the programs are distributed as stand alone programs — products–  like a book or other publication. What do you think?

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In a Fortune Magazine blog post by Roger Parloff just last week, entitled Can Software Practice Law?, writing about the class action suit against LegalZoom in Missouri for violating Missouri’s UPL statute, Parloff argues that LegalZoom is no more than a self-help legal software company, and therefore entitled to the same protections as a self-help legal software publisher. The question of whether legal software constitutes the practice of law is a controversial one. When the Texas Bar won a suit against Nolo Press on the grounds that its WillMaker program constituted the practice of law, the Texas Legislature amended the UPL statute and further defined the practice of law  as follows:

Texas Code, 81.101 (c) the "practice of law" does not include the design, creation, publication, distribution, display, or sale, including publication, distribution, display, or sale by means of an Internet Web site, of written materials, books, forms, computer software, or similar products if the products clearly and conspicuously state that the products are not a substitute for the advice of an attorney. This subsection does not authorize the use of the products or similar media in violation of Chapter 83 and does not affect the applicability or enforceability of that chapter.

No other state has passed such an exemption, but there is a well-established line of cases that supports the position that the publication of information about the law, as well as self-help legal books, divorce forms with instructions, and do-it-yourself kits is not the practice of law and protected by the First Amendment of the U.S. Constitution and may be protected by state constitutions as well. See, e.g., New York County Lawyers’ Ass’n v. Dacey, 21 N.Y.2d 694, 234 N.E.2d 459 (N.Y. 1967), aff’ing on grounds in dissenting opinion, 283 N.Y.S.2d 984 (N.Y. App. 1967); Oregon State Bar v. Gilchrist, 538 P.2d 913 (Or. 1975); State Bar of Michigan v. Cramer, 249 N.W.2d 1 (Mich. 1976); The Florida Bar v. Brumbaugh, 355 So.2d 1186 (Fla. 1978); People v. Landlords Professional Services, 215 Cal. App.3d 1599, 264 Cal. Rptr. 548 (Cal. 1989). 

LegalZoom takes the position that it is no more than a self-help legal publisher and seeks to fall within this classification, as Roger Parloff argues in his blog post. This is also the position that Legal Zoom takes on its Web site and in its answer to the Missouri Complaint:

From the LegalZoom Web site:

"Is LegalZoom engaged in the practice of law?"

"No.  LegalZoom is the latest and natural evolution of the centuries-old legal self-help industry."

"No jurisdiction prohibits the sale of software that generates a legal document based on a customer’s unique input.  LegalZoom has never been prohibited from operating in any state."

"Should consumers be concerned about LegalZoom losing this case?"

"No.  If LegalZoom is found to be engaged in the unauthorized practice of law in Missouri, then every guide and legal formbook in libraries and bookstores in the state would also be engaging in the unauthorized practice of law.  These days, nearly all such books are packaged with computer software that works in a similar manner to LegalZoom.  Just like with a Nolo Press® book or a preprinted form, LegalZoom customers have the ability to review and consider their legal form before committing to their purchase."

It is not possible to know how LegalZoom’s document technology actually works without further evidence. However, one can state with certainty that it doesn’t work like a true Web-enabled document automation technology which generates a document instantly from data entered into an on-line questionnaire that is presented through the Web browser.

Vendors of true Web-enabled document automation solutions, such as HotDocs, Exari, DealBuilder, WhichDraft and Rapidocs (our company) have document automation technologies that generate a document instantly after the user clicks on the submit button. Because LegalZoom’s technology seems to require a separate step that is executed off-line, it does not in my opinion, fit into the category of a Web-enabled document automation technology. [ For a more extensive discussion of Web-Enabled Document Automation as a Disruptive Technology, click here to download our white paper on the subject. ]

Instead, in the LegalZoom  business model, as described by LegalZoom, a data file is created, reviewed by a legal technician, and then imported into their – document assembly application utilizing some form of import mechanism. It is not clear whether the document is fully-assembled until this second step takes place, and it’s a distinction that makes a difference.

If LegalZoom were just a legal software company, it is hard to understand why it needs over 400 employees to provide services to its customers, other than the fact that these employees are conducting professional reviews and providing real service support. For these services, LegalZoom receives a substantially higher price than if they were just selling a self-help legal form. See for example on the LegalZoom Web site, the 30-point review of wills conducted by LegalZoom’s "professional legal document assistants."

These more labor intensive, personal services makes LegalZoom a "service business" and not just a "legal software publisher" entitled to the First Amendment protections that are afforded to publishers.

Andrea Riccio, a Canadian lawyer who has commented about this subject, responds to some of the arguments that LegalZoom makes in its defense:

LegalZoom’s argument: "Typically, there is no interaction between the customer and the person reviewing the file."

Riccio’s response:

“The mere fact that the employee is granted access to the customer’s response is an interaction between the employee and customer.”

LegalZoom’s argument: "If there is an inconsistency, it is NOT corrected by the employee – instead, it is brought to the attention of the customer." 

Riccio’s response:

“Whether it is the customer or the LegalZooM employee that physically changes the document is irrelevant. What is important is that it is the LegalZoom employee that has identified the inconsistency. That, in my opinion, goes beyond "self-help" and is an act of legal draftsmanship.”

LegalZoom’s argument: "no employee revises or corrects any portion of the customer’s self-created document." 

Riccio’s response:

“Identifying inconsistencies or errors in another person’s document is in my opinion an act of revision and correction. Who physically makes the changes is irrelevant.”


It is for these reasons that LegalZoom was required to be licensed under California law as a registered and bonded legal document assistant (see footer
LegalZoom Web site).

What is a Legal Document Assistant?

A "Legal Document Assistant", as defined by the California Business & Professions Code (Section 6400 (c)) is:

"Any person who is otherwise not exempted and who provides, or assists in providing, or offers to provide, or offers to assist in providing, for compensation, any self-help service to a member of the public who is representing himself or herself in a legal matter, or who holds himself or herself out as someone who offers that service or has that authority, or a corporation, partnership, association, or other entity that employs or contracts with any person who is not otherwise exempted who, as part of his or her responsibilities, provides, or assists in providing, or offers to provide, or offers to assist in providing, for compensation, any self-help service to a member of the public who is representing himself or herself in a legal matter or holds himself or herself out as someone who offers that service or has that authority."

This California statutory scheme is based on the idea that a non-lawyer can perform clerical support functions without violating the unauthorized practice of law statute in California. Only a few states have carved out this exception by statute (e.g., California, Florida, Arizona).  Missouri is not one of them.

Could LegalZoom operate in California, where it is headquartered, without being registered with the state as a Legal Document Assistant?  I think not.  

This is the category that LegalZoom fits into, not “self-help” software.

Otherwise, I suppose Nolo, a California-based self-help legal software publisher, and other California-based legal software publishers that sell directly to the public, would have to be licensed in California as Legal Document Assistants!!!  (See generally – http://en.wikipedia.org/wiki/Legal_document_assistant, for a more extensive discussion of what a Legal Document Assistant is, and is not.)

Just to be clear, I am personally in favor of both self-help legal software and paralegal-assisted document preparation services as a way of providing access to the legal system, and personally think there should be more choices for consumers.  But my personal opinions are not the issue.  The issue is: 

“What does the law in the different states now require, and what can we do to change it if we don’t like it?”

It is becoming clear that LegalZoom’s defense strategy in the Missouri case is to associate itself with “self-help software”.  I am sure that its well-financed publicity machine is already approaching bloggers and the business press to write stories about whether “legal software” should be prohibited or regulated, when the real issue is whether and under what conditions a legal document preparation service should be regulated, or immune from regulation.

Definitions of what is “legal self-help software”, and what is not, are critical for carving out safe harbors for innovation, particularly as legal software applications that are distributed over the Internet have potential for great impact and for providing access to the legal system for those who cannot afford full service legal representation.

For example, LawHelpInteractive, a non-profit pro bono support organization, with grants from the US Legal Service Corporation, has assisted in the creation of true Web-based document assembly Web sites in many states that provides free legal forms directly to consumers that can be assembled directly on-line. 

LawHelpInteractive has generated thousands of legal forms during the past few years that are instantly available and free to consumers throughout the United States. No one is arguing that these Web sites constitute the practice of law.

Because of the wider reach of the Internet, Web-enabled legal software applications are actually more of a threat to the legal profession, than desktop software, and the opportunity for over-regulation remains ever present. I would regret the day that courts prohibit the sale of self-help legal software because it is the unauthorized practice of law.

However, stronger arguments can be made for protecting from regulation the distribution of legal software applications, than there are for exempting from regulation a "service business", so I maintain that confusing one category with another is dangerous and takes us down a slippery slope.

Whether or not LegalZoom provides a valuable service; whether or not consumers have been harmed by LegalZoom; and whether or not the company provides some form of legal advice are questions of fact for the Missouri jury, and beyond the scope of this post.

The question for the U.S. District Court in Missouri is whether, as a matter of Missouri law, LegalZoom’s document preparation service business constitutes the practice of law in Missouri, under the terms of the Missouri UPL statute.

I think it does. What do you think?

 

For years some law firms, but not all, have used some form of document automation in their law offices. Ranging from an MS Word macro to long standing programs such as HotDocs, as well as automated forms distributed by legal publishers such as Willmaker by Nolo, some law offices have incorporated some form of document automation in their law practices. Document automation of legal documents that are generated in high quantity by a law firm is an indispensable process for increasing law firm productivity and maintaining profit margins in an era of intense competition.

Legal Document Creation the Old Way

The manual process of cutting and pasting clauses from a master MS Word document into a new document, is a productivity process which is fast becoming out dated. It reminds me of the time before there were automated litigation support programs, and legal assistants would duplicate a set of case documents three or four times. The next step was filling one file cabinet with a set of documents in alpha order, filling another filing cabinet with a set of documents in date order, and finally, filling another filing cabinet with a set of documents in issue or subject order to enable "fast"   retrievable of relevant paper documents. It took awhile, but almost all litigation lawyers now use automated litigation support methods.. This is not true of transactional lawyers, many of whom still use out-dated methods of creating legal documents, as if each legal document were a unique novel, poem, or other work of fiction.

Barriers to Change

An obstacle to wider use of automated document assembly methods, is typically the lawyer’s insistence on crafting the words in each clause to their own satisfaction. Because most lawyer’s do not have the requisite programming skill to automate their own documents, law firms by default will opt to use their own non-automated documents, rather than risk using the legal documents automated by an independent provider, because by definition the content of the documents is "not their own." As a result, many law firms do not even use desk-top document assembly solutions when the forms are published by an independent provider or publisher, remaining stuck using more time consuming and less productive manual methods.

Typically, when a law firm does use document assembly methods, a paralegal inputs answers from a paper intake/questionnaire into a document assembly program running on a personal computer. This results in the extra time-consuming step of inputting data from the intake questionnaire to the document assembly program, but it is still more efficient than manual methods.

Web-Enabled Document Automation

Now comes, "web-enabled legal document automation" methods."  Web-enabled document automation is a process whereby the intake questionnaire is presented on-line to the client through the web browser to be completed directly.

When the client clicks the "Submit" button the document is instantly assembled, ready for the attorneys further review, analysis, revision, and customization if necessary.  The result is a further leap in productivity because the client is actually doing part of the work at no cost to the lawyer, freeing the lawyer up to focus on analysis and further customization of the document.

This is what the work flow looks like when using web-enabled document automation methods:

Client Journey- Web-Enabled Document Automation Work Flow

Unfortunately, lawyers have been slow to adapt to this process as well,  because of their reluctance to use legal documents drafted or automated by someone else. However in order to automate their own documents they must either acquire the skill to do the job, or commit the capital to have a skilled professional automate their documents for them. For solos and small law firms these two constraints create formidable obstacles to using more efficient methods.

Since neither condition is common within smaller law firms (programming skill, investment capital), the result is that the law firm gets stuck using older less productive methods of document creation.

Vendors that provide web-enabled document platforms include, our own Rapidocs, and Exari, Brightleaf, HotDocs, DealBuilder, and Wizilegal, to name only a few, all claim that their authoring systems are easy to use, but I have yet to see lawyers without any kind of programming skill create their own automated legal documents in any quantity. Thus, law firms become stuck in a negative loop of their own creation which reduces productivity (and profitability) :

"My legal documents are better than yours; I can’t automate them for the web because I don’t know how; thus I will be less productive and be required to charge you more because of my own inefficiency."

Competition

In the consumer space, now comes the non-lawyer providers to take advantage of the solo and small law firm’s competitive disadvantage. Research by companies like Kiiac provide support the conclusion that 85% of the language in transactional documents is actually the same. In more commoditized areas, where legal forms have been standardized,  the legal form content is 100% the same in all documents. Taking advantage of this consistency of legal form content,  companies like LegalZoom, Nolo, CompleteCase, SmartLegalForms, and LegacyWriter , with their superior on-line marketing and branding machines, now sell legal forms by the thousands at low cost which provide a "good enough" legal solution for consumers who would do any thing to avoid paying the higher fees to an attorney.

Its true that the consumer doesn’t get the benefit of the attorney’s legal advice and counsel, and the accountability and protection that dealing with an attorney provides, but consumers don’t seem to care.

What can be done?

The "web-based legal document automation solution" , used by non-lawyer providers, is a disruptive technology  that is eating away at the core business base of the typical solo and small law firm practitioner. 

What can solos and small law firms do to compete in this challenging competitive environment?
The American Bar Association’s Legal Technology Resource Center reported last year in their Annual Technology Survey that only 52.2% of solo practitioner’s don’t have a web site.  Even if this number is underestimated, it is shockingly low compared with web site utilization by other industries.  If you don’t even have a web site, the idea of "web-enabled document automation" is still a "light year" away.

What can be done to encourage more wide-spread use of web-enabled document automation technology by law firms, particularly solos and small law firms? A follow-up post will explore some solutions, but I
am open to ideas from anyone.

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