A Recurring Revenue Business Model

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.

Greedy LawyersUnder the guise of consumer protection, North Carolina has passed new legislation, at the direction of the North Carolina Bar, that imposes restrictions on distributing self-help legal software over the Web.  Rather than protecting consumers, this legislation is a frightened response by the North Carolina Bar to protect their incomes from the impact of advances in Internet technology that provide new ways for people to solve their legal problems at low cost.

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..

Continue Reading North Carolina Restricts the Distribution of Legal Self-Help Software to Consumers

AVVOAvvo – the world’s largest online legal directory –  now enables lawyers to offer legal services directly to consumers through their platform. Beginning last year, Avvo  offered the opportunity to consumers to get legal advice by telephone for a flat fee of $39.00 per telephone call.

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 unberization of the legal professionThe legal profession will not be immune from the rise of the uberized economy. Consumers want to purchase only the legal services they need. This means that the trend towards offering “unbundled” or “limited legal services” will continue to accelerate as the most economical way for consumers to purchase legal service is by the “task”, rather than the hour.

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.

In a previous post, I discussed the North Carolina’s Bar fight against an amendment to the definition of the practice of law that stated:

“(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 moving force behind this amendment to the definition of the practice of law is LegalZoom which is also engaged in litigation with the North Carolina Bar over the same issue

For now, the North Carolina Bar has won this battle. Mobilizing the entire lobbying energy of the North Carolina Bar, the proposed amendment was side-tracked into Committee for further discussion and will die there in this legislative session.

In a confidential communication to bar members, one of the officers of the bar stated that:

“As I am sure you know, LZ has sued the State Bar in an effort to prevent the State Bar from continuing its ongoing efforts intended to halt LZ’s efforts to engage in the unauthorized practice of law.

I think it is important to understand that not all of the products currently offered by Legal Zoom violate the existing prohibition against the unauthorized practice of law. Merely producing and selling legal forms does not violate the prohibition against UPL. Consumers have always been able to purchase legal forms from bookstores, office supply stores and other outlets. The fact that LZ, and others, offer consumers the opportunity to purchase such forms over the Internet rather than from a brick and mortar business does not place them in violation of the prohibition against the unauthorized practice of law.”

“However, LZ’s use of “decision trees” and other such algorithms to create legal documents tailor-made to the individual consumer does present significant concerns and the State Bar has endeavored to prevent LZ from engaging in these activities.”

Talk about a “luddite” mentality — now North Carolina Bar wants to prohibit interactive legal software on the theory this is same as getting as advice from a lawyer. Maybe in the fullness of time getting legal advice and legal forms will be better than getting services from a lawyer. So what is the real justification — full employment for lawyers. The Bar argues that they are protecting the interests of the consumer. But  lawyers in North Carolina only serve the to 25% or so of the population with the remaining the 75% left to their devices. The argument doesn’t hold up. You can’t argue that you are protecting the safety of consumers when you are only serving a small proportion of the addressable market.

The North Carolina Bar has an answer to this.  Realizing that total resistance will expose the Bar to liability (Federal Trade Commission, U.S. Department of Justice, class action suits),  the Bar has proposed this amendment to the definition of the unauthorized practice of law.

Apart from the very narrow scope of this exception, the language kills innovation and access to justice for consumers who can’t afford lawyers is this language:

“The provider does not disclaim any warranties or liability and does not limit the
recovery of damages or other remedies by the consumer; “

This language would apply to any self-help legal materials including self-help law books, legal software on CD/ROM, and web-based interactive legal forms. I don’t know of any legal software publisher that would waive a disclaimer of warranties of liability.

Would TurboTax withdraw its Tax and Legal Products from retailers?
Would Nolo withdraw its self-help books from North Carolina?
Would web services such as http://www.completecase.com stop operating in North Carolina?
Would Amazon stop selling Quicken WillMaker?
Will LawHelpInteractive withdraw its interactive child custody forms?
Will ShakeLaw withdraw its products from North Carolina?
Would our company (SmartLegalForms), close down our North Carolina Divorce Web Site?

An argument can be made that self-help materials (books, software) are publications, and therefore this requirement to waive a disclaimer of liability is a prior restraint on speech and also an attempt to restriction competition. This requirement is a law suit waiting to happen.

Another requirement of the proposed legislation is that:

“The provider does not provide any individualized legal advice to or exercise any legal judgment for the consumer; provided, however, that publishing general information about the law and describing the products offered, when not done to address the consumer’s particular legal situation and when the general information published to every consumer is identical, does not constitute legal advice or the exercise of legal judgment.”

What does this mean? If the North Carolina Bar thinks that interactive software is a form of legal advice, as it appears to be the case, then can’t this language to be interpreted to mean that all interactive legal software that generates a set of legal forms in response to a consumer’s particular set of facts is this practice of law?

The proposed amendment at the beginning of this post is almost identical to the exception to the definition of the practice law passed by the Texas legislature almost 20 years ago. There has been apparently no harmful effect to consumers from this exception to the practice of law. The burden is on the North Carolina Bar to demonstrate with empirical evidence that consumers are harmed by these practices and publications.  The real justification is protecting the incomes of North Carolina lawyers afraid of losing market share to alternative providers.

 

The eLawyering Task Force of the Law Practice Management Section of the ABA was created in 2000 by then President of the ABA, William Paul. At that initial meeting Gary Munneke, a founding member of the Task Force and the leading law school educator and author on the subject of law practice management and then Chair of the Law Practice Management Section of the ABA (now deceased),  recommended that law schools update their law practice management courses to reflect the impact that the Internet would have on the practice of law.

13 years later there are few law schools that have made a sustained commitment to teaching what the Task Force calls "law practice technology". By "law practice technology" the Task Force does not mean technology and law courses such as Intellectual property courses, patent law courses, courses in copyright, etc.

Instead the Task Force means the intersection of internet technologies and the practice of law.  It is no longer possible to teach law practice management without taking into account the impact of information technology on law practice. We include within this category courses that train law students in document automation, legal expert systems, and other course work that has an impact on the nature, productivity and profitability of law firms.

The Task members believe that to educate law students to be "practice ready",  particularly for law schools where the majority of graduates will end up in solo and small law firm practice, understanding the principles of law practice technology are essential.

The Top Legal Practice Technology Schools Project

In honor and in memory of Gary Munneke, the eLawyering Task Force is working on a project to identify the top law schools teaching legal practice technology today. Our methodology is to review law schools web site catalogs and also seek input and recommendations from law schools themselves through a self-nomination process.

The criteria for inclusion on the list is:

 

1. A full-time faculty member dedicated to teaching and coordinating a program in law practice technology.  This subject matter should be the focus of serious research, including the development of innovations in law practice.

2. At least two credit courses in this subject matter such as law practice management, law practice technology, ediscovery and big data, outcome prediction,  legal project management, virtual lawyering,  expert legal systems development, document automation, and/or other coursework which deal with innovation in the delivery of legal services and law practice.

3. Non-credit courses taught by adjunct instructors don’t quality.

4. Law schools sponsoring incubator programs are interesting, but these programs involve lawyers who have already graduated, not law students.

The initial list includes the following law schools, in alphabetical order:

 Brigham Young University Law School for their ground-breaking work in teaching computer-based practice systems under the leadership of Larry Farmer and Blair Janis.
 

Chicago Kent Law School‘s Center for Justice and Technology under the leadership of Ronald Staudt and CALI for their work in piloting law school clinical programs and for their innovative On-Line Course on Digital Law Practice under the leadership of John Mayer.


Columbia University School of Law, Lawyering in the Digital Age Clinic, under the leadership of Professor Conrad Johnson, Professor Mary Marsh Zulack, and Brian Donnelly, Lecturer in Law. Conrad Johnson is chosen as 2013 Professor of the Year.

 

Georgetown Law SchoolGeorgetown Law School’s Iron Tech Competition and Technology, Innovation and Law Practice Seminar   under the leadership of Tanina Rostain and Roger Skalbeck.

 

 

 

Maurer School of Law at Indiana University under the leadership of William D. Henderson for his courses on Legal Project Management and the Law Firm As a Business Organization and for Directing the Center on the Global Legal Profession.

 

Reinvent Law LabopratoryMichigan State Law School‘s Reinvent Law Laboratory, under the leadership of Dan Martin Katz and Renee Newman Knake.

 


New York Law SchoolNew York Law School’s Certificate Program in Mastery of Law Practice Technology under the leadership of Dan Hunter.

 

We are adding today, (May 17, 2013) a 13th school to our list – the Northern Kentucky University Chase College of Law because of a $1,000,000 grant made just last week by W. Bruce Lunsford to establish and support the W. Bruce Lunsford Academy for Law, Business + Technology. Lunsford, is  a 1974 graduate of Chase College of Law, and is chairman and CEO of Lunsford Capital, LLC, a private investment company headquartered in Louisville, Ky. The Academy will be operated by the NKU Chase & Informatics Institute under the leadership of Professor Jon Garon Click here for the full press release.
 

University of Miami Law School’s LawWithWithoutWalls Project under the leadership of Michelle DeStefano and Michael Bossone and the Apps for Justice Project within the Law School’s Clinical Program.

Stanford Law School Codex Center for Legal InformaticsThe CodeX – Stanford Law School Center for Legal Informatics – under the leadership of Mark A Lemley and Roland Vogl. See course on Legal Technology and Informatics by Ron Dolin.

 

Institute for Law Practice Technology and Innovation

Suffolk Law School‘s new Institute for Law Practice Technology and Innovation under the leadership of Andrew Perlman.  Co-Chair of Advisory Committee are Jordon Furlong and Marc Lauritsen.

University of the Pacific McGeorge School of Law for their course on Computer-Assisted Litigation under the leadership of Professor Fred Galves and Tim Pignatelli, CEO, Legal Technology Consulting.

 
 

Vermont Law School‘s new Technology of Law Curriculum and their course on "Digital Lawyering" under the leadership of Oliver Goodenough, Jeane Eicks, and  Brock Rutter.

 

This is a preliminary list. The eLawyering Task Force is inviting self-nominations from law schools and recommendations by others either commenting the Task Force’s list serve or for convenience by simply adding comments to this blog post. Our plan is to publish a more complete list by the Annual Meeting of the America Association of Law Schools in January, 2014 in New York City.

Disclosure: I am Co-Chair if the eLawyering Task Force. Any opinions expressed in this blog post are my own, and not the opinion of the eLawyering Task Force of the Law Practice Management Section of the American Bar Association..

I had the honor of speaking at ReInventLawSiliconValley, a conference on innovation and the legal system sponsored by the ReInvent Law Laboratory at Michigan State Law School, co-founded by Professors Dan Martin Katz and Renee Newman Knake. This was a great learning day for me and I suggest if you are interested in the subject of change in the legal profession and legal education that you watch the videos when they are published on the ReInventLaw Law Channel. See also on Twitter #ReInventLaw and my pre-conference post on this Conference.

Here are the slides from my ReInventLaw presentation.

Private capital into law firmsI am interested in the subject of how to get private capital into law firms to spur innovation despite the prohibitions of 5.4 of the ABA Model Rule of Professional Conduct. This is the rule that prevents a non-lawyer from owning an equity interest n a law firm in all US states, except on a limited basis in the District of Columbia. This is a controversial issue in the US, and the the ABA Ethics 20/20 Commission decided not to address the subject in its recent deliberations. The ABA House of Delegates and almost all state bar associations are dead set against any change to this rule.

 

Jacoby & Meyers

 

Jacoby & Meyers, the pioneering consumer law firm, has filed a suit against the judiciary in New York, New Jersey, and Connecticut  in Federal court to overturn the rule, but that’s another story.

 

I am interested in finding out if clever lawyers have figured out away around the rule. I discovered at least two instances where law firms have created a business model that enables private capital to fund technology and management support that would be beyond the ability of the law partners to fund by themselves.

The law firms are Clearspire and RajPatent, recently re-branded as LegalForceLaw.  Both law firms are built around the same concept – a law firm that is supported by an independent management company that provides technology and management services to the law firm.

ClearsspireClearspire invested over $5,000,000 in a technology and management platform to support the delivery of legal services to corporate legal clients. The firm is growing rapidly and recently opened a San Francisco Office.

LegalForceLaw was founded by a solo practitioner, Raj Abhyanker. The underlying company is called Trademarkia, Inc., which created the Trademarkia web site, the legal web site with the most traffic on the Internet. Like Clearspire, Trademarkia developed a technology to make it easy for non-lawyers to do a trademark search. The traffic to the Trademarkia site generates business for the law firm. [See previous post on LegalForce ].

In both cases, a separate management and independent management company provides services to the law firm. In theory the management company could serve other law firms, but in these cases the management company only has one client.

Foloow the MoneyThe arrangement raises more questions and the answers are not apparent.

I would like to learn more about how these management companies price their services to the law firms they serve. They can’t take a percentage of the legal fees or it would be a violation of Rule 5.4 How much of the cash generated by the law firm can be siphoned off by the management contract between the management company and the law firm? What is the pricing mechanism between the management company and the law firm? Is it a cost plus contract or are market rates charged for the services provided?

Why would an investor put funds at risk within the management company as there would be no easy exit. The law firm can’t go public and if the managing partners of the law firm were hit by a bus the law firm would go out of existence. The brand belongs to the law firm, not the management company. The financial return to the management company is limited because of the 5.4 prohibition. So where is the upside for the investors in the management company?

I think that these innovative law firms should be more transparent about the nature of the management agreement between their management company and their law firm, so that other law firms interested in replicating this business model can experiment.

Maybe these management agreement should be  scrutinized and approved by the ethics counsel from the bar associations in the jurisdictions where these law firms are located, so there is no question that there is no violation of 5.4?

 

Ray Abyhanker, the entrepreneur lawyer behind the Trademarkia web site,  the highest traffic legal sites on the Web, opened a kind of Apple Store for legal stuff and other stuff (self-help law books, non-Apple tablets, tablet accessories, etc), right across from the Apple Store on University Avenue in Palo Alto. [See previous post on this company at: May the LegalForce Be With You! ]

Beautifully designed in a historic building the idea is to provide an  "third place" where lawyers can meet and mingle with potential clients, provide community law classes, and generally demystify the law by creating an accessible and friendly legal environment.

The ultimate goal is to create a branded network of law firms that promises a high value client experience for the broad range of consumers and small business that are also attracted to pure online ventures such as LegalZoom and RocketLawyer, but want something more.

LegalForce Store in Palo AltoThere is a lot to be said for a "click and mortar" strategy which involves lawyers working with clients in their offices, and interacting as well online,  but also meeting and interacting in a neutral physical space that is a retail environment. Sort of like having a  "Genius Bar" for legal problems where you can ask a question and get a quick legal answer or get assistance in knowing how to start out to solve a legal problem.

Where do I start? Do I need a legal form or a self-help law book? An "unbundled"  legal service, or full service representation? What’s the lowest cost solution to my legal problem?

The LegalForce lawyer store staff call themselves  "Concierges" and I believe that is an apt title. We need more legal concierges, on the web, and in the real world.

Legal services, particularly the more complex the legal service, depends on the presence of a skilled trusted adviser. Sometimes the lawyer presence can be virtual, but sometimes the legal problem requires a face to face meeting with a client so that a thorough exploration of the facts of the case can be fully understood.  For lawyers, the ideal strategy is one that combines an off-line practice with an online presence and a brand that expresses both dimensions of the practice.

 

The term "Click and Mortar" is attributed to David Pottruck, then CEO of Charles Schwab Corp, in a July, 1999 speech at a conference sponsored by the Industry Standard. Pottruck is quoted as saying:

 "Schwab’s vision has always been designed around customer needs and the company is engaged in constant reinvention to stay ahead of these powerful investors. Schwab believes that it is the combination of people and technology that investors want — a "high-tech and high-touch" approach. As such, Schwab is redefining the full-service business around the integration of "clicks and mortar."

Pottruck subsequently wrote a book about the strategy.  A brokerage firm is more like a law firm, than a law firm is to a ecommerce web site with no human touch. It might be fine to buy your shoes online from Zappos, but I am not so sure that in the fullness of time will clients want a purely virtual experience with their law firms. As someone who runs a company ( DirecttLaw) that provides a virtual law firm platform to law firms, and has operated my own virtual law firm since 2003,  I have experienced both the advantages and the  disadvantages of a pure legal service without any human meeting.

By linking together an online experience with an off-line, real work experience, Abyhanker may have come with a legal service concept that is unique. Trademarkia is being re-branded under the LegalForce brand and recruiting  law firms for the network, first in California and then nationwide has begun..To be clear this is not a franchise, but more of a marketing network with productivity benefits for its law firm members.

Disclosure: Our company created an interactive legal form portal under the LegalForce brand and a "legal form kiosk" for the store.

For those of you following the LegalZoom IPO, which was scheduled for Friday, August 2, 2012, it was postponed for the usual stated reason that market conditions were not suitable. This really means that the offering could not get off at the $10-$12 price per share that the selling shareholders wanted. Instead the maximum price institutional buyers were willing to pay was reportedly $7-$8 a share, which would have reduced the valuation of the company by one-third. The reasons that were given for this lower valuation were comparisons with other transactional-based companies like www,ancestry.com which is selling at a price to earnings ratio of 21.73, compared to a projected price to earnings ratio for LegalZoom of over 40x.

Perhaps the research analysts on the buy side perceived a more fundamental flaw in LegalZoom’s business model.

The LegalZoom product offering at its core is still the provision of legal forms offered up to recently, without the option of the legal advice from an attorney. The pricing for these legal forms are comparable to the pricing of paralegal prepared  legal forms offered for example by the many legal technicians in the State of California who work with consumers off line in face-to-face meetings, like lawyers.  

Thus for example LegalZoom charges $299  for no-fault divorce forms, and $139 for name change forms. Many virtual law firms now offer comparable legal form services but bundled with legal advice. See for example www.morrisfamilylaw.com  where a no-fault divorce is offered with the full accountability and the backing of an attorney for a fee of $275. For another example see FlashDivorce a virtual law firm service that offers  no-fault divorce in four states for $199.

Law firms are going virtual and are finally figuring out ways to compete against LegalZoom on its own playing field. To be sure, these small law firms don’t have the capital and marketing budgets of a LegalZoom, but as thousands of these law firms eventually migrate to delivering online legal services they will not only offer a better value to consumers, but they will constrain LegalZoom’s growth and dominance.

The problem with the LegalZoom pricing model is that automated legal forms are digital goods whose marginal cost is zero. Eventually a pure digital good has a marginal cost of zero and will be made available a price which is either free or close to free. It is for this reason that a song, for example, on iTunes cost only .99. [I wrote about this idea previously at Legal Forms for the Price of a Song on iTunes? which identifies other legal start-ups moving into the free legal forms market space.]

LegalZoom itself has aggressively argued that it services are essentially software-powered and its document assembly processes are publications entitled to the same First Amendment protections as other kinds of commercial speech. Its products are therefore, it argues, immune from organized bar claims that their services constitute the unauthorized practice of law. By its own admission, the professional review of legal documents by LegalZoom is very limited and does not constitute legal advice.

If this is the case, once consumers figure out that the product that they get from LegalZoom is essentially the same digital form that can be purchased from many automated legal form websites at a price which is 10% of LegalZoom’s existing selling prices,  -LZ’s revenue should implode, in theory. I say, "in theory", because LegalZoom has done an excellent job in persuading consumers that what they have to offer is a better service than what they get from the typical lawyer.

Because of the overwhelming advertising that LegalZoom pushes into multiple channels the LegalZoom brand  is likely to remain intact, because the truth about the nature of LegalZoom’s product offering is obscured by their aggressive advertising messaging.

For many consumers,  if a service does not appear on page one of a Google search, they will look no further, and the opportunity to avoid using a lawyer in solving a legal problem is often the controlling decision factor.

For example, many consumers are still unaware of the fact that the US Legal Services Corporation has subsidized the creation of free automated legal forms available to people of all income levels that are available for  free from a network of state-based legal information and legal document web sites. These free legal form services have no budget for marketing, certainly nothing like the $40 million a year that LegalZoom’s spends on marketing and advertising.

These legal forms are  fully automated, web-enabled, automated,easy to use, and often employ a visual graphical interface to help users navigate through online questions and courthouse procedures. The program is not limited to low- income people.

Even without a marketing budget, last year more than 500,000 legal forms were downloaded by users in 34 states using this program. This transactional volume already exceeds LegalZoom’s annual volume and it is increasing as more legal forms are automated and the number of states participating in this program increases.

State courts have also jumped into the free legal forms market in response to the demands of pro se filers looking for free legal help. See for example Online Court Assistance in Utah and Maryland Family Law Forms.

Even the US Bankruptcy courts are prototyping a free online set of Chapter 7 bankruptcy forms to be used by self-filers. This service will eventually be rolled out nationwide to every US Bankruptcy Court Website.

I can think of other ways that the development and distribution of free automated legal forms can be monetized, without the need to charge a transactional fee to the consumer. (This is the subject of a future blog post).

Free legal f
orms are here and the supply is expanding. Lawyer’s won’t like the fact, any more than LegalZoom, that this development will disrupt their business models. The reality is that both kinds of suppliers of legal solutions will have to accept the challenge of the accelerated pace of technological change.

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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 MyLawyer.com, a smart legal forms Website, and Founder/CEO of DirectLaw, a virtual law firm platform 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 is a trademark of LegalZoom, Inc.

Cloud computing for Law firmsState bar associations are starting to address the issue of law firms storing confidential client information in the cloud and are rolling out ethics opinions to guide law firm conduct. You can find a list of these opinions here on the American Bar Association web site. The basic standard that is emerging is that the attorney must use "reasonable care" under the circumstances. This makes sense. It leaves to the attorney the responsibility of making a management judgment about the risks in choosing one cloud solution over another. This assumes that the law firm has sufficient technical knowledge to evaluate these new risks created by the development of new information technologies. [This is the  subject of a future blog post!].

The Massachusetts Bar Opinion Ethics Opinion on this subject is troubling because it  explicitly requires:

"Consistent with its prior opinions, the Committee further believes that the Lawyer remains bound to follow an express instruction from his client that the client’s confidential information not be stored or transmitted by means of the Internet, and that he should refrain from storing or transmitting particularly sensitive client information by means of the Internet without first seeking and obtaining the client’s express consent to do so"

The requirement that in every case the client’s express consent to store confidential information in the cloud is not realistic and not consistent with the way web technology is evolving. There are clearly situations where it would would be reasonable under the circumstances to secure a client’s consent for storing confidential information in the cloud, but the way this Opinion is framed law firms will interpret to this mean that in every case the client’s express consent needs to be explicitly secured. This adds unnecessary "friction" to creating the lawyer/client relationship.

This requirement actually puts Massachusetts lawyers, particularly solos and small law firms at a competitive disadvantage. Solos and small law firms now have to compete against software powered non-lawyer sites such as LegalZoom, LegacyWriter, MyLawyer.com, and RocketLawyer, to name only a few. None of these non-lawyer web sites require that their customers provide express consent to store their confidential data in the cloud, and if they do, the consent is buried so deep in the fine print that the average user is completely unaware of what they are consenting to.

The Opinion cites Google Docs as its leading example, which is a good example of how out of touch the Bar is with emerging technological trends. It won’t be long before a person will be able to create a Will using a mobile app on their cell phones.

Must the user then be required to give their express consent before storing their data?  What does that "express consent" mean in a mobile application context? The necessity of preserving the integrity of the lawyer/client relationship through the appropriate application of ethical rules is clearly appropriate. But adding unnecessary "friction" to accessing legal services for the average consumer is just going to result them turning to alternative non-lawyer providers who operate with less restrictions. Restrictions like this impede innovation in the delivery of legal services by the legal profession. No wonder the legal profession is lagging behind every other service industry in adapting to the mobile social web.

For a similar viewpoint see: Carolyn Elefant’s Blog Post: The Bar Associations Have Their Head in the clouds When it Comes to Cloud Computing.

For a thoughtful analysis of bar association ethical opinions on the use of cloud computing by lawyers see also:  Bob Ambrogi’s blog posts at Catalyst.