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

access_to_justivceOne of the obstacles to the development of innovative software solutions that automate part of the legal service delivery process resulting in lower, more affordable legal fees is the absence of capital. Traditional methods of legal service delivery based on hourly billing rates out of reach for low and moderate income clients.  Capital investment is required to create innovative web-based software solutions that can enable low and moderate income clients to either solve legal problems on their own as pro-se litigants, or to enable law firms to offer legal solutions at a more affordable price point.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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.

 

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.

 

 

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.

 Raj AbhyankerHere is a tale of an exceptional entrepreneur/solo lawyer who has built a thriving Internet-based law practice of large scale in less than seven years. Raj Abhyanker, 37,  started his law practice in Palo Alto in a small office above a rug store in 2005 (sounds like many Palo Alto start-ups like Apple and Google!). The law firm’s focus is patent and trademark law which is Mr. Abhyanker’s specialty.  

In September, 2009, Mr Abhyanker launched a web site called Trademarkia which is designed to help small business secure a trademark for an affordable fee. Trademarkia contains an easy to search data base of all of the trademarks of the USPTO office. The site has been written up in the New York Times.

Little more than two year after launch,  Trademarkia has become the leading trademark site on the Web generating more than as 1,000,000 visitors a month, more than either LegalZoom or RocketLawyer.  The law firm now employs more than 60 lawyers, including a team of lawyers in India trained in U.S. trademark law.

This is an example of how a single lawyer with a deep knowledge of the power of the Internet, together with a background in knowledge process management and outsourcing, can create a world-class enterprise from nothing in a relatively short period of time.

Quality Solicitors in the United KingdomMr. Abhyanker is now moving his concept to a new level by creating LegalForce,  a new national legal services retail brand, similar to the Quality Solicitors concept in the UK.

Quality Solicitors
is a national network of retail offices serving consumers and small business by linking together a network of small law firms that share a common brand, advertising and marketing budgets, and an online presence. Mr Abhyanker’s goal is to create a Quality Solicitors type network in the United States.

Legal force Law CenterLegalForce is creating, in a historically-preserved building, a retail law center in downtown Palo Alto in the heart of Silicon Valley, (right across the street from the new Apple store on University Ave.)  The LegalForce center is set to open in the Fall of 2012.

Mr. Abhyanker’s idea is to create a physical space, that is as much about education as it is about "retail", like an Apple Store. In this innovative legal space clients can meet with their lawyers in a comfortable and non-formal setting. Like Starbuck’s "Third Place"  consumers and small business entrepreneurs will be able to meet their lawyer’s in a casual friendly environment. Part coffee bar, self-help book store, legal education and  legal research center, the idea is that a LegalForce center will be a nexus where people can connect and get to meet their lawyers in an accessible environment. Legal services won’t actually be delivered from the store – instead the store will be designed as a gateway to legal and other related services and the visible manifestation of a national retail legal services brand.

There have been other attempts to create a physical retail space where clients can meet with their lawyers in a comfortable and accessible environment. LegalGrind, based in Santa Monica, Los Angeles, advertises coffee with your counsel, but has never been able to expand beyond a few locations. Chicago has their LegalCafe, which is a similar concept, but remains a limited operation. 

My opinion is that the failure of these two operations to scale is the absence of an online strategy which offers legal services over the Internet as well as in a physical setting.

Unlike these smaller operations, Mr. Abhyanker plans to create a national branded legal service that links together lawyers working in the real world with a powerful online legal service strategy.

Unlike a typical law firm, Mr Abhyanker employs a team of software engineers capable of creating an innovative Internet legal services delivery platform that can create referrals for law firms that are members of the LegalForce network.

LegalForce  has the promise of creating a true national retail legal services brand that will offer a range of legal services – from limited legal services online to full service legal representation.

I have often thought that what serves consumers best is a business model that combines a strong online presence with lawyers who provide a full range of services within their own communities.

Online legal form web sites, like LegalZoom, CompleteCase,  RocketLawyer, and our own SmartLegalForms, are limited in scope.These are alternatives that consumers choose because (1) there is no existing national trusted legal service brand; and (2) consumers don’t understand what they are not getting when they purchase just a form from a non-law firm.

The LegalForce idea is designed to be a counter-force to these online insurgents which are capturing market share from the legal profession.

It will be interesting to see how this LegalForce idea develops and whether Mr. Abhyanker will be successful in this venture. LegalForce is one to watch.

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LegalZoomLegalZoomRozman Legal Group, P.C., a law firm that was formerly a member of the LegalZoom network of attorneys,  recently filed a law suit against LegalZoom in U.S. District Court, for breach of the Panel Agreement that it entered into to become a member of the network.

LegalZoom maintains a Panel of Attorneys as part of a Legal Plan that provides its customers with the option of seeking legal advice in relationship to the their legal documents.

There are many claims in the complaint including breach of contract, breach of a non-disclosure agreement, and copyright infringement. The entire Complaint can be downloaded here, It makes for an interesting read.

For this observer, the most interesting claim is the alleged interference with the lawyer/client relationship.

Rozman alleges in the complaint, that LegalZoom interfered with the independence of the lawyer/client relationship, to wit:

  • the Rozman Legal Group  was discouraged "from entering into limited representation or general retainer agreements with Plan Members";
     
  • the Rozman Group was instructed to " answer Plan member questions generally and rhetorically so as to specifically not create liability for Rozman Legal Group or LegalZoom.
     
  • Rozman was told by a member of LegalZoom’s management "that the purpose of the Plan was to provide good customer service and that legal advice was ancillary."
     
  • Rozman also alleges that LegalZoom "sold family law leads usually for $75 and mesothelioma leads for as much as $1000 despite the LegalZoom policy that customer information was not sold to third parties"

It is hard to know what the real facts are of course, and I assume that discovery will shed some light on what really happened between the parties.

But the potential that there was interference with the independence of the lawyer/client relationship is ominous.

Reform of the British Legal ProfessionI have sometimes advocated that the American Bar should adopt some of the English reforms that enable non-law firms (companies) to own law firms, known as Alternative Business Structures. In theory, such an organization would have better access to capital markets which could finance true legal services innovation. In the United Kingdom processes and procedures are being put in place that are designed to insure the independence of the attorney. 

When I read the complaint in the Rozman case, the idea of private company ownership of law firms, or non-lawyer equity ownership of law firms, doesn’t seem like such a good idea after all. 

US attorneys participate in network arrangements with private companies, but there is no mechanism to monitor whether management practices are in ethical compliance. While these arrangements may look ethical on paper, it is the management practices that may tell a different story.

So the question is:  When you have a large, well-capitalized company that provides major cash flows to a group of law firms engaged in its delivery system, what guarantees can be put in place which protect the independence of the lawyer and the client;s interest?

It is easy to envision that  LegalZoom which will soon be a public company –driven by  Wall Street’s demand for increasing earnings every quarter —  would manage its lawyer network in a way to maximize its commercial objectives.

There are solutions for this new breed of hybrid company that would give the public confidence that the ethical rules that apply to the lawyer/client relationship are being respect.   [ RocketLawyer, JustAnswer, and Law Pivot are other hybrid company that work with a network of lawyers that provide legal services, just to name a few ].

One solution that would give the public confidence that these companies are in ethical compliance would be for the company to create a truly Independent Review Board of attorneys with backgrounds in legal ethics charged with monitoring management practices to make sure that they don’t  undermine the lawyer’s obligations to their clients.  

Another idea could be a Legal Ethics Ombudsman, who is independent of management and the company’s  office of General Counsel.  Lawyers participating in the network would be required to consult or report violations to the ombudsman before resorting to litigation.

There is precedent for this in other industries.. e.g., peer review in medical institutions the New York Times has an ombudsman charged with monitoring ethical journalistic practice, and large commercial banks have independent risk officers (in theory!).

Creating this kind of impartial Board or Office to monitor the management behavior of the company and the lawyers it engages would be an important step towards assuring the public that their interests are protected. It could also minimize or avoid litigation like the Rozman law suit, which at the end of the day, will not likely be a satisfying experience for either party. 

The ABA Standing Committee on Client Protection just released a survey it conducted on unlicensed practice of law programs ( UPL) in United States jurisdictions in 2011-12.

Only 29 jurisdictions responded to the survey.  Twenty-three of the 29 actively enforce UPL regulations, although some jurisdictions indicate that insufficient funding or resources make enforcement challenging. Nine jurisdictions stated that enforcement is inactive or non-existent.

Of the jurisdictions reporting, 21 states permit some form of limited practice by non-lawyers. Here is the summary from the report:

Twenty-one jurisdictions authorize nonlawyers to perform some legal services in limited areas. Sixteen permit legal assistants, legal technicians or paralegals to perform some legal services under the supervision of a lawyer; six jurisdictions permit nonlawyers to draft legal documents. Other allowable nonlawyer activities include: real estate agents/brokers may draft documents for property transactions or attend real estate closings; nonlawyers may attend (and in some states participate in) administrative proceedings; and participate in alternative dispute resolution proceedings. Many of these jurisdictions do not classify these activities as the practice of law.

There are only six jurisdictions in the US that permit nonlawyers to prepare legal documents,
(without providing legal advice). These jurisdictions are California, Arizona, the District of Columbia, Florida, Maine, and Missouri. In these jurisdictions the "nonlawyers"  are referred to as –  "Legal Document Preparers" or "Legal Technicians".

[ Download Entire Report Here ].

Only one jurisdiction that we know of, the State of  Texas, makes an exception to the definition of the practice of law, and explicitly permits the sale and distribution of self-help legal software, software-powered legal web sites, self-help law books, and other technologically-based alternatives to the delivery of legal services.

It’s no wonder that LegalZoom is required to state in its S-1 filing to go public – that violation of UPL statutes in many states is a major risk factor for its business:

"Our business model includes the provision of services that represent an alternative to traditional legal services, which subjects us to allegations of UPL. UPL generally refers to an entity or person giving legal advice who is not licensed to practice law. However, laws and regulations defining UPL, and the governing bodies that enforce UPL rules, differ among the various jurisdictions in which we operate. We are unable to acquire a license to practice law in the United States, or employ, or employ licensed attorneys to provide legal advice to our customers, because we do not meet the regulatory environment of being exclusively owned by licensed attorneys. We are also subject to laws and regulations that govern business transactions between attorneys and non-attorneys, including those related to the ethics of attorney fee-splitting and the corporate practice of law."

Some Observations

  • Some entity, such as the US Legal Services Corporation whose goal is to expand access to justice for all,  or an independent or university-based research organization, should undertake empirical research which analyzes whether non-lawyer practices actually cause harm to consumers within the states that permit nonlawyer document preparation.  Research should also be done on the impact that nonlawyer legal form web sites have on the consumer in terms of benefits and potential harm. Empirical research in England by the Legal Services Consumer Board on the issue of whether will writing by non-lawyers causes harm, concluded that it did. This resulted in making will drafting and will writing a reserved area under the new UK legal profession deregulation scheme.
     
  • We need more empirical research like the UK Study to inform public policy making in this area.  Perhaps if LegalZoom is successful with its public underwriting it could subsidize or contribute to such a study, as it would certainly be in their interest to do so!
     
  • Research should be conducted in those states that permit nonlawyer document preparers to evaluate whether more consumers have access to the legal system and at a lower cost by using nonlawyer document preparers, rather than attorneys. This data would inform public policy with facts, instead of generalized theories that it is necessary to limit legal document preparation services to licensed attorneys in the interest of  "protecting" the public from harm.
     
  • Legal document preparation software is getting smarter — more intelligent– Web-enabled document automation applications can now generate documents that really do reflect a person’s individual circumstances. These applications are getting smarter and the intelligent templates easier to build. Other than in Texas, there is an issue as to whether legal software, standing alone, constitutes the unauthorized practice of law, despite disclaimers to the contrary.

    State Bar UPL Committees should consider adopting the Texas UPL exception to avoid charges of monopolistic behavior, to gain the confidence of the public that the organized Bar is really interested in expanding access to the legal system through the use of technology, and to encourage innovation in the delivery of legal services. [DisclosureWe operate an intelligent legal forms software company ].
     

 It would be interesting to see whether legal fees are also lower in jurisdictions which have competition from nonlawyer document preparers as these authors claim.

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