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Legal Disruptions Redux

· July 17, 2014

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There’s been much press coverage of the travails of the AmLaw 100 — America’s largest law firms. Clients are aggressively pushing back against ever-increasing hourly rates and significant inefficiencies. Storied firms have been foldingmerging and laying off staff and even attorneys at unprecedented levels. Electronic discovery specialists and legal outsourcing are compressing margins for the litigation work that historically fueled big firm profits. Non-traditional legal providers are hardly faring better. Clearspire, a much-heralded pioneer of the virtual law firm concept, closed shop in June.

Yet at the same time — and perhaps as a consequence — the market for legal startups is booming. VentureBeat commented that the profession’s ongoing transition is “fueling innovation throughout the entire industry.” In 2009, just 15 legal services startups were listed on AngelList. There are now more than 400 startups and almost 1,000 investors. A whopping $458 million was invested into legal startups last year, a remarkable increase from the $66 million that went into the space in 2012. Legal entrepreneurs are focused on two different objectives: helping lawyers do their work better, faster and cheaper, and making the law more accessible, sometimes eliminating the need for lawyers altogether.

Law

It is the second, consumer-facing portion of this trend that portends a fundamental change in the legal market. By giving both individual and corporate consumers the resources to do it yourself, today’s crop of disruptive legal startups is laying the groundwork for an era in which software tools, social sharing and document comparison-assembly programs are positioned to replace attorneys’ stock in trade, namely reuse of contracts and other legal “forms.”

A century ago the bar protected itself with arcane Latin phrases and obscure judicial reporters. Two decades ago, it used the expense of private legal research databases like LexisNexis, an information barrier that is increasingly archaic in today’s era of Web-enabled courts and Google Scholar. With the present challenge to the largest traditional domain of legal practice — creation, revision and execution of legally binding documents — technology is breaking down walls that made have legal U.S. services unaffordable, and thus essentially unavailable, to many except the wealthy those at the opposite end of the economic spectrum who qualify for free and pro bono legal services.

Take Shake, for instance, which describes itself as “a technology platform making the law accessible, understandable and affordable for consumers and small businesses…combin[ing] the simplicity and convenience of a handshake with the protection of a legal agreement.” While Shake provides pre-screened form contracts and a small amount of explanatory content, RocketLawyer takes aim at the heart of corporate legal services with powerful cloud-based tools that help entrepreneurs and small companies alike handle basic legal matters by creating their own, customized documents, from website terms & conditions to supply contracts to merger agreements. (One of my own clients just emailed yesterday that they are working on a contract with RocketLawyer, reducing the fee-for-service role of attorney to strategist and proofreader.) But they also offer an “ask a lawyer” service (RocketLawyer On Call®), connecting those self-help customers to seasoned attorneys, at pre-negotiated hourly discounted rates, for near real-time advice.

Others take a slightly different approach. StartupDocuments and VentureDocs offer flat-fee, online document generators tailored for startup ventures that automate the laborious and expensive task of customizing corporate formation materials. Docracy has assembled a collection of contracts and other legal documents, socially curated by the communities that use them, which it makes freely available for everyone. Even VCs are getting into the market directly, with 500 Startups making available, also free, an array of corporate and investment documents for debt and equity funding — dubbed KISS for “Keep it Simple Security” — originating from Silicon Valley’s most important firms. And not to ignore courts and the arbitration industry, Modria and ZipCourt intend to disintermediate both with private, consensual dispute resolution platforms.

Lest you think some of this is altruism, even the free services have a monetary objective. Says 500 Startups, for instance, “we’d love to see KISS docs adopted by other investors, thereby reducing legal costs for everyone and eliminating some of the friction involved in closing a round of financing.” That’s shorthand for we’re paying too much to law firms for commoditized paperwork and suffering inflated costs from unnecessary iterations. It’s also the economic engine on which well-known firms like Cooley LLP and Wilson Sonsini, in years past, built their tech client empires.

As I observed in a 2013 DisCo piece, like taxi-hailing companies Uber and Sidecar, legal startups face serious opposition from incumbents who are well-situated to employ archaic regulatory regimes to thwart new entry. In the UK and Australia, deregulation avoids many of these skirmishes, as their new professional rules allow legal service providers to be owned by non-lawyers. In the U.S., by contrast, the bar’s more rigid professional ethics restrictions mean that new “DIY” legal technologies must be premised on the prediction that significant change in the industry will be driven by consumers and small businesses, not lawyers and law firms. It’s a hard notion with which to disagree.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.