Disrupting the Legal Industry

As a recent story from the The Washington Post illustrates well, “tradition” is a gating factor in the ongoing transformation of the legal industry. Despite the highly conservative nature of courts, bar associations and attorneys, however, in the post-Great Recession legal market of 2013, technology and changing values are rapidly disrupting traditional legal services.

My colleague and friend Jonathan Askin, Founder of the Brooklyn Law Incubator & Policy Clinic, hosted a seminar on legal start-ups in late August. Many of the companies highlighted there are focused on low-hanging fruit, taking the trend started by LegalZoom of moving do-it-yourself work product to consumers into spaces that for decades have remained buttoned-up by prohibitions against “unauthorized practice of law” and the resistance of lawyers to allowing clients document control. (LegalZoom itself has been challenged by bar groups and class action plaintiffs in North Carolina, Connecticut, Missouri and California for allegedly engaging in the practice of law, a classic and anticompetitive use of regulations designed to protect consumers, not prohibit new business models.) Like taxi-hailing companies Uber and Sidecar, legal start-ups thus face opposition from incumbents who are well-situated to employ archaic regulatory regimes to thwart new entry.

Nonetheless, the four emerging firms Askin profiled make a persuasive case that the guild-like barriers which for centuries protected lawyers from competition are breaking down before our eyes.

• Shake allows consumers to create binding contracts automatically on their smartphones or tablets with a few Q&As and then sign them electronically.
• Lawdingo leverages the power of networking to connect consumers to lawyers for real-time quick (and often free) answers on a virtually unlimited number of topics.
• Caserails offers cloud-based document assembly and editing functionalities for individuals or groups, long the bane of corporate transactions.
• Priori Legal allows SMBs to select among  a trusted community of lawyers for discounted or fixed-rate engagements with Web-based comparison shopping.

The best and brightest of these firms will undoubtedly rise to the top over time. Much like banks in the 1970s — when toasters as deposit “gifts” were replaced by deregulated interest rates and tellers by ATMs — legal consumers no longer care or very much appreciate the old traditions of the legal profession, especially its convoluted language, fancy office space and expensive artwork. The successful start-ups in this steady disintermediation of legal services will be the ones who recognize that they are driven by what legal transactions can and will be, not what they have been historically, and that they are technology companies solving legal problems, not legal companies trying to understand technology.

The legal industry got hit hard during the economic downturn, making it a less attractive path for would-be lawyers.  As indicated by the historically unprecedented layoffs at mega-firm Weil Gotshal, law is yet to recover, with some experts saying it will be years, if at all, before the industry returns to pre-recession levels. Enrollment at law schools is off sharply and new law graduates are still having a very hard time getting jobs. That in turn has led to a new round of law firm mega-mergers, further isolating much of the AmLaw 100 from the interests of all but the largest corporate clients. At the same time, electronic discovery specialists, software companies, legal outsourcing by in-house corporate legal departments (i.e., Legal Process Outsourcing (LPO)) and new requirements for legal project management are stealing or compressing margins for much of the lowest level, and formerly highly profitable, litigation work from big firms.  None of these alternatives existed at any meaningful scale ten years ago.

That’s a recipe for disruption. (Check out this BusinessInsider infographic for a visual overview.) As Forbes observed:

Law, a $300 billion industry and the second largest professional services sector, has become a great place for entrepreneurs.  The market is flooded with an oversupply of lawyers, consumers of all sizes are seeking more affordable access to legal services, and technology — practically the standard in other businesses — is yet to become widely adopted in the practice of law.  Taken together, this is an exciting moment for legal innovators.

Some of those innovators, like Axiom Law, are changing the nature of law firms themselves, going virtual, offering novel rate structures and upending the nature of legal partnerships by aggregating one thousand lawyers under the tag line “Forget everything you though you knew about legal services.” Another consumer class action heavyweight observes sharply that lawyers “still cling to rigid hierarchical work environments that stifle ingenuity, the free exchange of information, and job satisfaction. The billable hour continues to dictate fees (and associate pay), which results in having to perform the awkward dance of fostering and preserving relationships with clients while our financial interests remain misaligned. And, we refuse to let go of the notion that attorneys must be seasoned for years before they can meaningfully contribute.”

Askin’s five start-ups are hardly the only ones targeting legal services for disruption. LegalForce (formerly Trademarkia) offers low-cost IP searches and applications online and at a Palo Alto brick-and-mortar location. Modria provides online dispute resolution services, essentially Internet-enabled mediation. Lighthouse Legal and a host of other new firms offer secured loans to finance personal injury and medical malpractice cases. Kiiac automates the previously tedious process of examining commercial contracts to isolate non-standard clauses for extra scrutiny.

Frankly, these are likely just the tip of the iceberg. When you combine entry restrictions with falling demand, price-elastic customers and technology that allows direct access to legal resources by clients, one has  the economic basis for an industrial revolution in the law. Of course, that presupposes that the U.S. bar, which has fashioned a Byzantine labyrinth of state-specific rules that undermine national uniformity and competition, will be forced to accept the inevitable change in the industry’s economic structure. Yet unlike many attorneys who pine for the old days and reflexively oppose “do it yourself” legal services, I find these to be very exciting (and of course very challenging) times in the law. Keep an eye out for more legal disruption to come.

Note:  Originally prepared for and reposted with permission of the Disruptive Competition Project.