The American Bar Association Commission on the Future of Legal Services was created last year by then ABA President William C. Hubbard to explore ways to meet the legal needs of the underserved. The Commission does its work by holding public hearings on an issue, creating discussions and conversations among different stakeholders, issuing Issues Papers, soliciting comments on these papers, and depending on the issue — proposing new rules or policy approaches sometimes approved by the ABA’s House of Delegates where they become “official”. Some policies will be adopted by State Bar Associations which govern the conduct of lawyers and which regulate the legal profession and the legal services industry. As discussed below I believe that the ideas discussed within the Issue Papers will have an immediate impact on the ability of some “legal start-ups” to raise investment funds for their companies.
Issue Paper on Unregulated LSP Entities and “Legal Start-Ups”.
An Issues Paper was released by the Commission on the Future of Legal Services on March 31 which solicits comments from the public and the profession on an approach to impose a regulatory regime on “non-regulated legal service providers entities” such as independent legal technician and document preparers serving the public directly, on-line automated legal document preparation service companies, legal software publication companies, and other “non-lawyer” entities that provide legal solutions to consumer. Many “legal start-ups” fall within the scope of the Issues Paper. The Issues Paper can be viewed here. The deadline for submitting comments is April 28, 2016.
The way the paper is written it could include in its concept of an “unregulated LSP entity,” legal software application providers (“legal software publishing companies”) that provide legal solutions directly to the consumer as an alternative to the services that could be purchased from a lawyer. Examples might include: automated document assembly companies, legal expert systems developers, intelligent calculators, legal decision tools, intelligent data bases, consumer- centric legal analysis tools, and automated legal advice applications. New rules could apply to many legal software publishing entities from larger companies such as http://www.nolo.com;http://www.avvo.com; and http://www.rocketlawyer.com to smaller publishers and providers such ashttp://www.neotalogic.com, http://www.shakelaw.com, http://www.completecase.com; andhttp://www.lawgeex.com. Our market research indicates there are hundreds of these new entrants to the legal service marketplace offering legal software applications that enable consumers to do legal tasks themselves.
There are also important developments within the courts, government agencies, and the national legal services program designed to provide software powered legal solutions for use directly by consumers.
All of these entities provide “software only solutions” – not services, so as a category I consider them to be “software publishers”. [ Disclosure: I am the CEO of SmartLegalForms, Inc., which is a legal software publisher ].
Services vs. Legal Software Applications
My colleague, Marc Lauritsen, has written extensively and in-depth about how regulating legal software publishers would be unwise, and probably unconstitutional as a prior restraint under the First Amendment of the Constitution. His analysis of the wisdom and the right of the state regulation of legal software publishers and software developers can be found in these law review articles: Liberty, Justice, and Legal Automata, 88 Chi-Kent L. Rev. 917 (2013) and Are We Free to Code the Law? – August 2013 Communications of the Association for Computing Machinery . Other commentators have cautioned about extending the regulation of legal services beyond the legal profession itself.
The Role of Private Capital in Legal Service Innovation
One bright spot in the move towards innovation in the delivery of legal services has been the interest by private investment and the venture capital community in legal start-ups. See:
http://www.lawsitesblog.com/2016/04/number-legal-startups-nearly-triples-two-years.html. Legal software application development is a capital intensive process. Very few solos and small law firm have access to capital that can be dedicated to creating new applications that translate into low cost solutions for the under-served. It is for this reason that most innovation in the delivery of legal solutions to consumers has been outside of law firms and within private companies or the public sector. (except within Big Law firms where internal capital resources are available). Capital is the fuel of innovation.
Regulation is a Barrier to Innovation: Bye Bye Legal Start-Ups
I predict that if the ideas proposed in the Issues Paper are translated into policies and regulations the impact will be to dry up sources of investment capital for legal start-ups. The regulatory constraints that are being discussed to protect the consumer, would make it impossible for one category of legal service provider – legal software companies that serve the public directly – to operate a sustainable business. These requirements include among others:
- registration by the legal software publishing company in every state that the company serves in;
- waiver of “as-is” liability in Terms and Conditions Statements;
- enabling consumers to sue the publishing company in the state where the consumer lives;
- prohibitive insurance coverage to cover potential claims;
- requirements that legal software companies disclose whether a lawyer is involved in the production of the software product, the name of the lawyer, and the jurisdiction where the lawyer is licensed to practice;
If I were a venture capitalist thinking about investing in a legal software publisher that intends to serve the public directly, I would be hesitant to invest now because these ideas are being floated by the Commission and could become a reality in the not to distant future.
“Legal Start-Ups” – Speak Out
If the authors of the Commission’s Issue Paper did not intend that “unregulated LSP entities” should include legal software publishers, I suggest that they make this clarification now. If they authors intended that”unregulated LSP entities” include legal software publishers and legal application develolpers then this is alarming.
If you are a legal software publisher that serves the public directly with a legal solution, I suggest that you make your views known by commenting on their Issues Paper directly.