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The Real Non-Lawyer “Ownership” Question: Who Should Own the Cloud-Based Law Tech Vendors?

by Carolyn Elefant on September 26, 2013 · 4 comments

in Tech & Web, Trends

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Will non-lawyer ownership of law firms become a reality in the United States? That’s the question raised by  Riverview Law’s  Andy Dawes’ presentation on alternative legal business models and non-lawyer owned firms at the  Clio User conference and summarized at length by Sam Glover at Lawyerist.

Although the non-lawyer ownership question has enormous implications for the legal justice system and solos and smalls, I didn’t hear much in the way of discussion about non-lawyer ownership by conference attendees, an audience largely comprised of Clio’s solo and small firm user base. Perhaps that’s because the ABA’s most recent kibosh on non-lawyer ownership  means that any conversation about non-lawyer ownership in the United States is at best theoretical as least for the next few years.  Or maybe it’s because Clio’s lawyer-users have practical concerns – and are more interested in learning more about the nuts and bolts of Clio and how to improve its use in their practices than debating the pros and cons of non-lawyer ownership. Which makes sense.

But just because lawyers aren’t focused on the issue of non-lawyer ownership doesn’t mean that it doesn’t matter. Quite the contrary.  One reason that the non-lawyer ownership discussion has taken on new intensity is because of the money.  Dawes’ presentation noted that investors in the UK have put millions of dollars into alternative business structures (ABS) and other similar models in Australia and the UK.  And as I’ve previously observed, the race for access to venture capital to promote access to justice is already underway.  With the legal technology “vertical” (a fancy name for an industry-specific space) so hot , we’re standing on the cusp of a potential $300 billion gold mine that is quietly but steadily attracting investor interest. And with the SEC’s recent issuance of crowdfunding rules, we may see even more growth since many legal tech start ups are small enough to take advantage of JOBS Act changes.

In any event, the point is that today’s legal tech market is dynamic – and between the influx of capital and technology changes, the systems and platforms emerging today will be very different from those of tomorrow. Moreover, what will also change are the players themselves as existing companies seek out ways to grow, while new players look for opportunities to buy their way into law technology markets. Which brings me around to the issue that lawyers need to be thinking about: who are the companies that will be owning cloud-based law practice management (LPM) and other cloud-based products that we use on a day to day basis in our practice.  Will today’s familiar names –Houdini, Clio and Rocket Matter remain autonomous, self-contained entities?  Or will they be acquired by companies that focus on the broader cloud-based professional services other than legal (as with the AppFolio acquisition of MyCase) or other legal giants like Bloomberg, LEXIS or Thompson Reuters (which recall, snatched up  LPO Pangea ). And of course, let’s not forget that a cloud-based company can also change hands involuntarily as a result of financial insolvency.

The likelihood of buyouts particularly acute when it comes to cloud-based LPM systems that serve the solo and small firm market. Even Clio’s 20,000 users (the number reported at the Clio conference), are still a drop in the buck compared to hundreds of thousands of users on more general platforms – which are all eyeing the legal space as well (as evidenced by the AppFolio acquisition, Google’s new Vault intended to facilitate e-discovery and Box.net’s growing focus on the law firms). Don’t get me wrong – I’m thrilled at the array of cloud vendors not only catering to solos and smalls, but proactively seeking input and feedback as well. But realistically, I also have to wonder about the sustainability of products geared only for solos and smalls because our sector of the profession has already lived through too many buy-outs (and subsequent deterioration in service) of other tech tools for me to rest easy.

In any event, what matters for now that is that with so much in flux, the identity as well as present and future ownership of  the company with which lawyers entrust their cloud data matters. First, even though none of today’s cloud subscribers require long-term contracts, once lawyers upload thousands of files to a particular platform, they’re not likely to relocate any time soon. So if a cloud company is acquired by a larger corporation with different ideas about the product’s functionality or features, lawyers may find themselves locked into a system very different from the one they signed up for.  A larger company may also not share the same commitment to upgrading or improving a newly acquired system – a problem that lawyers experienced even back in the day of pre-cloud LPM tools. 

Acquisitions can also have consequences for client data. Today, cloud providers store millions of pieces of confidential attorney client documents as well as key data (which isn’t necessarily confidential) on questions such as how much lawyers charge, how long a case might take or what keywords lead to client conversion. As far as I’ve observed, all of today’s lead cloud players in the legal vertical market take client confidentiality very seriously – but an acquiring company might not feel the same obligation. In fact, that cloud platforms support so many transactions and collect so much “big data” presumably makes them a desirable acquisition target.

Finally, early players like Legal Zoom and Rocket Lawyer have already amassed substantial capital and are looking to creating lawyer-based subscription plans and networks to power continued growth. These companies could view acquisition of a cloud-based platform populated with lawyer users as a way to bring solos/smalls into their network system (which from what I’ve been able to discern, involves small one off matters at cut rates).

Bear in mind that none of this should deter lawyers from coming on board with the cloud- it’s just that we need to be strategic and savvy about choosing a provider. In addition to the checklist of ethics considerations for choosing a cloud provider (which most of today’s leading companies meet), lawyers also evaluate a provider’s business model and future plans for growth. No, you don’t need to hire a business analyst – but at least, take time to engage in some due diligence about your cloud provider. Review analyst commentary (if any) on sites like Tech Crunch and track the growth of the cloud-based market as well. Also, don’t assume that acquisition by a provider like LEXIS or Westlaw, with a history in the legal space is necessarily superior to a company that serves small businesses or other similar verticals. What’s most relevant is whether a company acquiring cloud technology will devote resources to continue to improve the product, remain respectful of lawyers’ unique ethics obligations and most of all remain committed to serving solos and smalls even though they may only account for a small percentage of users and revenues.

Call me old-fashioned, but I’m still one of a handful of lawyers who firmly believes that law is a profession – and should remain so. But technology blurs the profession/business lines, which means that lawyers are also subject to the same real world rules and considerations that apply to any other business. Just as a large corporation would carefully vet any product before making a purchase, today’s lawyers can no longer rely on recommendations by colleagues or the bar when seeking out providers. Instead, we need to engage in our own due diligence to fully protect our firms and most importantly, our clients.  A burden to be sure – but in my opinion, it’s a fair price for access to today’s amazing tech tools that have allowed me – and all lawyers — to substantially improve the quality of legal services that we deliver to clients.

  • Josh Brown

    Great blog, Carolyn! I, too, think that lawyers are part of a profession, but one that is in the midst of big changes. To me, there is always going to be a place for attorneys that have specialized skills and people who find value in those skills. But the tasks that are not high value or high risk, are going to go to these tech legal companies that can produce a product that is “good enough” and mass produced. I think a big challenge for the future will be for attorneys to figure out where they fit in. I know for me, as a small business and franchise attorney, there are certain things that business owners used to go to an attorney for but now just get online or go through legal zoom. That is fine with me, because the real value I provide is in helping these entrepreneurs with higher level things that legal zoom, rocket lawyer, and the like don’t do. In fact, Legal Zoom recently asked if I was interested in becoming part of their Attorney Directory (at no charge, of course) so that when people call in with actual legal questions from Indiana, they can refer them to me and others that are part of the directory. This benefits their subscription based clients that have higher level needs that can’t be solved through legal zoom, and obviously benefits me as well. I have not decided what I am going to do, but I mention it to illustrate the point that there is a way for solos and other attorneys to work with some of these companies to achieve a mutual benefit.

  • http://wp.me/Igbc Prattle On, Boyo

    The writing is on the wall – the days of $500.00/hr. lawyers are coming to an abrupt halt just as the car culture is. Working Americans can no longer afford either. Attys will be replaced by legal techs and paralegals although the various state bars will try their very best to keep over priced lawyers relevant by restricting/supressing any/all competition; CA is proof of that.

  • Paul Spitz

    Working Americans (let’s define this as middle class on down) never were the customers of lawyers who charge $500/hr on up. Those lawyers served the wealthy and corporations. The lawyers have been getting pushback on fees from their corporate clients for years; now the bigger threat to their livelihood comes from large in-house departments with scores of sophisticated specialists in patent, tax, M&A, and other areas.

    I think (and hope) there will be more stratification among lawyers, to meet the needs of small businesses, middle class people, and lower income clients. Lowering overhead is key to making such stratification possible. Shared office space, rather than fancy class A offices, lower head count, these will help. Being free of college and law school debt will help, too. Maybe we should start lobbying Congress to allow law school debt to be dischargeable in bankruptcy.

  • http://wp.me/Igbc Prattle On, Boyo

    And why are law students so very special – let’s make ALL student loan debt dischargeable, not just law school since a Bachelor’s degree these days costs
    $100k. In fact, let’s return to the same golden student loan days the boomer’s had and then destroyed for everyone else after that generation’s student
    days were over.

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