Did Clearspire Expire…or Conspire?

Last week, one of NewLaw’s own, Clearspire expired.

Or did it?

Clearpsire says otherwise portraying the closure of Clearspire Law as one giant pivot from #AltLaw Firm model to a legal technology company. Clearspire explains that it plans to take the proprietary practice platform, Coral, developed by the non-lawyer owned business side of its operation and scale it so that it’s available for law firms all around the globe.

Some bloggers aren’t buying the spin, instead viewing Clearspire on a model that simply put too much focus on and money into technology rather than developing business or serving clients. Scott Greenfield, observes that”Clearspire’s demise [proves that] not every shiny new thing is a “game changer” and Brian Inkster, who opines that Clearspire’s costly $5 million investment did it in. In other words, though billed as a new model, Clearspire collapsed under the weight of too much overhead – the same factor responsible for the death of dozens of fledgling solo and small firm practices.

But Ivan Rasic of  Law Without Walls  posits this intriguing theory : that Clearspire didn’t expire, but conspired – that is, conspired to be a technology company all along. Rasic asks:

Now, what if Clearspire never intended to operate as a law firm / NewLaw service provider? They do mention on their website that they have used the law firm part as their “laboratory” aiming to prove the “concept that demonstrated just how innovative today’s lawyers can be.”

Though the commenters to Rasic’s post suggest that his idea is far-fetched, in my view, it makes sense. For starters, creating a non-law firm affiliate to develop and provide services to a law firm is hardly a novel – and in fact, it’s recognized as the quickest way around the prohibition on outside investment in law firms. That’s something that the foreclosure mill law firms recognized; they set up all kinds of outside technology and business services companies before Clearspire was even a blip on the legal profession’s collective radar 

Other firms have set up affiliates as a way to bill clients for the cost of overhead, which is generally isn’t recoverable. This type of arrangement resembles the Clearspire model as well: the firm transfers overhead functions, like secretarial work or accounting to the affiliate and then enters into a contract for services and charges clients for those costs as disbursements. Michigan regulators recently ruled that this practice is unethical because it passes overhead costs on to clients.

Still, Clearspire differs from these earlier iterations because it didn’t simply house its business operations in a separate entity. Taking the model a step further, Clearspire used its affiliated entity to develop and refine a software platform, with its law firm as a proof of concept for how the software would operate in practice. That’s not speculation either – Clearspire itself described that its law firm was really a laboratory.

So how does Clearspire’s model fare from a business perspective? Rasic gives Clearspire low marks for biz smarts, saying that Clearspire invested too much up front, contrary to principles of lean and tested its product on just twenty-five lawyers who were employed by the firm, which is far too narrow a sample to gage the product’s future useability.

From an ethics perspective – if that actually matters – Clearspire also flunks. When a law firm acts as a laboratory, that means it’s also using the firm’s clients as guinea pigs. When a law firm enters into a deal with an affiliate for a software product in which the firm’s members have a financial interest and then passes the costs on to clients through fees, that borders on a breach of fiduciary duty to the clients.

Granted, being exploited wasn’t a problem for Clearspire’s client base. After all, Clearspire’s clients were largely sophisticated corporations with plenty of options for legal services. Moreover, they are so accustomed to being charged enormous rates that Clearspire likely delivered enormous savings even with its pricey, client-funded platform.  

But what about a NewLaw company that decides to “experiment” with a new way of providing legal services to consumer clients? Let’s say that the Newlaw Company, using the same persuasive branding as Clearspire, reels in thousands of consumers who are promised that for an annual fee, they will have monthly access to their own personal lawyers through some novel software platform. Two years later, with the platform tested, NewLaw decides to shut down and focus on marketing its system as a freestanding free-standing product – or simply selling it to another company through a merger, leaving existing clients in the lurch.

Don’t get me wrong – I have nothing against experimentation; it’s what drives innovation and progress in the legal profession. But as our profession embarks on experimenting with new business models, it’s up to lawyers to make sure that clients don’t wind up as a source of involuntary investment or bodies for beta.