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Guest Comment: Making Legal Technology a Practice not a Cost Center

Added on the 18th Mar 2014 at 9:14 am
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by Oliver R. Goodenough*

The Unavoidable Challenge of Technology for Law
Law is changing. The systems through which we have defined and delivered law, legal services and legal education are undergoing the most extensive restructuring in more than a century. We have come to the end of a long period of relative continuity and relative stability brought on by the interconnected innovations of such private and public actors as Langdell, West Publishing, Cravath, Roosevelt and Brandeis in the late 19th and early 20th Centuries. Now, in the early 21st Century, law is being radically reshaped by the forces of globalization, regulatory reform, technological change, and an outdated and unsustainable economic model. For those of us in the profession, we are in for a bumpy ride as the restructuring goes forward.

Technology and its applications are among of the driving forces in this time of change, with an increasingly important, and often disruptive, impact on the practice of law in the United States. The law had remained something of a holdout, prospering in existing models while the wave of technological innovation in computing and communications fundamentally changed many industries and activities over the past few decades. The first stages of legal computerization largely served to amplify the power and reach of traditional legal processes; they did not challenge either the dominant intellectual approaches to law or the widespread business models of practice. No more.

We are now in the early stages of the next step in legal automation, where communication and computability will increasingly change the nature of practice and of the law itself. Those economic units – whether individuals, firms, companies, or governments – that successfully adapt to these changes will prosper; those that do not will suffer. This article will suggest a possible strategy for successful adaptation – a vision for creating a Legal Technology Practice within the structures of a traditional law firm, an approach that has the potential not just to help the firm that adopts it to survive the transition to this next step, but to convert the challenge of change into an opportunity for growth.

Envisioning a Legal Technology Practice
Law firms make their living by developing expertise around the intricate yet crucial elements of doctrine and process that constitute our legal system. This special knowledge is made available, for a fee, to clients – people and entities who have need of that expertise, but for whom the opportunity or economics of direct acquisition is too great a barrier. Currently, most law firms view getting to the forefront of legal technology as a cost center – a distraction of time and a sink of money that is a drag on the “real” work of providing legal services to clients on a paying basis. This attitude blinds firms to the opportunity that resides in legal technology, an opportunity open to a firm that stops viewing legal technology as a burden and views it, instead, as an emerging area of practice. Exactly the same processes of developing expertise and then selling it to clients that make knowledge of SEC regulations or the Rules of Civil Procedure potentially profitable can apply to becoming expert in the how technology can be deployed to implement law, government, and legal practice.

Currently, legal technology expertise is largely captured by service companies; in that form it is a marketplace worth tens of billions of dollars. The company model for delivery, however, has limits. The challenges facing the implementation of healthcare.gov and the consequences to national law and policy underline the need for disinterested expertise at the interface of law and tech that can be “rented” from a trusted counsel. There is a significant – and potentially remunerative – role for trusted, expert advisors free of particular products and services, both to advise clients and to help them implement legal technology solutions. Of course, such knowledge will also be critical in the law firm’s own internal mastery of the emerging landscape. By turning the field into a practice area, the firm will be able to convert a cost center into a revenue generator. It should be a winning strategy for facing necessary disruptive change.

A point of clarification: legal technology practice is not the same as expertise in the law of technology, which involves areas like intellectual property, digital privacy and security, the regulation of communications, and big data exploitation. The basic difference between the two is that legal tech is less about how law affects technology and more about how technology affects law. The two are potentially complimentary, however, and can reinforce each other in both delivery and marketing.

A final set of considerations applies to firms that are leaders in the development of law. Legal practice is not just a matter of financial reward; it also embodies opportunities to serve both the legal system and society as a whole. We need the active engagement of our most talented practitioners in the improvement of our delivery of justice and our economic flourishing through the effective rule of law. Just as firms such as Ropes & Gray and Cravath Swaine & Moore were at the forefront of the legal revolutions that took place at the turn of the 20th Century, there is the potential for firms to be important shapers in the revolutions taking place now, at the turn of the 21st. In today’s world, legal technology mastery is an avenue for distinguished service in the best traditions of the law.

Potential Markets for a Legal Technology Practice
The market for a legal technology practice provides a number of possible targets for clients and for the services that a firm could provide to them. The breadth of the following list suggests that a successful strategy will involve focusing in on the most promising targets given a particular firm’s profile of talent, clients and culture. Such a “target rich” environment should be a relief to firms more accustomed to viewing business development as a search for overlooked possibilities in a sparse and picked-over landscape.

•    Advising Corporate Clients.  Many of Big Law’s traditional corporate clients are already diving into legal process automation and other applications of legal technology. E-discovery is already a fully developed example of this.  In other areas, major enterprises from the largest banks to the largest manufacturing firms are setting up computerized systems for contract formation, execution and oversight. In addition to transactional work, companies are also engaging legal technology in fields as diverse as transactional practice, regulatory compliance, and intellectual property and litigation management. While some traditional law firms view this process as a threat, it is also an opportunity. The intricate and difficult automation processes are often being carried out by in-house staff with limited expertise in technology working with technology companies with limited expertise in law. There is a very useful role, with significant value added, to be played by a knowledgeable third party advisor who can help bridge this gap.

•    Advising Government Clients.  Government is increasingly looking to technology to be the interface with society, and there are significant legal components and implications for most of this process at the federal, state and local levels. At the most legally explicit end of the process, the courts around the country are rapidly moving toward some version of “e-courts,” often encountering significant reverses in time, functionality and money. In Vermont, for instance, a court automation project was recently abandoned after spending millions on a contract that proved a complete failure. At the national level, the travails of the healthcare.gov website demonstrate again a crying need for better oversight and design of technology at the intersection of law, policy and public interaction. Government procurement and contracting is another area where legal technology is beginning to have a real impact. Involvement and expertise in the design and operation of platforms where billions of dollars in commerce are procured would have value to both the public and private actors involved.  While government contracting has its challenges for firms, there is certainly a need for what a legal technology practice could offer.

•    Consulting to Technology Companies.  Another target for services would be the legal technology companies themselves. Rather than viewing them as rivals, an advanced legal technology firm would view them both as potential collaborators in the design and implementation of systems for shared clients and as potential clients themselves. In this latter role, firm attorneys could serve as consultants in the design and implementation of legal technology platforms, acting as the “knowledge engineers” who are experts in the target activity and who have enough understanding of the process of software development to be critical contributors in creating successful legal technology applications. And who better to consult on circumstances involving the application of legal technology than those who helped to design it?

•    Consulting on Standard Setting Processes.  Setting standards for legal data, common execution platforms and other shared elements is an important part in developing interoperable legal technology. For instance, the common types of financial instruments are already partly standardized around forms such as the NVCA, ISDA and IFEMA model contracts for venture finance, derivatives, swops and foreign exchange transactions. Participation in the creation of automated versions of such model documents will provide opportunities both for initial fee-based work on the projects themselves and for developing recognized expertise that can result in future engagements.

•     Developing Proprietary Applications.  A successful legal technology practice will create its own useful applications, both intentionally and as a spin-off from its representation activities. These applications can have value within the firms practice, as services offered to clients, and even as proprietary software, often with IP protection, for licensing in the legal market more broadly. Targets for applications could include automation of contracts, governance models (such as by-laws, and process and project management. The widely recognized Wilson Sonsini term sheet generator is an example of such an application being used as a “loss leader.”  See: http://www.wsgr.com/WSGR/Display.aspx?SectionName=practice/termsheet.htm. A firm with a deliberate policy for developing and exploiting such applications would have opportunities for revenue as well.

•    Building Internal Capacity.  A final important “client” will be the firm itself. All areas of practice are becoming increasingly supported by legal technology processes, and pending changes to the ABA ethics rules will oblige lawyers to keep up with these developments as a matter of professional competence. The expertise of a practice group expressly dedicated to mastering such technology will be a resource to the firm as a whole – much as a sophisticate tax practice is called to advise the primary team in transactions and litigation. The practice group will also provide a nucleus for training other lawyers and staff into legal tech competence. The development of in house expertise on legal tech will be necessary for any serious firm, and the creation of a self-sustaining practice group with this expertise can be a very cost effective way of meeting this need.

Market Size, Competition and Regulation
The legal technology marketplace as a whole is already huge. The service companies alone have revenues in the tens of billions of dollars. The annual marketplaces provided by LegalTech and the ABA Techshow are bustling showplaces for this commerce. Actors in the field include programming and implementation companies, integrated service providers such as LexisNexis or Kroll Ontrack, and consulting firms including Gartner, Fireman & Company, and Elevate.  The list of the exhibitors at LegalTech identifies many of the significant providers.  See: http://www.legaltechshow.com/r5/cob_page.asp?category_id=76594&initial_file=cob_page-exhibitors.asp .

While there are established players with market leadership and a crowd of clever upstarts with new, disruptive ideas, law firms remain largely unrepresented as active service providers, although Seyfarth Shaw has implemented portions of the approach envisioned here. There is still room in the market for a firm that charts a deliberate, capable, and well publicized course in legal technology to grab a leadership role going forward.

The current regulatory structure governing who provides legal representation can be an asset for firms seeking entry into the legal technology marketplace. Many of the non-lawyer service providers bump up against unauthorized practice of law concerns; the availability of a law firm to be part of a delivery team can be a solution to this problem as well as a source of the expertise the rule is intended to assure. On the reverse side, the rules may also limit what a firm can do directly; to gain flexibility it may be advisable to develop a separate service or IP holding company that would operate separately but in parallel to the firm itself.

Implementation: Resources and Process
Creating a legal technology practice will need a combination of vision, resources, legal and technical expertise, energetic marketing, and deliberate planning and execution.  The more granular details of an implementation plan will of course reflect the culture, business structure and personnel of the individual firm in question.  Nonetheless, certain common elements and process points are likely to be present:

•    Leadership and Vision.  A successful legal technology practice will require committed leaders within the firm’s partnership. At a general level, the partnership as a whole must be comfortable with the initiative and with the commitment of resources that it will require. More specifically, there must be a group of partners who view this development as an important part of their future practice, and who will commit the time and attention necessary to bring it to fruition.  Investment will be necessary, and in light of the current preoccupation of many firms with short-term profitability, this may be one of the tougher hurdles for creating a new practice area.

•    Staffing.  One of the benefits of a firm organization is the possibility of allocating a significant amount of the staffing for a particular project on an “as needed” and, perhaps even more importantly, “as paid for” basis. The development of a new practice area will require personnel resources, both through expertise development by existing, flexible staff and through the hiring of staff specifically dedicated to legal technology. Among the existing firm personnel, there will need to be partners and associates willing both to do the work as it comes in and to take the human capital development time needed to acquire the knowledge basis that will enable them to do it. From the outside, the firm’s efforts will benefit from involving a legally qualified area expert to help shape and guide the process. It will also be necessary to add such support in management, marketing, knowledge development, and back office processes as cannot be obtained reliably from the firm’s existing staff.  In the practice development phase, technology expertise will be obtained from the outside on an as-needed, consulting basis, during both the education and service provision modes.

•    Other Resources.  While staffing is likely to be the most resource intensive aspect of developing a legaltech practice, there will be other costs involved, including possible technology acquisitions and upgrades at the firm level, training expenses, office, communications and other overhead for additional personnel, and the direct costs of marketing and outreach.

•    Knowledge Development.  Lawyers are noted intellectual omnivores, and can get up to speed quickly on the challenges of a particular matter. That said, the new learning needs to build on basic foundations of understanding.  Bringing the delivery team up to a threshold level of expertise in legaltech issues will be a necessary element in the early stages of developing a legal technology practice, and time and resources will need to be allocated to accomplish this education. Knowledge development will also involve establishing networks of outside providers and other resources to be called on when needed. Several goals can be covered simultaneously through reaching out to potential consultants to help with the internal education process.

•    Product Development.  Given the wide range of possible legal technology advice, services and applications that could be offered by a firm, and the need to have the choices within these tailored to fit the profile of the firm in question, product development will join knowledge development as early stage activities in establishing a legaltech practice group.

•    Networking and Marketing.  Networking for the participants in the practice area will be an early priority. The targets will include all of the nodes in a legal technology practice, including providers, consultants, competitors, clients, trade organizations, standard setting bodies, etc., etc. One means of networking will be presentations, both public and private, on the needs and solutions of actors in this field. The process of developing white papers, blogs, slide decks, and the other elements of such presentations will complement and support the knowledge development activities of the group. Marketing will be tied to the networking activity, but will also be linked to the product development activities as well. The firm should consider retaining marketing assistance from a source with experience in this marketplace.

•    Project Management and Delivery.  Because of the interdisciplinary basis of a legal technology practice, and the need to coordinate activities with highly scheduled technology delivery, it will be wise to build a strong project management element into the practice. The details of such a system will reflect, at least in part, the existing culture and practices of the firm; developing an explicit approach will be part of the early activities of the group.

•    Costs, Budget and Cash Flow.  The costs of establishing such an initiative will include both out of pocket costs and the re-direction of existing resources. Out of pocket costs would include the compensation of added legal and technical leadership and resources. The cash flow will be clearly negative for the development stages – anticipated at lasting approximately six months. As the practice area gains clients, the cash flow will reverse and turn positive over succeeding months.

•    Timeline.  The timeline for the initial phases of implementation will reflect:
•    A planning period, during which the choices for the particular firm are developed and budgets, personnel, product choice, marketing, and other plans are set.
•    A development period, during which knowledge and product development go forward, and marketing and networking is initiated.
•    Opening up to client representation, with continued development efforts going forward simultaneously.
•    An assessment exercise and additional planning for future growth, necessary adjustments in execution, and possible changes in emphasis.

Summary and Conclusions
As technology disrupts the practice of law, those economic units – whether individuals, firms, companies, or governments – that successfully adapt to these changes will prosper; those that do not will suffer. While most law firms view legal technology as a cost center, it should be seen as an emerging practice area. By turning the field into a practice area, the firm will be able to convert a cost center into a revenue generator.

The potential clients for a legal technology practice include traditional businesses, governments, technology companies, standards setting, proprietary applications and its own internal needs for expertise. The legal technology marketplace as a whole is already huge.  The service companies alone have revenues in the tens of billions of dollars. There is still room in the market for a law firm that charts a deliberate, capable, and well publicized course in legal technology.

Creating a legal technology practice requires leadership and vision, the commitment of resources, legal and technical expertise, energetic marketing, and deliberate planning and execution. As with all new business development, there are challenges and risks in trying to put these elements together and deploy them in a new landscape. But as the great restructuring of the law goes forward, the challenges and risks of standing pat are large as well. W. Edwards Deming, the great pioneer of process and quality management, famously warned us: “It is not necessary to change. Survival is not mandatory.”
• Oliver R. Goodenough is a Professor of Law at Vermont Law School, a Faculty Fellow at Harvard’s Berkman Center for Internet and Society, an Adjunct Professor at Dartmouth’s Thayer School of Engineering and a Fellow of the Gruter Institute for Law and Behavioral Research. Before becoming an academic, he was a transactional partner in a boutique law practice in New York City. http://Powerofthelaw.vermontlaw.edu

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