“ReInvent Law:” Real or Memorex?

Tuesday, March 19, 2013

For years, there was a prominent, and ultimately iconic, billboard in Times Square advertising the Memorex brand of recording tape, displaying an image of a stoner being  blasted back in his chair by music coming from, presumably, a Memorex tape.  Since recording tape has gone the way of camera film, the billboard has long since been taken down, but in certain precincts of the nostalgic and the ironic the phrase “real or Memorex?” still stands in for “real or faux?”

One of the more widely read, and in my humble opinion deservedly so, articles in the mainstream legal media lately was The Future of Law as Seen from Silicon Valley, being Aric Press’ report on his attendance at “ReInvent Law” out in Silicon Valley last week.

I won’t entirely rehearse Aric’s piece—you can read it for yourself—but, indulging my practical streak, I wanted to recap the highlights sufficiently to give you context and then to invite you all to take a survey about your reactions to the ReInvent Law outlook.

Here’s the general premise of the event:

What does the future of law practice look like?

It will be user-friendly and accessible via bright and fresh retail shops with the ambiance of Apple stores. It will be data-driven, with litigators turning to enormous databases capable of predicting results and guiding strategy. It will have the charm of an assembly line that parcels work out across time zones and specialties in structured processes certain to warm the hearts of project managers. And it will be beautiful. Imagine strings of case citations rendered as computer-generated graphics as appealing to the eye as they are to the analytical mind.

These were among the compelling visions that emerged last week from a remarkable conference in Silicon Valley.

And the key hypotheses about the future of law that were vouchsafed, as outlined by one of the key organizers, Dan Katz, were:

During his brief talk, MSU’s Katz provided a diagnosis of the problem ReInventLaw was addressing. In brief:

1. As partnerships, law firms won’t invest—or invest enough—in new ways of doing business or delivering service.

2. Lawyers continue to compete based on one characteristic—professional expertise—when the times and clients demand other measures, all based on effective process and design.

3. Clients are more sophisticated, with many essentially functioning as “legal supply chain managers.”

4. Prohibitions on outside investment in law firms hinder innovation.

5. Technology and legal process outsourcing companies are taking work away from traditional law firms.

6. The legal market is ready for new providers who will look freshly at the problems, apply new technologies, and drive innovation.

Here ends my part of this column.

The rest is entirely up to you, Dear Readers. I have posted a quick survey (it will take you three minutes, tops, six questions grand total) which you can and should take right here. The survey recites some (not all) of those hypotheses verbatim and asks your opinion as to their validity, if any, and timeliness, assuming they have any validity.

I also ask you whether and how conventionally structured and managed law firms can fight back—if indeed they can.

Take the survey!

Results will be reported in a timely fashion right back here.

Over to you.

Real or Memorex?


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  1. legaltruth, 2 years ago Reply

    I have been following the Reinvent Law series. I am not a lawyer, but I worked in a law firm from 2010-2012, and graduated in Economics from Stanford. I have also been collaborating with my father, who is a lawyer, in a few innovations focused on the legal industry.

    Something that seems of great concern to the innovative legal community is the restriction placed on non-lawyers pertaining to investments in law firms. I find this quite puzzling, because I reviewed the ABA model rules with my dad and we both feel it is actually quite possible for non-lawyers to invest in law firms. Below are the ABA model rules that we felt were especially pertinent to this issue along with some commentary to further explain our views.

    Model Rule 5.4 (a) (3)- “a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement”.

    Model rule 5.4 (b) states “A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law”.

    Model Rule 5.4 (d) A lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit, if:
    (1) a nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration;

    (2) a nonlawyer is a corporate director or officer thereof or occupies the position of similar responsibility in any form of association other than a corporation; or

    (3) a nonlawyer has the right to direct or control the professional judgment of a lawyer.–

    What do these restrict?
    Model Rule 5.4 (b) and 5.4 (d) place restrictions on lawyers from forming partnerships with nonlawyers, practicing in corporations where nonlawyers own any interest in Further they restrict lawyers from practicing in an association where nonlawyers are corporate directors or officers and practicing in a corporation where nonlawyers have the right to direct the professional judgment of the lawyer.

    What do these allow?
    5.4 (a) (3) allows nonlawyer employees to enter into profit sharing agreements with the lawyer/law firm. Though the payment to the nonlawyer cannot be a percentage of a specific attorney fee in a particular case, the aggregate profits of the firm can be shared with a nonlawyer who is an employee of the firm. So if a non-lawyer was interested in receiving a portion of the profits of a law firm they must be hired by the law firm as an employee first, in such a role as consultant or adviser which would likely attract less scrutiny. They could then either extend a loan or provide a monetary donation, similar to the buy-in at Biglaw firms, as the entrance requirement for the profit sharing agreement. A convertible note that converts to percentage increases in a profit sharing agreement is also a likely agreeable investment structure. Since it insures that the law firms can’t just take the money, fire the non-lawyer, and not pay back the money. If a firm wanted to go public they could offer a security that essentially hired the security purchaser, gave them no voter rights, gave them no ownership rights, but gave them rights to the profits of the firm. These securities would be similar to the common stock offers by google which have no voting rights

    If the lawfirm were a corporation it also appears that the investor could also be a director of the firm but not have the right to direct or control the professional judgment of the lawyer(s). Are hiring and firing decisions in anyway connected to professional judgement? The investor could exert a great deal of control over the organization that is not directly related to cases.

    Although the ABA does not regulate the legal industry, most bar association have adopted the exact language of these rules in their states. I realize that you are likely extremely busy but if you have any time I would like to get your thoughts on this issue. Are there any court rulings that would make you question whether a nonlawyer employee could enter into an investor type relationship with a law firm?

    These rules along with rule 5.3 form a similar regulatory structure that the Legal Services Act of 2007 set in place in the UK but they place more regulatory responsibility on the attorneys supervising the nonlawyers.

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