Strategic Legal Technology

A pending change in Internet domain names creates new law firm branding opportunities. 

The New York Times reports in New Flavors for Addresses on the Web Are on the Way (27 June 2008) that the authority regulating Internet domain names, the Internet Corporation for Assigned Names and Numbers (ICANN), has approved custom “top level domains” (TLD). Common TLDs are .com, .edu, .org, .net, and a host of two-letter country codes. Moving forward, at six-figure plus cost, anyone can purchase a custom TLD. So I could purchase .friedmann or a law firm, say Skadden, could buy .Skadden.

The article does mention the confusion this may cause. But think of the branding opportunities…. www.securities.skadden or www.mergers.wachtell. Of course, this extends to e-mail addresses such as smith@energy.sutherland or jones@antitrust.howrey. This type of naming is distinctive and potentially memorable; it could also create style and usage challenges.

Beyond the potential visual appeal of a practice_area.law_firm_name URL, marketers could more easily create customized e-mail addresses for one-time use in tracking inbound inquiries from print or web ads. Of course, this might require some back-end e-mail administration.

And let’s not forget the legal disputes that may well arise over trademarks and name usage. That likely will keep at least a few lawyers busy.

A couple of weeks ago I posted a “modest proposal” to regulate BigLaw. This post generated a fair bit of stimulating conversation. What’s interesting is that many seem to have taken my proposal at face value rather than the intended satire. 

First, let me reference the discussion it spurred:

GC’s May Be Complaining, But Do They Really Want Change? at Adam Smith, Esq. reproduces a long conversation thread from invitation-only Legal Onramp, where my blog post was cross-posted and triggered numerous interesting comments.

Carolyn Elefant at Legal Blog Watch comments on “GC’s May Be Complaining”

Tiffany’s And The Billable Hour by Patrick J. Lamb also comments on it.

John Wallbillich offers a Rejoinder.

Second, in case there is any doubt, my original post was satire. Beyond the Swiftian reference to a Modest Proposal and Madame Smythe play on Adam Smith, consider the satirical points I made and the truth:

Countless law departments have voted with their dollars, switching firms, and, and privately and publicly explaining their quest for better value. Yet large law firms refuse to budge.
In fact, very few GCs ever publicly announce firing a firm because costs are too high or value too low.

Rampant standardization has failed. The standard documents of ISDA (International Swaps and Derivatives Association, Inc.) is only one of hundreds of instances of clients coming together to simplify and standardize. Yet bills continue to mount.
In fact, ISDA and one VC web site are the only examples I have found of standardization.

The Tyco arrangement with Eversheds, which introduces various metrics and carefully crafted payments to illicit particular law firm behavior (link to Legal Week article), is only one among many such agreements. No market impact.
In fact, the Tyco - Eversheds agreement, if not unique, is only one of a handful like it, not one of many, hence all the press it receives.

Law departments have invested heavily to create best practices, for example, how to manage outside counsel, checklists for transactions, empirical studies on reducing discovery costs, and regularly using risk analysis in litigation. Law firms ignore these well-document guidelines and every effort at enforcement.
In fact, I am not aware of more than a couple of examples (at best) of law departments promoting best practices and then trying to enforce them.

Law department frequent use of non-lawyers and lawyers in India has no affect.
In fact, relatively few law departments have systematically used non-lawyers or offshore lawyers.

Large law firms have bid up the price of talent, shutting out the ability of law departments to hire.
In fact, law departments can hire law school grads at the same price as law firms do - they just have to be willing to spend the big bucks.

For those interested in the market power - or lack thereof - of GC, I suggest reading the references above. My take away is that it says quite a bit about market perceptions that more than a handful took my supposed assertions at face value. My satirical intent was to illustrate that GC have market power that they choose not to exercise.

Can lawyers rely on search to find documents in e-discovery? Recent decisions suggest perhaps not. 

Craig Ball’s blog post, Grimm Prognosis for ESI Search (6 June 2008) recaps decisions by Magistrate Judge John Facciola in U.S v. O’Keefe and Equity Analytics v. Lundin and by Magistrate Judge Paul Grimm in Victor Stanley, Inc. v. Creative Pipe, Inc.. Ball captures a central issue: “It’s assumed that lawyers are qualified to review documents and decide their relevance, responsiveness and privileged character. But are we qualified to craft proxies for our judgment in the form of keyword searches?”

Ball quotes Judge Grimm’s ruling that testing ("utmost care in selecting methodology") is required to rely on software searches. I’m all for process and testing and the utmost care - if applied uniformly, including to lawyer performance on document review. Most judges and lawyers seem to assume that lawyers are (1) qualified to review documents and (2) better at doing so than software. The truth of either is purely an empirical question; the presumption of lawyer accuracy may well be false.

I’ve seen no evidence that passing the bar qualifies lawyers to review documents accurately. Even if it does, I’ve seen no evidence that lawyers can maintain accuracy reviewing documents hours on end (which is the norm). In fact, I’ve seen contrary evidence. Even if lawyers are qualified and, almost miraculously, do not falter as the hours roll by, do they always agree on how to classify a document? I have seen many instances where lawyers disagree. Of course, if qualified and alert lawyers can disagree about document designations, where does that leave software?

I’ve raised a similar point previously in response to a Law Tech News October 2006 article proposing to place a high burden on EDD vendors. LTN published my reader response arguing that the same burden should apply to lawyers. My logic there applies here.

The legal profession seems ready to set high standards for vendors and for software. Let’s be consistent and apply the same to lawyers reviewing documents. If we do, will any approach meet the standard of care implicit in Judge Grimm’s decision?

As the profession ponders how to conduct e-discovery, consider some practical ramifications. Blogger-lawyers Jim Beck and Mark Hermann of the Drug and Device law blog wrote a great post called Will Technology Increasingly Favor Plaintiffs?. The gist is that the long-standing gap between the discovery effort for plaintiffs and defendants has grown dramatically in the age of digital data. They note that

“We fear that search technology will increasingly permit plaintiffs to identify with relative ease the specific information that they need, but the technology will be far less helpful to defendants trying to separate the wheat from the chaffe.”

They rightfully fret that search technology “assume[s] that you know what you’re looking for” but observe the defense lawyer’s job is to put information in context and that context may not be knowable in advance.

As a profession, we need to
1. Develop consistent, evidence-based standards for how we manage discovery and review and
2. Consider whether the “e” in “e-discovery” has tilted the playing field unacceptably and, if so, whether there are policies we can create to fix the problem.

Roundup: touch typing, Pfizer EDD expert becomes consultant, MS SharePoint limitation, LPO makes Washington Post. 

Personal Productivity: Touch Typing
Rees Morrison observes that fast typing may be one of the biggest under-rated personal productivity skills (see Typing proficiency of in-house lawyers – one secret to productivity). I love his quote: “You are how you type.” My sometimes lengthy real-time conference blog posts suggest I type fast. I can’t imagine how much less work I’d get done if I were not a fast typist.

E-Discovery Expert Leaves Pfizer, Joins Thomson Litigation Consulting
The June 2008 issue of Metropolitan Corporate Counsel reports that Laura Kibbe, who earned recognition as one of the leading inhouse lawyer EDD experts as senior corporate counsel and managing director of Pfizer’s Discovery Response Team, is joining Thomson Litigation Consulting.

KM: SharePoint Wiki Problem
KM blogger Doug Cornelius reports in Sharepoint Wiki Disaster that Microsoft SharePoint (MOSS) Sharepoint wikis do not e-mail just the wiki changes; rather, they send the entire wiki page. He explains, “This is a disaster. It removes the communications aspect of the wiki.”

Legal Process Outsourcing in India
U.S. Legal Work Booms in India in the Washington Post, 11 May 2008, follows on the heels of articles in the New York Times, Wall Street Journal, Time, and Business Week, among others. As such, it does not really add any new information and is notable only as another mainstream media publication that has written an article about legal process outsourcing.

If National Public Radio reporting is a sign, then e-discovery is breaking out of the legal press and into the public consciousness. 

E-Mail, the Workplace and the Electronic Paper Trail, a Morning Edition segment on 18 June 2008 provides a short, lay person view of some of the many EDD challenges. The text and audio appear identical.

The report seems accurate to me. If you are an EDD or litigation support professional, there is no news here but that’s fine. The value to you of this piece is (1) to help educate the many lawyers who still have their head in the sand about EDD and (2) to show something to your friends that is digestible and professionally produced so they can begin to understand what you do (Hey, listen to this Morning Edition segment - it’s all about what I do at work every day!).

No typo in title. The skies for cloud computing may well be green - energy efficient green. This could accelerate the move to cloud computing. 

Demand for Data Puts Engineers in Spotlight (New York Times, 17 June 2008) reports on the rapidly rising demand for engineers who can reduce power and cooling requirements of data centers.

Reading this, I was thinking of articles on cloud computing and how Google and its competitors are building enormous data centers, sited specifically to take advantage of hydro or other low-cost power supplies. I don’t know for sure but my guess is that the energy cost per unit of computing in the cloud is lower than in a data center (granted the cloud is a data center but I am taking poetic license).

Technology, unlike law practice, changes rapidly. For a time, we had a surplus of data centers. No more. For a time, software as a service was a curiosity. No more. For a very long time, no one worried about electricity for or cooling of computers. No more. Law firms long resisted the move to data centers. No more.

Cloud computing raises many issues, not least of which are security and functionality if disconnected from the cloud. Underlying economics already drive some computing to the cloud. Will the exponentially growing interest in being green cause businesses to migrate to the cloud? I doubt law firms will be the first to move but with all the other unexpected tech shifts, BigLaw CIOs should keep an eye on these two possibly converging trends.

Should serious professionals be present on the web? 

This morning I talked to a friend about Linkedin. Neither of us have found it incredibly useful yet but we both view it as (1) an option for future value and (2) an easy and professional way to let the world know about you.

Discussing this, I realized that I still regularly come across people about whom it is very hard to find any information on the web. This is not true for lawyers, almost all of whom have firm website bios. For law firm management and legal vendor professionals, however, I often have a hard time finding any information about them.

Granted, with my 5+ years web presence, I have views. But have we reached a tipping point where we should be suspicious if a 35+ year-old professional is hard to find on the web? No web hits suggests a certain lack of involvement - no participation in professional, community, or political events and a conscious choice not to share credentials with the world.

One measure here is the “mom yardstick.” My 82 year old mother has several hits on the web because of contributions she’s made or community activities in which she’s participated. So when I look for information about professionals and find nothing, I just have to wonder.

Of course, danger lurks in the opposite direction. Stories now abound of people who post too much and too revealing information and live to regret it. A bad profile is one thing, a low profile another. No profile on the web may be just as revealing in an unintended way.

Successful large law firm CIOs have learned many secrets to managing legal technology. 

Over the last year, I wrote in this blog about maxims for managing legal technology. I collected and refined these blog posts, which have now been published as Maxims for Managing Legal Technology: Unwritten Rules for the Law Firm CIO or IT Director in the June 2008 issue of Law Technology Today, an e-zine of the ABA.

Here are the seven secrets in summary:
1. Tech Enthusiasts May be Your Worst Enemies
2. Let Chaos Work for You, Not Against You
3. Honestly Held Beliefs May be Wrong
4. Let a Thousand Flowers Bloom – Not!
5. Better to Seek Forgiveness than Ask for Permission
6. Less is More
7. Reverse the Persuasion Equation (also known as Don’t Push on Strings)

I always get excited when I see a system that brings together some of my favorite themes: knowledge management, open source law, and best practices. 

My former client Practice Technologies, Inc. provides a web-based service called RealDealDocs. It allows you easily to search for a wide range of legal agreements from leading law firms. The product pulls documents from EDGAR and other public sources and adds value by making them searchable by many criteria; you can even search by clause. I find this interesting for four reasons:

• The irony that this product does better KM across firms than many firms are able to do internally.
• Arguably, this serves as a form of open source law, that is, freely shared law. Inside and outside counsel can mine these documents for good ideas, if not actual language. (I will leave any potential copyright issues to others.)
• Corporations that want to develop best practices can systematically compare clauses and agreements to develop best guidelines. Many lawyers resist this idea, focusing on a few truly one-off cases that require totally original lawyering. But from the GC perspective, many matters look similar, so why not try to determine who is writing the best documents and use those?
• The June issue of Inside Counsel magazine has a long article, Proper Proposals [PDF], about law department RFPs. Instead of investing so much in RFPs, GC might in some instances be able to search for law firm work product and select the firm based on its past merits.

Some firms may resist but forward thinking ones will embrace the sharing enabled by public disclosure rules. PTI co-founder, at his blog John Seigler’s blog, discusses this in his post Is Displaying all these Legal Agreements legal and ethical?. In it, he describes a future feature that will allow firms to upload marketing material to accompany their documents. If GCs do start shopping by looking at actual work product, then this would be excellent “point of sale” advertising. Perhaps lawyers will learn from package good makers - the best marketing and advertising takes place when the consumer is ready to buy.

FTI Consulting announced on Tuesday that it is acquiring Attenex. 

FTI is already a major player in e-discovery; it also owns popular litigation support software Ringtail. The press release, FTI Consulting, Inc. to Acquire Attenex Corporation, dated 10 June 2008, enumerates several expected strategic advantages, including “Accelerates Penetration of Corporate Market for in-house eDiscovery Processing.” There will be a public conference call on Wednesday (6/11/08) at 9am EDT.

Over the last 15 months, Lextranet, MetaLINCs, Stratify, and now Attenex have been acquired. MetaLINCs is the only one where the company acquiring was not already an obvious EDD player. Who’s next?

[See my list of EDD acquisitions; includes dates and links.]

Update (15 June 2006) For a financial analysis of this deal, including deal multiples and a comparison to the Seagate acquisition of MetalLINCS, see FTI Consulting Acquires Attenex for $88 million over at Clearwell’s blog.

General counsels complain about large law firms: too costly, bad service, and clueless about the clients’ businesses. After the failure of GC’s many attempts to fix the problem, regulation is surely the solution. 

This simple and easy idea struck me last week when I heard a panel of GCs address the Strategic Technology Forum in Lisbon, hosted by LegalWeek. Their anger at firms was palpable. CIOs have their own frustrations: few partners or clients use the innovative systems they create. The despair all around caused me to think about the market. Consider the many steps GCs have taken that have had no impact on outside counsel:

• Countless law departments have voted with their dollars, switching firms, and privately and publicly explaining their quest for better value. Yet large law firms refuse to budge.
• Rampant standardization has failed. The standard documents of ISDA (International Swaps and Derivatives Association, Inc.) is only one of hundreds of instances of clients coming together to simplify and standardize. Yet bills continue to mount.
• The Tyco arrangement with Eversheds, which introduces various metrics and carefully crafted payments to illicit particular law firm behavior (link to Legal Week article), is only one among many such agreements. No market impact.
• Law departments have invested heavily to create best practices, for example, how to manage outside counsel, checklists for transactions, empirical studies on reducing discovery costs, and regularly using risk analysis in litigation. Law firms ignore these well-document guidelines and every effort at enforcement.
• Law department frequent use of non-lawyers and lawyers in India has no affect.
• Large law firms have bid up the price of talent, shutting out the ability of law departments to hire.

Alarmed at large law firm recalcitrance, I consulted my economist friend Madam Smythe, who told me: “On first glance, the legal market looks competitive. The scores of large, global law firms with good reputations should not fool you. Once a company retains a firm, a mini-monopoly ensues; just one bite at the apple - then switching costs skyrocket. It’s diabolical. I’ve run the numbers: law firms are natural monopolies. They have too much market power, which they use artificially to raise rates and corner the market on talent.”

Out of my commiserations with the plight of the poor GC, suddenly, the solution emerged: regulation. Corporations should engage lobbyists to spur federal oversight of the monopolists. The lobbying cost is a small price to eliminate large law firm monopoly rents. Yes, GCs, who have tried every trick in the book, can finally rest - regulation will rescue them.

I have previously written that Australian and UK legal reforms allowing public ownership of law firms could mean big changes in law firms and legal technology. Lyceum Capital in the UK announced in March that it seeks investments in UK law firms. Today, I heard a fascinating interview of Lyceum’s managing partner. 

I am at the Strategic Technology Forum in Lisbon, hosted by Legal Week. One of the sessions today was an interview for this conference with Jeremy Hand, managing partner, Lyceum Capital by David Morley, worldwide senior partner, Allen & Overy, LLP. The interview was recorded in London recently, for this conference. The interview lasted 30 minutes and covered much ground. The dialog is paraphrased; a good faith effort to capture the high points.

[Update 12 June 2008: See Morley and BVCA head debate the future of law in LW video, LegalWeek article on this interview with link to the video.]

Q: What attracts you as an investor to the legal sector?
We are a UK investor and have chosen to invest in service providers. We look at markets with long term favorable drivers for growth and profits. In legal, we saw excellent profits and growth, more fragmentation than comparably sized markets, customers who are often intimidated by providers, and inefficient service providers. So there are big opportunities for both new and established entrants that are well capitalized. This is all driven by the Legal Services Act. Even though it only comes into full force in 2011, it creates opportunities today.

Q: From a lawyer’s perspective, why should they take it seriously. Why can’t they say, “it doesn’t affect me”
Being capitalized and well run is always helpful. Investment in IT, work flow, and high quality people is expensive. But partnerships are often reluctant to invest to position themselves for long term success. Financing working capital is a drain, especially for fast growing firms; keeping pace with financial needs can pinch partners. Plus, many partners are too concentrated in their ownership interest in their firms. Human greed is always a factor; some departing partners would like to capture some of the value they have created. You can also use new capital structure to attract and retain the right mix of talent. And finally, capital provides wherewithal to acquire other firms.

Q: Law firms have self-funded or used bank borrowing. Why do they need more capital now?
If owner-partners are the only funders, there is a natural tendency to act very conservatively because their assets are at risk. You can reduce this constraint and improve the financial structure with external investment. In many other professional service organizations, external capital has been effective in driving improvements and increasing value. It’s not just the money - it’s the outside expertise as well.

Q: What will investors seek? What do they get when an investment is made in a law firm?
Lyceum has experience across broad range of professional service firms and we know how to drive growth and profitability above the market average. We offer more flexibility in control and exit. On control, many law firms have a structure where the managing partner does not have much power relative to other service firms. Making quick, effective, and sometimes bold decisions is typically beyond most partnerships. It does not work in that structure. As a financial partner, Lyceum does not want control. What we do want and need to see is an effective management structure. We can play a catalytic role in improving management structures, in investing in IT, workflow, staffing, strategy, and planning. We offer a lot of business expertise and work on a partnership basis. On the issue of exit, we make clear what the structure is, which could be sale to a bigger privaty equity firm, a public listing (though that could be hard), a trade sale. In any investment, we make sure expectations are aligned.

Q: You see legal market becoming more business-like. Won’t some partners fear moving from owner to highly-paid employee? Will that diminish motivation?
Whether lawyers like it or not, the Legal Services Act will create market pressures. Firms will have to respond one way or another. Partners should want to work in a winning organization. To win, they may need to change.

Q: Do you want to see more non-lawyer managers and executives running firms?
Firms could probably be better run by professionals who have had more experience running businesses. We don’t necessarily want hospitals to be run by doctors. Why do we think that lawyers promoted into senior role will be successful because they are good lawyers?

Q: Let’s turn to technology… how do you see investment in technology playing out? Will some firms make massive investment and leap over their competitors?
On the commoditized end of the legal market, technology will have a huge impact. Tech will likely move up the value chain. But the large firms are already investing in technology. But I do see some dramatic changes possible form IT. The future for good technology people might well be better than it is for some lawyers.

Q: How will the Act affect different segments of the legal market?
We are only now just delving into the different sectors. On the commodity end, you need scale, fantastic technology, and direct access to your clients so that you don’t lose margin to distribution channels. On the complex end, deep expertise and deep understanding of customers and full service will be key. But some elements of work even on the high end need to be commoditized. In the middle, there are elements of both end. You’ll need scale and specialization.

Q: What form will the typical investment take?
By 2011 or 2012, the playing field will be clearer. Prior to that, I foresee some investments within existing regulatory structure. Post 2012, a public listing is a possible exit strategy. Loans with conversion to equity are another possible.

Q: What sort of interest have law firms expressed to date?
A huge amount of firm have “come have a chat.” We are having some serious discussions too with prospects. Timing is key though. Outside of legal services, there are organizations that are thinking of how to enter the legal market. They are getting their act together. I think there will be many new entrants before 2012. It’s not too early for law firms to be formulating their strategy.

Q: What advice do you give to firms now to prepare?
Think hard about your strengths and unique selling propositions. If you don’t have any, then you are at big risk. It’s difficult to do do a good self assessment. Firms need to talk to experts on strategic innovation and finance to develop plans. You may need to develop partnerships to be properly positioned. “Don’t put it off.”

Q: Bar associations outside of the UK do not share the UK view. Does this affect your view of firms with an international presence? A&O for example, has more than 1/2 its lawyers outside the UK?
Yes. But we think the rest of the world will eventually follow the UK.

Q: Is it likely this will lead to outsourcing a lot of jobs?
Yes. I think it is likely. There is nothing special about what a lawyer does. The distinction of lawyer v. non-lawyer is very artificial. We are repeat investors in regulated industries such as health and education. I believe that many current lawyer activities do not need to be done by qualified lawyers. So yes, work will move offshore. Lawyers in India could do a lot of the work.

Q: What sort of lawyer - what skills and characteristics - will win?
High quality service will always be key. They need to understand customer. But they have to avoid raising obstacles. They need to be business advisors more than technicians. They must be less forgiving of inefficiency. Be braver about risky investments. Welcome new working practices.

—————-
This interview certainly engaged the audience of law firm CIOs and other senior IT managers. Many lawyers in the US probably think they need not worry about the issues Mr. Hand raises. In this age of globalization, however, that is a risky position to take.

When the AmLaw 100 list came out last month, I wrote that CIOs who want a strategic role must understand law firm economics and where their firms sit in the pecking order. 

On Friday, the American Lawyer, in the June 2008 issue, published its Am Law 200 article and rankings for 2007. The article is chock full of data and comparisons to the AmLaw 100.

Update - Sponsored Link (12 July 08): Click here to buy the 2008 AmLaw 100 downloadable file.