Strategic Legal Technology

This post is a follow-up to my January 7, 2013 post, The Role of Data Driven Models in Law Practice. I offer here ideas about data that lawyers should consider collecting and analyzing to predict and reduce legal problems. 

In the earlier post, I discussed an article, In What Computer Models Can - and Can’t - Do, by Ryan McConnell (Baker & McKenzie partner), Dianne Ralston (Schlumberger Ltd. deputy GC), and Charlotte Simon (Baker & McKenzie associate). Their ideas intrigued me but I was disappointed that they seemed to conclude that, because of “noise", data models would not be helpful in their compliance practices.

To spur thinking about where data collection and modeling might help avoid legal problems and support compliance, I offer below a few ideas to consider. These may be hard to execute or may fail. My deeper concern is epistemological: how do we know what might work?

Am I the only one who thinks it odd - and wrong - that large corporate law and compliance departments seemingly conduct little or no research and development? Companies that employ hundreds of lawyers and compliance professional already spend a lot on law. Why not do some R&D to find ways to reduce cost? Granted, that R&D might yield poor results. Without trying, however, how do we know? Perhaps the research would lead to much lower ongoing legal or compliance costs.

So, here goes with some possibilities:

• The authors discuss the possibility of using job descriptions to aid in compliance bu conclude there is too much noise in that data. More data often solves noise problems, so why not aggregate job descriptions across companies - that could yield more insight into problematic positions or locations than any one company’s data. Thinking about ‘compliance as a utility’, there may be multiple opportunities for companies to share non-competitive data to improve compliance. Large data sets, as the authors observe, usually yield more reliable results.
• Companies have a very rich, extant store of data that may well yield compliance clues: e-mail messages, files, and databases. Subject to privacy and other potential legal limits, companies could analyze the e-mail headers to look for suspicious patterns of communication. Suspicious might include too much, too little, or unusual combinations of people in touch. Start by finding a known compliance problem and do this analysis retroactively to learn what analysis might be predictive.
• Going one step further with e-mail, companies could perform semantic analysis on e-mail content (not just headers) to look for suspicious substantive discussions. Already in the 1990s the US financial sector did this (using, for example, Assentor), to identify broker e-mail messages that violated securities rules. Today, with the predictive coding techniques developed for e-discovery, much more is possible - and affordable.
• Corporate data does not stop with e-mail. Databases to support operations, sales, and expense management may also yield pointers for where to look for compliance issues. With social media, the possibilities seem endless.
• If the data the authors cite, and if e-mail and corporate records do not suffice, then collect data. Compliance officers could consider web-based surveys. If that loses too much nuance, then they could deploy a team of low cost lawyers to make outbound calls to interview selected employees and systematically enter the interview results into a database for analysis. Who said we have to stop with off-the-shelf data?
• Models may never be 100% reliable. The question is whether they are reliable enough for triage. If a model can bucket outcomes into ‘almost certainly not a problem’, ‘almost certainly a problem, and ‘may be a problem’, then lawyers at least have some indication of where to look. A team of offshore lawyers could apply human judgment to refine model results and surface the most suspicious findings to inhouse counsel.”

These ideas are not even in the Big Data realm. All these ideas can be tested with tools that have been available for years. The floor is open for other ideas, Big Data or otherwise.

This post captures my live Tweets from the Ark Law Firm Pricing and Profitability Conference occuring now in NYC. This Tweet stream is from the keynote address, The State of Pricing in the Legal Profession Today, by Toby Brown, Director of Strategic Pricing & Analytics, Akin Gump Strauss Hauer & Feld LLP. 

Below are my Tweets in chron order minus the hashtag for this conference, #ArkPnP2013. @gnawledge is Toby’s Twitter handle (name).

@gnawledge has formed a legal group of over 200 people focused on pricing. LMA is home (in a SIG)

Fulbright survey found AFA declined. @gnawledge questions this. But partly depends what we mean by ‘alternate’

Pricing in legal is defensive - about holding on to what law firms have.

To do pricing in BigLaw, skills needed: 1. ability to interact w partners 2. willingness to embrace unknown.

RT @nicholasnv: Function of strategic pricing is to maximize profitabily firmwide, not just at the matter or practice levels.

“Pricing is utter chaos”. Some firms have very experienced pricing profs; others barely have anyone focused on it

Firms struggle where pricing function belongs in staff structure. @gnawledge not currently in a department at Akin Gump

Knowing what clients want is biggest success factor in good pricing. Ask clients “where does it hurt”.

At one client, the pain point was first year associates. The real answer was not to put them on matter.

The pricing person has to model profitability. Existing tools look backwards; tools for prospective profit analysis emerging.

The pricing person has to monitor matters - but lawyers don’t want to be held accountable. Must give them actuals v budget.

RT @joshuafireman: Profit drivers: Rates, realization, productivity, leverage @gnawledge

Each point drop in realization translates to a one to three point drop in margin.

Firms must rely more on leverage to maintain profits. Partners must push work down - but they worry about their hours.

Firms will have to adjust partner compensation to encourage appropriate pricing and profitability.

Pricing is chaotic on client side. A few companies, e.g., GSK, focus on paying market price.

Clients not yet very good at specifying scope. Some RFPs do not make clear what client really wants.

Client trust is broken. Angry at 1st yr associate comp + PPP level. Price pressure will continue until those change.

Very easy for clients to seek discounts. When clients freeze rates, class bumps stayed.

Legal procurement has had mixed results. GC + proc profs still struggle. Still focus too much on hours.

In rational markets, info widely available. Legal market lacks transparent pricing.

Firms + clients ‘are begging for some rationality in market’

Existing + new players beginning to provide legal market price data.

@gnawledge backing away from emphasis on phase + task coding.

Law firms don’t know what they sell. Matters not sufficiently characterized to compare + analyze.

Law has been ‘no stone unturned business”. Clients want fewer or cheaper hours. But they need to more explicit about it.

Pricing and legal project management will continue to grow as firms struggle with price and margin pressures.

Lawyers and legal market professionals need to learn to love statistics more. 

More In-House Lawyers Question the Billable Hour by ACC President & CEO Veta T. Richardson in Corporate Counsel magazine (13 March 2013) criticizes a finding concerning alternative fee arrangements in the recently published Fulbright Litigation survey. Her conclusion may well be correct but the evidence she cites does not, statistically speaking, directly rebut the finding she questions. In my reading, the time periods and questions ACC asked are not close enough to compare results directly.

My goal is not to weigh-in on the disputed finding, whether GC are increasing or decreasing their use of alternative fee arrangements. Rather, it is to discuss statistical validity.

Too many legal professionals are uncomfortable with numbers and more still with statistics. I believe that explains persevaration over predictive coding, failure of many legal market surveys to publish the number or demographics of respondents, and incorrect comparisons (see, e.g., my post, 2008 AmLaw Tech Survey.)

Ms. Richardson points out that ACC has a larger sample than the other survey. In general, larger sample sizes are better than smaller sample sizes. But a big sample that fails accurately to represent the population is not necessarily more reliable than a small one. Beyond sample size, the questions asked matter a great deal. Do any AFA studies directly ask about the dollar spend for which the respondent is answering the AFA question?

The point is, statistics is a nuanced science. It’s scary when legal professionals start arguing stats. Fortunately, the next generation of lawyers may do better. Today, Dan Katz, a professor of law at Michigan State University, posted his syllabus for his Quantitative Methods for Lawyers class.

This is a live post from the Reinvent Law Silicon Valley conference in Mountain View, CA. Please forgive any typos or errors in conveying what speakers say. Now up, in a six minute Ignite-style talk, is Kingsley Martin, CEO of KM Standards (formerly Kiiac) on Reverse Engineering Legal Logic. 

Until today, we have followed inductive approach to law. But deductively, we can read documents to find out what they mean and what’s common. Kingsley says he is close to breaking the “subjectivity barrier”. Just as we will have driverless cars, we can have machines that draft contracts.

Some argue that we need intuition to think. Kingsley: when you measure by outcomes, does it matter what the mechanism is?

Find, analyze, and optimize are the three steps to make a decision or draft a document. Consider as example of buying a car. First, find info on all cars. In past, this would have required trip to library or consulting friends. Today, we solve by Internet search. Second, analyze the cars. With Amazon and other tools, we can use “faceted search” to narrow results and compare results ("Structural Classification"). To optimize, you need to be able to pull data from documents (from search results) and interpret.

Technology can find contracts - that’s easy. Most of Kingsley’s effort is to analyze similar sets of documents to identify relevant elements and come up with a checklist or template of common elements. Analysis also assesses how similar or dis-similar each clause is. “Standard” clauses have little variation in clauses across documents. Where there is heavy variance in language, it either reflects heavily negotiated clauses OR by lawyer personal preference. Some clauses are relatively rare but these have little variation. A fourth set of clauses are both rare and vary - these are deal specific.

A computer cannot draft a document from scratch - but it can pull clauses and combine. Computer can also reverse-engineer the logic to derive the questions that need to be asked. Beginning the journey to be able to data mine out of documents all of the necessary clauses. Will be able to benchmark, provision by provision, whether clauses meet market standards or raise issues in courts.

Let’s assume that today, humans are more capable than computers. But with computers doubling in capacity every 18 months… they will overtake humans. [RF: this is the Ray Kurzweil Singularity argument.]

This is a live post from the Reinvent Law Silicon Valley conference in Mountain View, CA. Please forgive any typos or errors in conveying what speakers say. Now up, in a
six minute Ignite-style talk, is Kevin Colangelo, managing partner of Youson & Irvine on Building the Law Factory. 

Prior to current law firm, was an executive at legal process outsourcing provider Pangea3. Will give insight into what it took to build a law factory.

Getting work done and efficiently can be accomplished in any location; does not have to be done in India, where Pangea3 (PS) started. In 2013, the template for efficient legal services is better known. In 2005, when P3 started, there was no model, no template for practicing law more efficiently, for leveraging process and technology.

It’s imperative to change the operating model. Law + Tech + Design + Delivery is Reinvent Law approach. P3 focused on People, Process, and Technology. The technology was the easiest part. We were able to log all calls, e-mail, attachments. So all workers could track all client matters.

Process discipline is not that hard. It requires defining, measuring, analyzing, training, testing, and continuous improvement. We shared with our clients the processes we used. Transparency is good. Helped show defensibility of work.

People is always the biggest challenge. Lawyer are similar everywhere, resistant to change. Uses analogy of Henry Ford building the first-ever assembly line. Ford needed to add culture to make the assembly line work. P3 made sure that everyone was engaged, irrespective of role in organization. Says that this culture is very much lacking in BigLaw today.

The Law Factory is a great place to be - if you maintain the culture.

This is a live post from the Reinvent Law Silicon Valley conference in Mountain View, CA. Please forgive any typos or errors in conveying what speakers say. Now up is Raj Abhyaker, CEO of LegalForce, on “Making Fat Law Firms Flat through Operational Redesign for the age of the Internet”. 

[RF note: LegalForce hosted a reception last night at their retail store in the heart of downtown Palo Alto. It’s a very cool space.]

Background: Raj was a an IP lawyer. When he raised ideas to be more efficient, lawyers with whom he worked were not interested. So he started as a solo in 2005 and, at same time, created a start-up company. In 2008, started a company to collect government trademark data and make it accessible on the web, which Google was not indexing. Trademark site gets a lot of web hits; one of biggest on web. His firm has become the world’s largest trademark filing law firm. Now has 24k clients, adding 500 clients per month. To make law even more accessible, started a retail outlet. Most interesting to Raj is that AmLaw 10o firms are asking him about his technology and methods.

Nine ways to redesgin large law firms into a modern force:

1. Globalize Operations, without sacrificing quality. Move repetitive, detail oriented, recurring tasks to global workforce in lower cost locations. “Redesign the supply chain.”

2. Rethink Associate Compensation. Move from tenure to contribution-based compensation. Reward responsiveness within minutes or hours (implicitly: not at end of year at review time!). ID and reward fiscal and business talent, even in new associates. Firms should develop clien. Legal ‘t service metrics and then evaluate associates based on how well they service clients.

3. Hire JD/MBAs for Management Functions: Partners should elect a president with real power to act; he or she should be JD/MBA, no billing responsibility, and ability to bind direction of firm on own w/o partnership vote.

4. Broadcast Goodwill via the Web: Spread any public event over the web. Use more video. Broadcast educational video widely. Hire a full-time video producer. Let the community use conference space for beneficial events.

5. Invest in Retail Access to Law, Not Lobbies: Create destination retail experiences that enable firm to operate on Main Street Be accesbile retail hours, including nights and weekends. Change the paradigm of what the firm is and how clients access it. Open kiosks at your clients. Large firms have big opportunity here.

6. Make Lawyer Calendar Visible to Clients: Web based access to lawyers; web-based appointment making

7. Legal Dream Teams May Span Firms: Let corporate clients build their own ‘dream team’ across firms

8. Preventive Care at Subscription Rates:

9. Predictive Intelligence. Get smarter about the future and decision making

This is a live post from the Reinvent Law Silicon Valley conference in Mountain View, CA. Please forgive any typos or errors in conveying what speakers say.  

Dan Katz of MSU Law: The Future is Already Here - It’s Just Not Evenly Distributed

Storm brewing in legal. Complicated. though. Simple version:

1. Under-investment: senior partners of law firms have different views of decisions than more junior ones. Juniors may want to invest for long term but seniors want money in pocket now. Incentives are very strong to maximize current income over increasing the future value. (RF: I’ve long thought about the inter-temporal tensions of law firm partnership model.)

2. Dimensions of Competition: What are the differences between closely ranked AmLaw firms? (RF: or even those not so closely bunched in rankings>) If we can’t tell difference in substance, then focus on tech, design, and process. But firms that say they are different… it’s just a bumper sticker slogan. Compare to modern manufacturing, Fortune 500 logistics, or modern Operating Room..

3. Client Sophistication: GC face pressure still from financial crisis to limit legal spend. Legal exceptionalism is over. GC demands no junior lawyers; instead, work with unbundlers such as LPO, insourced services, or managed review companies.

4. Lawyer Regulation: Restrictions on non-lawyer ownership is big limitation on competition and innovation. That’s why UK has changed rules with Alternative Business structures. This rule protects lawyers, not clients. If law firms can’t raise capital and others can, then firms are at a disadvantage.

5. Legal Tech Industry: Bill Henderson asked at Legal Tech NY who are the long list of exhibiting? They are the companies who are raising capital and who are taking work away from BigLaw. How can law firms compete? They have to become the competition

6. Why Can’t a Law Firm become Something Different? Why don’l law firms have R&D departments? Individual partner incentive is to maximize short-term gain versus investing for future. Very hard to overcome. But it’s possible to start over. How can we see new players emerge in face of current regs. We see rise of new entities that combine law firms with related service entities (RF: see my prior blog posts on Clearspire Law). But legacy platform just doesn’t refer to software - it also refers to people. BigLaw lawyers are the installed base! No need to wait for Model Rule 5.4 to change… there are business models now that allow investment in legal market.

This is a live post from the Reinvent Law Silicon Valley conference in Mountain View, CA. Please forgive any typos or errors in conveying what speakers say. 

Who Owns the Law? Ed Walters of FastCase

Government works are public so on its face, public owns the law. But Ed says it’s not so simple. If you think about ownership of the law in terms of traditional property rights, then for many years, Lexis and West have owned the law.

Says Westlaw walked into DOJ and stole the in-house KM system being built, Juris. West said in 1983 that it wanted to help DoJ maintain its system. As added bonus, West would add cites to Juris. When contract came up for renewal in 1993, West wanted 3x as much for renewal. West said original contract gave Westlaw ownership rights to any co-mingled content, which addition of cites did.

Fastcase, a legal research company, wanted to put Georgia code online. When Fastcase went to upload, saw a LexisNexis copyright notice. Ed checked with L-N, which said it did indeed own the GA code. b/c LN writes headlines, claimed ownership of GA code. Ed said, ok, so I want to license. Four months later, LN said never will we license the GA code to you. (A slide shows flipping the bird.)

No one, however, thinks that state statutes can be copyrighted. Turns out to be cheaper to re-write catch-lines in code so Fastcase did that rather than litigate.

Only Thomson Reuters and Reed Elsevier have claimed ownership of the law. Should we stand for this? Should we care?

Ed says best versions of state codes are now maintained in academia. They are visual and better than commercial versions. We should not force innovators to have to buy code to build innovative new products. We should care that citizens do not have unfettered access to the law.

Allowing the big companies, with the big bucks, to push around everyone on ownership of law stifles competition and innovation. But the law is ripe for revolution and re-invention. Since law is not under copyright, reinvention can happen even faster than in music or movies. Also, law has a deep inherent architecture that makes it a fascinating data set with which to work. Ed, as example, shows a data visualization of FastCase presents to help users find and understand the law. If the data are available, much innovation is possible.

Says he does not fully blame TRI or Reed b/c they put out good products. But states have more obligation to make the law both free and open. Free is not enough; open is key: it needs to be in open formats, authenticated, and available for bulk download.

Who owns the law? We do. Law is not jut dusty books. It’s an important achievement of human species. Law is moral document. We cannot cede ownership to private companies. Take our law back.

Earlier today I posted five Tweets that tell a short but compelling narrative of the sea change in the large law firm market in the US and other Anglo nations. 

1. Bruce McEwen, aka Adam Smith, Esq., wrote a great series of blog posts called Growth is Dead, now a book. Last week, Bloomberg Law interviewed Bruce for an excellent 12-minute recap.

2. Separately, ERM Legal Solutions posted an item last week that picks up on one Bruce’s key themes: the loss of law firm pricing power. Crossing the Chasm: Thinking Clearly in the Legal Pricing Crisis reports on a legal pricing conference and how firms and clients can bridge the pricing gap.

3. I was intrigued to read over the weekend a Legal Futures post (UK), UK LawNet raises bar with new client service standard. LawNet helps its smaller-law-firm members standardize their practices and client service, including “mystery shoppers” and ISO standards. Service principles vary little by customer size, so BigLaw canlearn service delivery lessons from LawNet.

4. I expect that these cross currents will the subject of much discussion this Friday (8 March 2013) at Reinvent Law Silicon Valley, which , I will attend. It is a “conference devoted to law, technology, innovation, and entrepreneurship in the legal services industry.” It focuses on new ways of operating in the legal market. It’s hard to imagine a conference like this attracting some 400 legal market participants a few years ago.

5. Capping off my Tweet stream, I noted that the Washington Post published on Sunday Value Added: Home is where Potomac Law Group wants its workers, about a DC-based “new model law firm”. It is growing rapidly by tapping the market of experienced lawyers who don’t want to work full-time. I have spoken to founder Ben Lieber, featured in the article and he was a panelist on a session I moderated on new model law firms last fall. Ben is one of many lawyer-entrepreneurs now creating new and more cost-effective ways to deliver high-quality legal services. I expect PLG and other large-firm alternates will prosper given all the changes we see.

The short story told by these items: BigLaw faces growth and pricing challenges, smaller firms are innovating in process and staffing, and whole conferences and classes of individuals and organizations now focus on better ways of working that improve the client value proposition.

I could end on a doom-and-gloom note, citing two large firms that last week laid off staff or lawyers. That is, indeed, part of the narrative. The more important message for large law firms, however, is that they have an opportunity to flourish in a time of change. The answer is simple in concept but hard to execute.

Large firms must differentiate, revamp pricing, improve process, adopt project management, and improve service delivery. Success in those undertakings gives firms a shot at gaining share and at least maintaining profits at current levels.

Management must remember though that, unlike the old days, they cannot put into place a strategy and let it run on auto-pilot. With demand flat and completion growing, firms will need to adjust strategy and operations regularly. The growing market we experienced until recently was dynamic in a way that covered a multitude of missteps. Mature markets are dynamic in different ways – the players must constantly angle for advantage. And mature markets may not forgive execution sins. It will be interesting to see how many firms succeed in this new narrative.