1.
Innovation in the Legal Services Industry
Professor Daniel Martin Katz
“The Future is Already Here
It is Just Not Evenly Distributed”
@computationalTwitter :
ComputationalLegalStudies.comBlog :
Corp : LexPredict.com
Page : DanielMartinKatz.com

2.
There is storm brewing

3.
the consequences of which
are not entirely clear ...

4.
but if you were to write the
story of this era ... it might go
something like this ...

5.
The
UnderInvestment
Problem
Chapter I :

6.
Meet Bob

7.
Bob Likes Bow-Ties

8.
Bob is also Equity Partner
at a Large Law Firm

9.
Like Many Other Equity Partners
Bob is > 49 years old_

10.
Thus, Bob has a different time horizons
than his associates and junior partners

11.
The Managing
Partner Has Just
Called a Meeting

12.
During Which ...

13.
He Will Ask Bob
and his Other
Equity Partners

14.
To Defer
Compensation
Today ...

15.
In Order to a
Support a
Series of
Initiatives

16.
That Have Significant
Upfront Costs and a
long Term horizon
Associated with a
Positive Return

17.
Bob May Say Yes,
Bob May Say No

18.
But As He is Deciding
What to Do ...

19.
Remember he is
not deciding what
to do with the
company’s money

20.
He is deciding
what to do with
his money

21.
In other words ...

22.
He Can Support More
Compensation For
Himself Today ...

23.
Or Support Investments
in a Future with
Speculative Associated Returns ...

24.
The
Underinvestment
Problem

25.
Partnership is a
business model
with serious
inherent
weakness

26.
There are strong
incentives for
under-investment

27.
Whether that be
human capital
investments
such as training
younger lawyers

28.
or capital investments in
software,
info technology,
long term marketing,
etc.

29.
There is a strong
incentive to maximize
in the present and
trade away the future

30.
this point has
been raised by
several others ...

31.
The
Dimensions
of
Competition
Chapter II :

32.
A Thought Question ...

33.
Is There Really a
Difference Between the
AmLaw 153rd Firm and
AmLaw 147th Firm ?

34.
Is There Really a
Difference Between the
AmLaw 57th Firm and
the AmLaw 61st Firm ?

35.
Perhaps?

36.
But it is losing argument

37.
because they are
all “great lawyers”

38.
these entities are primarily
competing on one dimension ...

39.
{ Law }

40.
Legal Expertise

41.
But If They Expand the
Dimensions of Competition

42.
{ Law }

43.
Becomes

44.
{ Law + Tech + Design + Delivery }
TM

45.
{ Tech + Design + Delivery } = Process
{ Law } = Substance

46.
Every entity claims
to be innovative,
process driven, etc.

47.
It is Not True

48.
It is a bumper sticker ...

49.
Are They As Efficient as ...

50.
Modern Manufacturing Facility
Fortune 500 Logistics Center
Data Driven Emergency Room

51.
Chapter III :
Sophisticated
Clients
and the
Birth of a
‘New’ Market

52.
What are the historic
barriers to real innovation?

53.
Client Sophistication

54.
The Sophisticated
General Counsel

55.
The Financial Crisis Placed
Significant Pressure on GC’s

56.
To Control Their Legal Spend

57.
Legal was brought
in line with
the Other C Level
Officers/Divisions

58.
The General Counsel
as Legal Supply Chain Manager

59.
“I am not running your
training program ...”

60.
(i.e. Don’t Put
1st and 2nd Year
Associates
on our work)

61.
“If you want our
work - you are
going to work with
other providers”

62.
Blended
Teams
of
Providers
Big Law
+
E-Discovery Firm
+
Legal Process Outsourcing
+
Law Division Insourcing
+
Software/Analytics Firm

63.
Client Sophistication is
Critical to this Story ...

64.
Their changing demands
help support the efforts of
entrepreneurial entities

65.
of those looking to
challenge the
established order

66.
Chapter IV : Lawyer
Regulation

67.
What is the big
limitation on
innovation?

68.
Rule 5.4:
Professional
Independence
of a Lawyer

69.
Historically it was this
non-lawyer ownership rule

70.
that stymied competition
and stifled innovation

71.
Competition
was a major
reason that

72.
a reform package
was implemented
in the UK

73.
That Brought
Forth the “ABS”

74.
But Here in the
U.S. (and in
Canada)
Non-Lawyer
Ownership Rule
Remains

75.
This imposes some
real functional limits on
outside investment

76.
Obviously, this has
very little to do with
protecting clients ...

77.
It is pure
protectionism ...

78.
Among other things, it
essentially prevents
law firms from taking
on a corporate form ...

79.
Model Rule 5.4 has
historically hindered
innovation

80.
But there have
been some very
interesting
developments ...

81.
Now it may hurt
the very people it was
designed to protect ...

82.
Indeed it may be the
case that Rule 5.4
no longer matters ...

83.
Chapter V :
The
Legal
Tech
Industry

84.
This is a
mature sector

85.
and in mature sectors ...

86.
firm efficiency
trumps
firm growth

87.
My Friend
Bill Henderson ...

88.
Took A Photo When We
Were At LegalTechNYC

89.
He Then Asked ....

90.
Who
Are
These
Companies?

91.
Turns Out that the legal
tech sector is heating up

92.
What are they doing?

93.
Process / Project Mgmt.
Workflow Optimization

94.
Discovery /
Document Management

95.
Search
Info Visualization
Document Generation

96.
Quantitative
Legal
Prediction

97.
There are
established
companies ...

98.
and there are
many more coming ...

99.
15
2009
Law or Legal Related Companies*

100.
15
2009
Law or Legal Related Companies
as highlighted by*Josh Kubicki @ ReInventLaw London 2013
*

101.
15
2009
Law or Legal Related Companies
as highlighted by*Josh Kubicki @ ReInventLaw NYC 2014
*
411
2014

102.
15 411
2009 2014
Law or Legal Related Companies
+
*
as highlighted by*Josh Kubicki @ ReInventLaw NYC 2014

103.
What is to be done?

104.
How Can a Traditional Law
Firm Compete Against
these Organizations?

105.
Answer is simple ...

106.
Embrace Them ...

107.
Even Better
Become Them ...

108.
Chapter VI :
Why Can’t a
Law Firm Also
Be a Software
Company?

109.
Why Can’t a Law Firm Also Be
a Process Engineering Firm?

110.
Why Can’t a Law Firm
Also Be a Design Firm?

111.
Why Can’t a Law Firm Also
Be an Analytics Firm?

112.
Why Can’t a Law Firm Also
Be a Software Company?

113.
Why Don’t Law Firms
Have R&D Departments?

114.
Systematic Problem
with Partnership as a
business model

115.
Individual
partners have an
incentive to defect

116.
to underinvest in
components that offer
short losses versus
long run gains

117.
commitment
mechanisms
are needed

118.
strong leadership
is needed

119.
or you have to
start over

120.
you have to
“startup”

121.
Turns Out That None
of this is a Thought
Experiment ...

122.
The Rise of the
Rule 5.4 Optimizers

123.
Empowered by the
financial crisis and the
quest for reduction
in legal spend

124.
We are observing the rise
of confederated entities

125.
That have elaborate
organizational structures

126.
Which allow for both
legal service provision by partnership

127.
Which allow for both
legal service provision by partnership
technology, process, marketing
by separate entity with outside capital

128.
Solve the defection
problem by long term
service contract
between partnership
and other entity

129.
Remember
Legacy Platforms
include
both software + people

130.
Adoption by Key
Actors is as
important as

131.
Building Great
Technology

132.
That is why starting
over is so attractive

133.
So if you could
start over ...

134.
and build a law firm
from first principles ...

135.
you would change the
business model

136.
you would build the
tech/process/data driven
platform first

137.
to do so you would
raise outside capital
for that platform

138.
monetize that
investment by
strategically licensing
it to other entities

139.
This is the flavor of one
major restructuring taking
place within the current
rule environment

140.
And It Points to a
Fairly Plausible
Portrait of the Future

141.
and it does NOT require any
modification of Rule 5.4

142.
Going Forward ...

143.
You Should Expect

144.
even more innovative configurations of

145.
{Law
Substantive
Legal
Expertise

146.
{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
+ Tech

147.
{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
Process
User Experience
Design Thinking
+ Tech + Design

148.
{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
Process
User Experience
Design Thinking
Business Models
Regulation
Marketing
+ Tech + Design
TM
+ Delivery}

149.
So while the Final
Chapters of this story
are still to be written ...

150.
Here is What We
Have So Far ...

151.
The
UnderInvestment
Problem
Chapter I :
The
Dimensions
of
Competition
Chapter II :
Chapter III : Sophisticated
Clients
and the Birth
of a New
Market
Chapter IV : Lawyer
Regulation
Chapter VI : Why Can’t a
Law Firm Also
Be a Software
Company?
Chapter V : The
Legal
Tech
Industry

152.
So, the Cat is Out
of the Bag ...

153.
The One Way
Ratchet has clicked

154.
Something
fundamental is a
foot

155.
With respect
to a significant
component of
this industry ...

156.
“The future is already here ...

157.
It is just not evenly distributed ...”

158.
Professor Daniel Martin Katz
Associate Professor of Law
Illinois Tech - Chicago Kent
@computationalTwitter :
ComputationalLegalStudies.comBlog :
Corp : LexPredict.com
Page : DanielMartinKatz.com