Kathleen Clark argues that certain ethics rules hinder innovation and increase costs in the legal services market for individuals (PeopleLaw). Specifically, she identifies 5 rules that (1) limit the practice of law to lawyers, (2) prohibit lawyers from practicing through for-profit corporations, (3) limit partnerships with nonlawyers, (4) restrict fee sharing with nonlawyers, and (5) impose limits on interstate law practice. Clark contends these rules have not prevented innovation for organizational clients and removing the restrictions could unleash innovation to create low-cost legal help for individuals through new business models.

1. “Ethics:”
An Obstacle to Innovation
in Legal Services
Kathleen Clark
KathleenClark.law
ANA Advertising Law & Public Policy Conference
Washington, DC
March 20, 2019

2. legal
services
for
individuals

3. Two Hemispheres
Hemisphere 1: Hemisphere 2:
PeopleLaw Organizational
Clients

4. Spending on Legal Services, 2007 & 2012
Individuals - Businesses - Governments

5. Hemisphere 1:
PeopleLaw

6. 76 %
of cases:
at least 1 party
is unrepresented

7. bar
response

8. more
$
for
Legal Service Corporation

9. more
pro bono

10. inadequate

11. The problem
is
cost,
not poverty

12. legal
services
for
individuals

13. bespoke
one-on-one
solos & small firms

14. clothing
cars
electronics

15. The
Economics
of
PeopleLaw

16. 2017
Clio
study

17. 60,000 law firms

18. 2.3 hours
legal work
per
day

19. 82 % of that is billed
86 % of that is collected

20. 1.6 hours / day

21. low-stakes,
high-volume
cases

22. lagging
legal
productivity

28. comparative
innovation

33. solutions that scale

34. Solos

35. cost disease

36. Average Hourly Rate
solos & small firms
$285 / hr - Partnerxx
$190 / hr - Associate

37. low-cost
legal help
for
ordinary
individuals

38. low-cost
products:
for
clothes
electronics
etc.

39. low cost
due
to
innovation
&
scale.

40. Why
hasn’t
PeopleLaw
created
low-cost
innovations?

41. 5
“ethics” rules that
hinder innovation
&
cause high costs

42. - 1 -
limit
the practice of law
to
lawyers only

43. ban on
Unauthorized
Practice of
Law
(UPL)

44. law
as
priesthood

45. - 2 -
limit
practicing law
through
for-profit corporations
Rule 5.4(d)

46. prohibited if a nonlawyer:
(1) owns any interest,
(2) is director /officer, or
(3) can direct / control
lawyer’s prof. judgment

47. corporations:
engine
of
economic
growth

48. corporations:
tool for
spreading
investment
risk

49. corporations:
tool for
increasing
access to
capital

50. partnerships:
capital
limited by
partners’ wealth &
banks’ willingness to lend

51. Partnership v Corporate Form
Top 100 professional service firms worldwide

52. - 3 -
limit
on partnerships
with
nonlawyers
Rule 5.4(b)

53. Rule 5.4(b)
removes incentive
for nonlawyer experts
to join in
creating
new business models

54. DC
version
of
Rule 5.4(b)

55. DC Rule 5.4(b)
permits
partnerships
with
nonlawyers
if …

56. all
managers & owners
agree to
abide by
DC Rules & …

57. lawyers
agree to
be responsible for
Nonlawyers’ actions
( ~ Rule 5.1) …

58. sole
purpose
is
providing
legal services & …

59. in
writing

60. not
much
impact

61. - 4 -
limit
on sharing fees
with
nonlawyers
Rule 5.4(a)

62. Rule 5.4(a)
prohibits
rewarding investors
w/ share of value
generated by
legal business

63. Rule 5.4(a)
limits
access
to
capital
legal business

64. Rule 5.4(a)
limits
research
&
Development
(R & D)

65. R & D
requires capital
to sustain
organization
until it becomes
profitable

66. - 5 -
limits
on
interstate
law practice
Rule 5.5(b)

67. Rule 5.5(b)
limits the market
to a
single state
inhibits
innovation

68. an
interstate commerce clause
for
legal services
?

69. Justification?

70. Hemisphere 2:
Organizational
Clients

71. Ethics rules
have not
prevented
innovation
for
Organizational Clients

72. Alternative
Legal
Service
Providers
(ALSPs)

73. ethics work-around

74. in-house
or
outside
counsel
“supervise”
ALSPs

75. innovations
developed
in-house

76. Cisco

77. unleash
innovation
in
PeopleLaw

78. remove
these
“ethics”
restrictions

79. evidence
that these reforms
will
unleash
innovation

80. Hemisphere 2:
Organizational
Clients

81. United Kingdom
Legal Services Act of 2007

82. “reserved activities”
must be done by
“authorized persons”

83. “authorized persons”
9
different
professional
licenses

84. licensing of entities:
Alternative
Business
Structures
(ABS)

85. fewer
limits
on
relationships
with
nonlawyers

86. more
flat-fee
pricing

87. Sources
www.legalevolution.org (online publication about the changing legal industry)
WILLIAM D. HENDERSON, LEGAL MARKET LANDSCAPE REPORT (2018) (commissioned by the State Bar of California)
Gillian K. Hadfield and Deborah L. Rhode, How to Regulate Legal Services to Promote Access, Innovation, and the Quality of
Lawyering, 67 HASTINGS L. J. 1191 (2016)
Judith A. McMorrow, UK Alternative Business Structures for Legal Practice: Emerging Models and Lessons for the US, 47
GEORGETOWN L. INT’L L. 665 (2016)
ENTERPRISE RESEARCH CENTRE, INNOVATION IN LEGAL SERVICES: A REPORT FOR THE SOLICITORS REGULATION AUTHORITY AND THE LEGAL SERVICES
BOARD (2015).
Gillian K. Hadfield, The Cost of Law: Promoting Access to Justice Through the (Un)Corporate Practice of Law, 38 INT’L REV. L. &
ECON. 43 (2014)
William D. Henderson, From Big Law to Lean Law, 3 INT’L REV. L. & ECON. (2013)
Gillian K. Hadfield, Legal Barriers to Innovation: The Growing Cost of Professional Control over Corporate Legal Markets, 60
STAN. L. REV. 1689 (2008)

88. “Ethics:”
An Obstacle to Innovation
in Legal Services
Kathleen Clark
KathleenClark.law
ANA Advertising Law & Public Policy Conference
Washington, DC
March 20, 2019