Dan Katz on Legal Informatics, Corporate Law Firm Ownership and 21st Century Legal Education

totmauthor —  20 September 2011

A recent article argues “65 percent of today’s elementary aged kids may end up doing work that hasn’t even yet been invented.”  This is a thought provoking number and it points to the disruptive nature of innovation and its impact on a variety of labor markets.  There is a portion of the downturn in legal hiring that is associated with the business cycle.  When economic conditions improve – there should be a rebound.  However, starting even before the recession, it is reasonably clear that a serious structural change was underway.  Expect this broader trend to continue.  As Bruce H. Kobayashi & Larry E. Ribstein have argued, we are at the very beginning of Law’s Information Revolution. Whether we like it or not, informatics, computing and technology are going to change both what it means to practice law and to “think like a lawyer.”

Yesterday’s Fast is Today’s Slow: For better or for worse, when it comes to building software, there is nothing deeply exceptional about a subset of tasks undertaken by lawyers. In this vein, law is like other industries. The bundle of skills associated with the practice of law falls on a continuum – where a number of basic tasks have already been displaced by computation / automation / “soft” artificial intelligence. Faced with cost pressures, legal information technology is being leveraged to either automate or semi-automate tasks previously performed by teams of lawyers. Namely, a series of first generation innovations such as e-discovery and automated document generation have already imposed significant consequences on the legal services market. Like many industries before it – the march of automation, process engineering, informatics, supply chain management and quantitative prediction will continue to operate and transform the industry. In fact, when it comes to the application of the leading ideas in computation, informatics and other allied disciplines, the market for legal services lags behind many other sectors.  In other words, this is only the beginning.

As I have mentioned previously, what is very much in play is the infamous line from There Will be Blood – “I Drink Your Milkshake.”  In this metaphor, technology is the straw and the legal information engineer is Daniel Day Lewis.

Software is eating the world (including white collar jobs) and as such yesterday’s fast is today’s slow.

The Scandal of the Profession: Legal Service Provision at the Retail Level: Technology is a disruptive force but it can also be a force for good.  At the retail level, legal services are simply too expensive.  For years, the outright inability to provide reasonably priced legal services for even simple tasks has forced millions of Americans to go it alone.

Companies such as LegalZoom have admirably tried to fill this gap.   However, various regulatory limits such as the bar on corporate law firm ownership and limits on the unauthorized practice of law have prevented a real solution to the problem of the unlawyered population.  With respect to corporate law firm ownership, both Renee Knake and Gillian Hadfield highlight the significant potential upside for the consumer.  The ability to apply process engineering, leverage supply chain techniques and analyze queueing data should allow for the unlawyered to become lawyered at an affordable price point.

Although the job will likely come with a lower salary, a service delivery model at the lower end of the market should help create net jobs for lawyers.  When it comes to deregulation, I would consider myself to be a pragmatist.  Given just how bad the current model of legal service delivery actually serves the average consumer – we should be prepared to usher in the age of reasonably regulated corporate law firms (i.e. the age of WalMart Law / Google Law/ etc.).  

London Calling: I would like to also highlight at least one additional upside of a rapid move toward corporate law firm ownership – the ability of U.S. non-firm firms to be global competitive.  As has been mentioned by others, the UK has recently modified their Legal Services Act such that WH Smith Law / Tesco Law / etc. will likely go live in the coming months.   Given this rule change, it is likely that the UK is going to generate the service delivery model and ultimately export that model to the United States (not the other way around).  The future is likely to have fewer lawyers (as we traditionally understand them today).  However, the future will also give birth to completely different job sub-sectors.

The center of the legal world may very well shift toward London. I am quite concerned that presence of the ban on corporate law firm ownership will cause the United States to be left out of a significant portion of the new jobs created during this new era of legal service delivery.  London (and not somewhere in United States) may become the Silicon Valley of the Law’s Information Revolution.

Why?  Because the UK is going to develop the business model, the UK is going to develop the internal logistics and the UK is going to develop the legal information technologies that will allow it to become the center of the 21st Century legal universe.

Product Differentiation in the Market for Legal Education and Being Part of the Solution:  Professor Campos has asked us to be part of the solution.  I agree we should be part of the solution.  However, what is the solution? What is the positive agenda? How can legal education be reoriented to help increase the chances that our students are able to secure employment? 

Across the entire economy as well as within the law business, there is a great skills mismatch.  Thus, the question that should be asked is what class of skills an individual needs to be successful in the 21st Century law practice.

If our students are going to survive (thrive) in this market, they need to be trained to efficiently leverage information technology and in some cases develop a new class of information products. This is an age of technology – an age of information – so you might wonder – where is the MIT School of Law? As Larry Ribstein has argued, we need product differentiation in the market for legal education.  Arbitrage opportunities abound – the question is who is going to be Billy Beane.

In this conversation, it is important not to be fatalistic and to instead emphasize how individuals and institutions can respond. Students with a background in science and technology (rather than say the humanities, etc.) are likely to have a significant advantage in law’s information revolution. Institutions can help level this playing field by offering their students the requisite skills training necessary to be competitive within this new ordering.  At Michigan State University – College of Law, I am currently developing a series of potential courses that I believe can aid my students in being Legal Information Engineers and 21st Century Lawyers.  (1) Quantitative Methods for Lawyers (which is part Statistical Methods and part Legal Information Technology) (2) Legal Informatics, Legal IT and Legal Supply Chain Mgmt. (3) Law 3.0 – Yeah There is an App for That  (Building Legal informatics Software including IPhone/Android Apps).  Expect other institution to follow suit.

Yes – There is Going to be Math on the Exam: In closing let me offer these thoughts.  Markets are not pretty places and all one can do is try to adapt to changing circumstances.  The pathology of attending law school to avoid math/science simply must give way to a new reality.  In other words, if the real world is the ultimate test — then — yes — there is going to be math (and computing) on the exam.

9 responses to Dan Katz on Legal Informatics, Corporate Law Firm Ownership and 21st Century Legal Education

  1. 

    ABS structures will make sense for all levels of law firm at some point. Law firms are highly inefficient at raising capital for expansion as well as delivering sophisticated services to the market. Pressures from globalization and general counsel are driving law firms to new modes of production that traditional means are going to find increasingly difficult to meet. Now as Dan points out that is going to give London a huge advantage, possibly with a boost to UK law schools (but I’m not sure on that one), which at some stage the US firms are going to chafe against. How long before New York demands similar benefits? The result is that the Brits will re-conquer the world. And if capital markets shift eastward then those firms with the best expansion plans will win.

    At the WalMart/Tesco end of the scale ABS will win because they will be able to deliver better quality and cheaper services for the public. Too many complaints are made against small firm lawyers for them to recover from this. In the UK it is expected that 3,000 law firms will disappear through these developments. No one will mourn.

  2. 

    The Niche strategy would actually help with US News rankings too, since it’s about the only way a school can get higher LSAT students to come without actually paying them.

  3. 

    The ABS model may not make sense for large commercial firms as we currently envision them. But has Dan has indicated the future is to some extent the unknown and the unknown will take considerable investment to create. Funding is needed to create the systems that will be able to automate significant aspects of law practice and to exploit the large store houses of data that large commercial firms sit on. Similarly, ABS/Tesco/Walmart may make a great deal of sense for individual and small business consumers of legal services. These organizations can bring a business model that streamlines, automates, and process legal work in a way that is more cost efficient and less intimidating. Out of necessity consumers have expressed a willingness to try other models of legal services (LegalZoom and others) and will embrace less expensive models of legal service delivery, especially as they become more competent and efficient over time.

  4. 

    Dan –

    I quite agree.

    Internet providers of legal services are eating away at the bottom end of the profession – the mass market ( http://kowalskiandassociatesblog.com/2011/08/11/are-law-firms-going-to-be-replaced-by-internet-based-providers-of-legal-services/ ). Technology, including both quantitative prediction software used by GC’s in fight or flight decisions as well as predictive coding for document review (http://kowalskiandassociatesblog.com/2011/03/08/lawyers-beware-your-job-may-be-replaced-by-a-computer/ ) together with LPO’s are eating away at the upper end of the market.

    And all the while, the legal spend continues to decline.

    Jerry Kowalski

  5. 

    Kowalskiandassociates: The primary thrust of my comments regarding corporate ownership are directed at the delivery of legal services to the lower end of the market (i.e. WalMart Law). This slice of the market is worth billions of $$. The viability of Alternative Business Structures for modern commercial firms is of course a debatable proposition. What is not a debatable proposition is that technology (particularly quantitative legal prediction) threatens large commercial firms. This includes predicting outcomes in disputes and GC’s using prediction to drive down legal bills.

    I highlight just some of this here:
    http://computationallegalstudies.com/2011/09/18/quantitative-legal-prediction-updated-slides-2011-midwest-law-economics-association/

    Eric: Yes, I think that product differentiation is the best idea for each school (particularly those that not already dominant). George Mason offers a good model for niche construction. It is sort of amazing that more schools have not tried to zero in on this specific niche. Univ of Houston has just started a program in Law & Computation but otherwise I think that is it.

    I realize the USNews places limits on what schools are willing to try – but seriously – this is totally obvious. I should say that some schools do Policy Regulation for the Information Age but few (if any) schools are focused on what informatics, computation, AI, supply chain mgmt, etc. mean for the business of law.

  6. 

    It sounds like MIchigan State might be following the George Mason Law path of having a law school that finds a niche where it is in the top 5 rather than trying to rise to be the 50th best Harvard-Yale-Law. The Information Age stuff is a good niche.

  7. 

    Alternative Business Structures – or sometimes called the Tesco models in which non-lawyers will be permitted to invest in and become owners of law firms – are not in my view a panacea. We’ve been watching these events from afar and, frankly, we just don’t think ABS or Tesco models work for modern commercial law firms. There just does not seem to be a reasonable return available nor do existing ethical strictures make ABS models viable – either for the investors or for the law firm.

    Thus far private equity investment in law firms by non-lawyers, which becomes permissible in the UK on October 11, 2011, has attracted a great deal of media attention and much brouhaha. Private equity investors seem to be thinking there’s a huge pot of gold here. Law firm managers are already trying to figure out how to spend the millions of pounds that they believe will come pouring through their doors. Why, even the American Bar Association (the sloth-bound 20/20 Commission) is beginning to eye the concept with some jealousy and trying to figure out how to join the gravy train.

    But in my opinion there’s no gravy train here for full service commercial law firm. The economics just don’t seem to work and the ethical hurdles seem insurmountable.

    We just don’t see that the ABS/Tesco model works or even makes any sense for large commercial law firms. But, non lawyer investment in the delivery of some legal services has the potential for bringing on the next revolution in the profession, with ripple effects in every direction. For more, see http://kowalskiandassociatesblog.com/2011/04/27/alternative-business-structures-here%e2%80%99s-a-great-idea-let%e2%80%99s-get-some-private-equity-funds-to-invest-in-large-commercial-law-firms-and-we%e2%80%99ll-all-make-a-ton-of-money/