The Bottom Line: legal technology

Mar 21, 2012

Do legal tech startups have the right focus?

“If it ain’t broke, don’t fix it”. While this may be used to justify giving the same speech over and over again, it cannot apply to the legal industry.

High legal fees have been the subject of viral videos, and claims that the legal market is indeed “broken”. A staggering 71% of low-income households’ legal needs are currently not met.

Yesterday, Christina Farr gave VentureBeat an excellent account of how a new wave of legal technology start-ups are looking to fix the professional services industry with the second highest revenue, but perhaps the shortest entrepreneurial history.

The consensus is that the legal industry requires a shake up, and that money can be made in the process. Richard Granat, blogging about his experiences at the “Law + Tech - The Unpopulated Multi-Billion Dollar Industry”, classifies these startups into:

1. companies aiming to connect consumers with lawyers, 2. companies aiming to help increase firms’ productivity, and 3. companies aiming to provide legal services directly to consumers.

Especially the third category has seen a lot of recent activity across the startup community and the Blogosphere. Following the success of RocketLawyer and LegalZoom, which together raised just under $100 million in order to improve their respective document automation services, similar business models have popped up.

Many of these startups plan to offer more tailored legal services than the two market leaders. Examples include DocRun.com, which aims to achieve this by asking users a series of intuitive questions or

or UpCounsel.com, which focuses on high-tech startups.

Unfortunately, this might be a case of “too soon”. Bar a revolutionary software algorithm that can identify the user’s specific needs, it will be difficult to offer services that are personalized enough to beat out RocketLawyer and LegalZoom.

However, regardless of how successful these start-ups prove, a substantial part of the 71% will remain. This is because the figure accounts for the over 24,319 pro se cases at the national level alone.

In an informal study conducted by the Self-Represented Litigation Network, about half the judges asked claimed that the economic crisis is the main reason for the increase in pro se litigations.

Particularly the middle class, ineligible for legal aid, but unable to foot attorney fees, are left vulnerable. Persistent cuts to the legal aid budget do not improve their position.

Litigation is rarely the best method of dispute resolution, regardless of the sum at stake. Being awarded anything less than $5000 in court will usually be negated by attorney fees, and you could even find yourself paying more for patent litigation than R&D.

It is therefore unsurprising that alternative dispute resolution is on the rise. While the American Arbitration Association processes more than 60,000 cases annually, which amounts to 25% of the cases federal courts handle each year, the industry’s revenue is expected to exceed $7.1 billion by 2015.

What is surprising, however, is that this is not generating the same level of entrepreneurial enthusiasm that document automation services do. Exceptions include CyberSettle, which pioneered an automated claims service used by the City of New York, and VirtualCourthouse.com, which enables parties to resolve their dispute through the help of over 200 experienced mediators and arbitrators. Conducting ADR online bears considerable cost- and time advantages for parties. It’s not a case of fixing alternative dispute resolution, but helping it fulfil its potential. More importantly, it’s a case of reducing the 71%.

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