The State Bar of California is currently considering what could be, if successful, the biggest changes to legal market regulation in American history, but with the added factor of potentially regulating legal tech companies. Artificial Lawyer provides here this site’s responses to the reforms, which are now undergoing a period of consultation.
The California State Bar is currently considering a range of new regulatory measures in this major US legal market. The measures, set out at present as ‘options’ and developed by the Task Force on Access Through Innovation of Legal Services (ATILS), include lawyers sharing ownership of legal businesses with others, and whether a tech business that is involved in legal matters also needs to be regulated as an entity.
The ATILS is now calling for feedback on: ’16 concept options for possible regulatory changes’ that include:
- ‘Narrowing restrictions on the unauthorized practice of law (UPL) to allow persons or businesses other than a lawyer or law firm to render legal services, provided they meet appropriate eligibility standards and comply with regulatory requirements;
- Permitting a nonlawyer to own or have a financial interest in a law practice; and
- Permitting lawyers to share fees with nonlawyers under certain circumstances and amending other attorney rules regarding advertising, solicitation, and the duty to competently provide legal services.’
Notes provided by the ATILS also state with regard to technology:
- ‘Trained non-lawyers, or certain forms of technology, may be able to provide accurate legal advice in faster, cheaper, and more innovative ways than lawyers can.
- If technology-based businesses are allowed to provide legal services, these entities will need to be regulated in order to protect the public.’
Artificial Lawyer Comments
- Artificial Lawyer is a news site focused on change in the legal services market, with a strong emphasis on how technology can help drive this change.
- Its largest readership is in the US, followed by the UK, as well as many other legal markets around the world. Its editor has been following the regulatory debate in America since 1999 when the American Bar Association was considering opening up ownership of law firms. As seen, 20 years later we are still debating this issue, although today it appears California may well finally make substantive changes.
- The UK has to some extent been a testbed for regulatory change and experiences here may be relevant to California.
- Some of the aspects around regulating legal technology however appear to diverge from the UK experience, following its Legal Services Act, and may well introduce some new elements for owners of legal technology companies to deal with.
Ownership of Law Firms Beyond Lawyers
- This point has been debated ad infinitum around the world and in the case of the UK, practical reality eventually took over. The key findings here are that:
- ‘diversified ownership’ of legal services businesses has created no notable ethical problems. In fact, if one looks at the regular list of law firms that have faced disciplinary/ethical issues, the vast majority are ‘traditional’ law firms.
- Different forms of ownership do not, per se, drive innovation – and this is a key point, as it is often assumed that having different types of ownership of a legal business will create different outcomes. This is not necessarily so. For example, a law firm owned by a group of owner-manager lawyers i.e. partners, may be no more, or less, innovative than a law firm that is listed on the stock market.
- Experience has shown that some of the most innovative law firms in the UK are ‘traditional’ Limited Liability Partnerships, where the partners are all lawyers. Equally, there are law firms in the UK that are listed on the stock market that are no more innovative in how they deliver legal services, nor invest more in new technology, than any rival ‘traditional’ law firm.
- The key point is: different ownership models alone do not drive innovation nor improve access to justice.
- What drives innovation is a willingness of the owners to make it happen, and that can be driven by all-lawyer partnerships, a mix of lawyers and other professionals, or even a law firm 100% owned by institutional investors. Innovation is a business strategy, not an automatic result of new ownership models.
- What a more diversified system permits is for entrepreneurial lawyers to create the business model that best suits them, and that could be a traditional partnership, an alternative legal services provider owned by ‘non-lawyers’ or any other type of structure. In short, it supports a free and open market for the best ideas on how to deliver legal services.
- Suffice it to say here, Artificial Lawyer’s view is that all legal markets should deregulate in relation to legal services business ownership. But, they should not assume doing so automatically creates a magical boost to innovation, or different outcomes. Whether things change for the better depends very much on the owners of these now more diversified legal businesses and how they wish to approach legal services delivery.
Regulation of Legal Tech Companies
- This is the more contentious issue, primarily because if regulators make a mistake on what is ‘giving legal advice‘ it could in fact curtail the development of legal technology and innovation in general.
- While it’s sensible to make sure tech companies are not providing legal information to clients that is incorrect, to treat a website (whether it uses a list of textual information, a voice system, or some sort of written Q&A interface) as ‘a law firm’ and hence a regulated entity, could have massive consequences.
- For example, let’s take an imaginary legal tech company: Small Claims Helper. It can be found on Google. The site is easy to understand. It explains the small claims process. It provides official forms to help to make a claim. It tells you the chances of success based on past data, and the money you can expect to gain from such a claim. It will even email your claim in, where electronic filing is possible. Is this acting like a law firm? Should it be regulated? Artificial Lawyer’s response is: it needs to be ‘checked’, but not regulated.
- Checked not regulated means: a tech business that is engaged with legal matters does deserve a ‘once over’ by a regulator to make sure it’s not giving subjective advice, i.e. telling you to do X instead of Y in terms of your legal approach to an issue. But, if it is only providing information, providing a pathway to deliver legal documents, telling you facts about how the law works, about what is in legal documents, or the chances of success, then it would be ‘passed’ and left alone. I.e. it’s checked to effectively exclude it from regulation.
- If we have a scenario where any platform that provides legal information alone is considered as needing to be regulated then we are in a whole new world. In effect, even legal publishers such as LexisNexis and Thomson Reuters would need to be regulated. That would also then raise some tricky issues related to the right to free speech. As we have seen in France, regulating what is in effect freely available legal data can create very serious issues.
- The main challenge is around a tech company creating a system that was providing explicit ‘advice’, i.e. this system has considered all the data you have provided, checked it against models it’s built based on known matters, and is now telling you to do X. That sounds like advice, and clearly we are now at the point of ‘adjudication’ on the best legal course to take. And this is very much a human realm. Hence, one where regulation would not be unreasonable.
- BUT….a website (call it a legal tech site, if you wish), that provides: legal data, information on legal processes, examples of past known cases, forms to fill in and a means to file those forms, is a very long way from ‘giving advice’ and should not be regulated.
- The regulatory oversight, if any, should only be to quickly and efficiently check that business, clarify it’s not giving subjective legal advice on its own and then allow it to carry on its way.
As the UK experience has shown, deregulation of the legal services market neither caused a revolution, or a rash of ethical issues. It simply didn’t change things half as much as many expected. There is more diversity of ownership and some new business models, but that in itself has not meant more innovation. Innovation has been led by those legal business owners who have sought to change their delivery model – and they can be found in all types of legal business.
The end result is simply a more flexible and open legal market that allows more novel business structures and combinations of talents. And that’s a good thing for all involved, especially the buyers of legal services, who deserve a choice. After all, the legal services market evolved to serve the needs of a rules-based society. What helps society most should be the guiding principle.
It makes sense for California to also open up ownership and the sharing of fees. However, when it comes to regulating tech companies, the Bar needs to be very careful about how it approaches the subject in case it kills off innovation that may be helping access to justice.
These comments have been submitted to the California State Bar’s ATILS Public Comment portal, which you can also submit to – here. The deadline is September 23, 2019.