Legal Eagles

Bye-Bye to the Billable Hour? Rash of Legal Startups Offer a Dot JD

"There’s probably a hundred different lawyer-related type of shticks." Should you seek their counsel?
matthalltechcrunchdisruptnewyorkmayxu46uvypvypl Bye Bye to the Billable Hour? Rash of Legal Startups Offer a Dot JD

Matt Hall and John Watkinson of Docracy (photo by Charles Eshelman)

Question: What’s wrong with lawyer jokes?
Answer: Lawyers don’t think they’re funny and no one else thinks they’re jokes.

Of late, that punchline is less amusing than prescient. Over the past year, a new batch of startups have launched out of New York with the notion of using technology to bridge that disconnect between a client and her counsel—and perhaps inspire fewer contributions to the annals of pettifogger humor in the process.

Historically, the legal profession has been somewhat sheltered from the democratizing wave of the internet that drowned revenues in the music industry and media. Lawyers can’t claim as esoteric a skill set as, say, doctors. But the years of specialization and investment required to practice—and lawsuit-happy instincts of its practitioners—seem to have kept starry-eyed startup founders at bay. (Perhaps another reason being a lawyer makes the short list of professions your mom would be proud of.)

Economic upheaval, however, has a way of exposing inefficiencies.

Over the past six months, for example, New York Times reporter David Segal has done a brisk business in headlines like “Law School Economics: Ka-Ching!” and “What They Don’t Teach Law Students: Lawyering” that exposed the myths of a $150,000 law degree, namely that despite tuition costs growing at four times the rate of undergraduate schools (even at low-ranked law schools) and the dearth of jobs (despite inflated reports from career services), a doctor of jurisprudence may not guarantee you a job, or even teach you what to do if you get one.

“So, for decades, clients have essentially underwritten the training of new lawyers, paying as much as $300 an hour for the time of associates learning on the job,” Mr. Segal wrote in July.

Perhaps that’s why engagement letters are now being drafted with stipulations that clients won’t shell out for the time of junior associates. “During the recession, you saw this shift in leverage away from law firms and lawyers and towards consumers and clients,” David Lat, managing editor of the widely-read legal blog, Above the Law, told Betabeat. “People are not willing to pay for what they used to pay for.”

By and large, these upstart young companies trying to capitalize on that frustration can be divided into two camps: startups make it easier and cheaper to get legal documents and startups that do the same for legal advice.

Think of them as an updated version of predecessors like LegalZoom, co-founded in 2001 by Robert Shapiro—the man better known as O.J. Simpson’s non-rhyming defense attorney—and Nolo.com. Named for Nolo contendre, the Latin phrase referring to a no contest plea, the company was founded 40 years ago as a publisher of DIY law books like How to Do Your Own Divorce in California. Before surging in popularity as an online portal, the company’s old mascot, a shark with a necktie and briefcase, used to come with the motto, “Don’t feed the lawyers. Just say Nolo.”

LegalZoom and Nolo have long offered consumers a chance bypass the billable hour by purchasing customized legal documents online, such as a will or residential lease mailed to your door. Startups in that first camp take that even further. Paperlex, which launched two weeks ago out of the co-working space General Assembly, and Docracy, which launched in May at the TechCrunch Disrupt conference in New York, offer templates of those documents for free. Consumers can then tweak the terms for themselves.

“Right now the law firms have the monopoly on document generation and we are tearing that out,” Paperlex co-founder Alison Anthoine, a practicing attorney for the past thirty years. “Lawyers used to be the ones that structured deals. The banks now do that. The lawyers only have left the scribing and they milk it for everything its worth.”

The templates on Paperlex, which targets freelancers and small businesses, have been vetted by Ms. Anthoine and other attorneys. In Docracy’s case, the content is user-generated. Among the most downloaded items, for instance, is a TechStars Series AA Term Sheet, uploaded by David Cohen, one of the incubator’s co-founders.

Both Paperlex and Docracy vehemently insist that their services are meant to streamline the process so that you have to spend less time with your lawyer—not eliminate him entirely. However, both companies are clearly aware that that there are consequences for the unauthorized practice of law.

In the second camp are startups like Shpoonkle, which was launched in March by Robert Niznik, then a 21-year-old second year student at New York Law. Rather than merely connecting clients with lawyers online, the unfortunately-named venture uses a reverse auction format that enables potential clients to post on a task and lawyers to bid on it. The idea behind Shpoonkle, says Mr. Niznik, who lives with his mom in Sheepshead Bay, was to offer legal counsel for those who couldn’t otherwise afford it and employment opportunities to lawyers in search of work. A recent study by the consulting company Economic Modeling Specialists found that New York state had more than double the amount of unemployed lawyers as California, the next closest state, hitting 7,000 in 2009. (The response to Shpoonkle from legal blogs was a rash of posts bemoaning the inevitable “race to the bottom.”)

The reverse auction format has been tried before, on sites like LawyerQuotesFast and LawBidding, both have which have since shuttered. But in the consumer web boom, these type of world-changing (or at least industry-updating) initiatives seem to have gained more momentum. And the venture capitalists, as is their wont, are taking note with a string of investments and acquisitions.

After 40 years in business, Nolo.com was acquired for $21 million this April by the new media company Internet Brands. This spring, LegalZoom picked up a staggering $66 million in financing from powerhouse investors like Kleiner Perkins and Institutional Venture Partners. In April, Google Ventures was part of a consortium of investors that pumped $18.5 million into Rocket Lawyer, a four-year-old California-based site for online legal forms that also lets consumers pay $19.95 a month to have those forms reviewed by a real lawyer. This month, Google Ventures also led a $1 million series A round for LawPivot, another California-based site, this one for free confidential legal advice launched in 2009. Along with the funding news, LawPivot announced the launch of a new market that lets businesses post potential cases for lawyers to bid on for a fixed, discounted fee. Last month, Docracy raised $650,000 while still in beta.

Follow Nitasha Tiku on Twitter or via RSS. ntiku@observer.com