Feb 17, 2008

Routine Legal Services: The Internet is Fast Replacing Lawyers

[This article was written by guest blogger Ralph Warner, founder and CEO of Nolo. He is also the author of the blogs Retire Happy and The Legal Humor Blog.]

In JFK's America, if you had a legal problem, you either hired a lawyer or went without help. Because the majority of middle-class people couldn't afford lawyers' pricey hourly rates, for the most part, lawyers represented the wealthy, the upper-middle class, and business interests. Things began to change in the mid-1960s when, as part of Lyndon Johnson's War on Poverty, federally funded legal services (legal aid) programs were established for the very poor. Now it was just the 100 million people in the middle who were legally disenfranchised. In the early 1970s, this huge unmet legal need helped produce companies like Nolo -- publishers who produced step-by-step workbooks designed to allow self-helpers to accomplish routine legal tasks at a fraction of the fees charged by lawyers. Especially in California and other states populous enough to support state-specific publishing ventures, the educated and energetic could now affordably do their own divorces, guardianships, deeds, wills, and even form a corporation or a non-profit.

But self-help law books were far from a comprehensive solution to America's legal access gap. They didn't hold hands, give fact-specific advice, and were difficult to use for people without good language and form-drafting skills. Part of this self-help law gap was filled by independent paralegals (legal document preparers). These non-lawyer entrepreneurs typically rely on self-help law books like Nolo's to help their customers prepare paperwork for routine legal actions for about 25% of the fee charged by most lawyers. But, because of the aggressive turf-protection tactics of the legal profession (enforcing archaic statutes that make it illegal without a license, as one example), non-lawyer providers have been kept out of many markets, and forced to operate on the margins in others. The result was that even ten years ago millions of Americans still had little, or at best spotty, access to affordable legal services.

Enter software.

Starting with tax preparation and will-making products published by companies such as Intuit, H&R Block, and Nolo, software successfully married legal expert systems to the personal computer. By first prompting the user to answer basic screening questions (Are you married?, Do you have minor children?, etc.) and then following up with queries that met the user's situation, software could both greatly simplify and expedite routine legal paperwork, and then print out the result, ready to file.

More recently, legal software has become widely available online. Now companies with national reach, such as Legal Zoom, Nolo and The Company Corporation, offer to help consumers complete an extensive menu of legal tasks, such as making a will or living trust, filing for divorce, or forming a corporation or LLC for far less than what lawyers typically charge. And when you combine low prices with the fact that web-based software is increasingly well-designed, online help is excellent, and trained back-office people are standing by to help with technical glitches, it's easy to see why the online law business is taking off -- so much so that my educated guess is that upwards of 250,000 legal tasks will be accomplished online this year. And assuming that, as compared to hiring a lawyer, the consumer saves $1,000 per transaction, this amounts to consumer savings of $250 million.

And, interestingly, the migration of basic legal tasks from lawyers to internet-based corporations is still at an early stage. Provisional patents, trademarks, copyrights, deeds, living trusts, and divorces are just starting to be offered by affordable online services -- and many more such as bankruptcy, and many types of business contracts are in the pipeline, something which almost guarantees that online legal providers will experience at least a decade of rapid growth in the process of becoming a billion-dollar industry.

But what of lawyers who offer personal legal services? Are they about to become an endangered species? Hardly. In large part that's because, as discussed, since lawyers never found a way to affordably meet the needs of America's middle class, it wasn't their business to lose. Or, put another way, millions of Americans can now afford to draft legal documents who even 40 years ago would have gone without. And then there are two other key lawyer-friendly trends. First, the world of American business has become ever more rule-bound. 50 years ago, your average Main Street business, Mom & Pop real estate investor, or small non-profit could get by with occasional legal advice. Today, the plethora of employment, intellectual property, landlord-tenant, and other laws mean they are all but tethered to a lawyer.

Second, the increasing size and affluence of the upper-middle and wealthy classes in America has meant that far more people can afford the hand-holding and customized advice lawyers offer. The result is that large numbers of people who learn about their legal task from a book, or even do basic drafting online, also consult a lawyer. (Nolo has designed its lawyer directory specifically to meet this need.) So, especially as lawyers learn to charge fixed fees for the review of documents created online, internet legal providers and lawyers may yet learn to happily co-exist.