Daniel Kahneman's new book, Thinking, Fast and Slow, synthesizes his life's work as a psychologist. The book is about the systematic errors that limit human judgment.

The six-chapter section on overconfidence is particularly instructive for lawyers in helping them to assist clients to make better decisions and to make better decisions themselves. It appears that excessive optimism and overconfidence are part of the human condition. In fact, an expert's subjective degree of confidence in his or her predictions is irrelevant to the performance of the expert.

Research has shown that, while computers are better than humans at solving problems involving logical intricacy, humans are better than computers at exercising judgment because computers don't know what they don't know. However, Kahneman points out that humans have a similar problem, which he calls "our almost unlimited ability to ignore our ignorance." We choose not to know what we don't know.

In a chapter called "The Outside View", Kahneman describes how there are two methods of forecasting, the inside view and the outside view. The inside view is how we normally forecast. We focus on our particular circumstances and personal impressions and we limit our search for evidence to our own experiences. We treat every situation as if it were unique and we don't seek out the statistics of cases that are similar to our own. Kahneman calls this WYSIATI (what you see is all there is) and he says it often leads to delusional optimism.

This assumption of uniqueness reminds me of an idea that Daniel Gilbert expresses in his book, Stumbling on Happiness: the best way to predict our own happiness in a given situation is to see how others who are already in that situation feel about it. We are each not as unique as we think we are.

Lawyers often take the inside view. Says Kahneman,

I once asked my cousin, a distinguished lawyer, a question about a reference class: "What is the probability of the defendant winning in cases like this one?" His sharp answer that "every case is unique" was accompanied by a look that made it clear he found my question inappropriate and superficial.

The solution he proposes is to get the outside view by obtaining statistics of your reference class and adjusting the baseline prediction using specific information about your case. Only slight adjustments to the baseline prediction are usually required. So, for example, if you have a terminal form of cancer but you are young and otherwise healthy, you may live slightly longer than the base mortality rates would predict but you are unlikely to be cured.

In the litigation example illustrated above, lawyers need to be asking themselves questions like, "How many of these cases succeed in court? How many settle? What are the amounts?" You then would adjust your prediction according to whether your case is stronger or weaker than similar claims.

In another chapter called "Intuitions vs. Formulas", Kahneman discusses how statistical algorithms that combine a few ratings often outperform clinical predictions. Examples of the superior performance of algorithms include bank evaluation of credit risk and the evaluation of prospects of success for new businesses. These algorithms are successful even when the combinations of features they include aren’t particularly complex. Checklists such as Apgar scores for the level of distress of newborn babies have been developed using these methods. Checklists have made their way from the construction industry into medicine (see Atul Gawande's book, The Checklist Manifesto) and likely could be used more extensively in law than they have been used so far.

Humans "try to be clever, think outside the box, and consider complex combinations of features in making their predictions." The weakness of human experts is that they are context dependent and therefore inconsistent in their predictions while formulas always return the same answer when given the same input.

Kahneman has come to the counterintuitive conclusion that, in what he terms “low validity” environments, final decisions should be left to formulas.

In a third chapter entitled "Expert intuition: when can we trust it?", Kahneman concludes that expert intuitions are likely to be skilled only where the environment is “sufficiently regular to be predictable” and there is the opportunity to learn through prolonged practice. Some areas of legal practice offer this type of predictable environment and others do not.

My fellow slaw columnist Jordan Furlong has written a number of articles over the past few years about the shortcomings of legal education (the latest of which is here). The New York Times has also added to the debate with a recent article entitled “What They Don’t teach Law Students: Lawyering”. One of the themes floating around has been to partially return law school to its roots as a vocational school.

I had the occasion to think about some of these ideas recently when a move to Australia led me to requalify as a lawyer in a different system. Canadian lawyers in this situation typically are required to take Legal Ethics and Australian Constitutional Law with the Legal Profession Admission Board and then two online subjects, Professional Responsibility and Trust Accounting, with the College of Law. I was no exception.

The Legal Profession Admission Board (“LPAB”) is the official admitting body for lawyers in New South Wales. Its educational roots go back to 1848, a time when Australian universities did not offer law degrees and the Supreme Court set examinations for admission to the legal profession. The Barristers Admission Board and the Solicitors Admission Board provided a gateway to these exams and they finally merged in 1994 to form the Legal Profession Admission Board.

In Canada, Osgoode Hall trained Ontario lawyers in a similar manner until 1949, when a brawl erupted over whether legal education should be primarily vocational in nature or the study of law as a set of ideas. The New South Wales experience offers a sort of alternate history of what could have happened had the Law Society of Upper Canada retained control over a branch of legal education in Ontario after 1957.

In addition to the LPAB route (available in New South Wales only), you can study law in Australia as a first degree and obtain an LLB (there is a saying here that Law is the “new BA”) or you can study law as a second degree and obtain a JD.

The LPAB route appears to reflect the outcomes-based approach to education that is in favour in Australia, where the paths to the professions are generally shorter than in North America. Outcomes-based education sets the bar at a certain level and if you can jump over it, you’re in. The Canadian approach tends to be that you must follow a fixed path regardless of your circumstances. For example, to become a certified translator in Canada you must have four years of translation experience or have a relevant degree plus one year of experience and then you must pass an exam. In Australia, if you have never studied translation before and you want to become a certified translator, you simply need to pass an exam. The pass rate is not high but if you manage to pass, you’re in.

The LPAB works in tandem with the Law Extension Committee of the University of Sydney (“LEC”) to train new lawyers. The Law Extension Committee supplies the teaching, which is done by practising lawyers and university teachers, and the LPAB administers the exams. Classes are taught in the evenings from the University of Sydney campuses near the barristers’ chambers in the central business district and at Camperdown.

External students (students who live outside Sydney) attend weekend schools, which are typically held twice per semester on campus. The weekend schools are condensed versions of the evening classes.

Many foreign lawyers who want to requalify in other Australian states such as Queensland or Western Australia study with the LPAB/LEC in New South Wales and then transfer back to their respective jurisdictions. The requalification process appears to be more streamlined and cost-effective in New South Wales than in other states and it is easy to transfer between Australian jurisdictions.

However, most of the students who study at the LPAB are not foreign lawyers who are requalifying in Australia but rather Australians who work full-time as police officers, nurses, paralegals, or legal secretaries and who have decided that they want to become lawyers. Many do not have a university degree and the LPAB route to legal practice does not result in them obtaining a law degree. What they end up with is a Diploma in Law, which is considered to be equivalent to a law degree for the purpose of obtaining a practising certificate.

It goes without saying that these law students have a practical orientation and they are a far cry from the stereotypical law student who has done nothing but study and who will have difficulty integrating into the real world of legal practice. They are able to hit the ground running.

The late Alison Youngman, a former Stikeman Elliott partner, was typical of such a student. She joined the firm as a law clerk in 1972. While working, she completed a BA in political science and economics and subsequently was sponsored by Fraser Elliott to go to law school full-time for three years. Under the New South Wales system, she would have been able to commence her legal studies three years after beginning work as a paralegal.

From what I’ve been told, many LPAB graduates do very well as lawyers and alumni include former High Court Justice Michael McHugh.

In attending LEC classes (I finished my studies in March, 2011), I found the environment to be both different from traditional law school and yet very familiar at the same time. The student body is diverse in terms of age and socio-economic background. There appears to be a lot of cooperation among students, with students focused on passing their subjects while balancing the workload with career and family demands. The teaching style is a meat-and-potatoes, black letter approach.

Exams are mainly closed book and are as challenging as the ones I sat in law school in Canada. The main difference in the exams is the failure rate, which can be as high as 33 percent in some subjects such as Contracts. The program appears to have a significantly higher attrition rate than university-based law school.

Accessibility and affordability are strengths of this approach to legal education. Because there is no research component to studying through the LPAB, students are not paying to subsidize legal journal articles (the cost of which has been estimated at USD 100,000 per law review article).

Fees are AUD 630 per subject and the total cost of study if you were to pass every subject on the first try would be about AUD 13,000. By way of comparison, the domestic tuition cost for a 3-year JD at the University of Sydney is AUD 91,440.

Once I get past the rebellious notion in my head that you really should have to have a law degree to become a lawyer, my main reservations about the program have to do with the difference in the quality of the experience for external students. No video or audio podcasts of the evening lectures are made available to them. Apparently many of them perform well on the exams, their minds uncluttered by the irrelevant-to-the-exam details of each subject not taught at the weekend schools. One external student who approached me for tutoring claimed to have passed all his subjects save one without ever having set foot in a classroom.

Another issue, which has more to do with a proliferation of new law schools in recent years than with the LPAB, is that the Australian legal market appears to be seriously oversupplied. Ontario has 32,950 lawyers (not counting those who are retired or outside Ontario) serving a population of 13.2 million. New South Wales has 25,300 lawyers (23,760 solicitors with practising certificates and 1,540 barristers) serving a population of 7.2 million. In other words, New South Wales has 41 percent more lawyers per capita than Ontario. It appears that Australia saves the hurdles for those who want to become barristers.

Ten years ago, when we had our first child, my wife and I bought a $1,000 video camera that had many features. One of these features was an infrared capability that allowed us to take videos of our sleeping child at night. We used the feature once and then we never looked at it again. Today, with our third child, our video camera sits on the shelf gathering dust and we use our iPhone to take videos.

The iPhone camera app does not have a fraction of the features of our video camera but it is convenient to use and the videos that we make can easily be uploaded to the Internet. The iPhone camera app is a “good enough” solution, a classic disruptive technology that was brought to life courtesy of Apple and Steve Jobs.

Steve Jobs was one of the greatest disruptors of all time. Apple products beginning with the letter “i” have disrupted almost every form of personal media. Apple disrupted the music industry with the iPod, proceeded to disrupt mobile software, photography, and the Blackberry with the iPhone, and finally is disrupting the publishing industry and the personal computer with the iPad. All the while, Jobs was removing features that we thought we couldn’t live without. The iMac got rid of the floppy drive and the 2-button mouse. The iPhone is light on security features compared to the Blackberry. And the iPad has eliminated both the keyboard and the mouse.

Perhaps Jobs learned his lesson in his so-called “years in the wilderness” away from Apple when he developed the NeXT computer for the higher education market. As described in Bloomberg Businessweek, the computer was overloaded with features and it ended up being a commercial failure:

At NeXT by contrast, Jobs crammed the Hartmut Esslinger-designed cube-shaped computer with every shiny new toy he could find. There was an Ethernet port for easy networking; a microphone and speech-processing software, a patented, hard-to-manufacture monitor stand; and a magneto-optical drive. The result was a computer that cost $10,000 to make–and wasn't worth the price.

It is interesting that Jobs did not see himself as a commodity producer. He paid great attention to the details and design of Apple products and they have always been perceived as premium products. Disruption theory does not fully explain everything that Jobs achieved.

At one point, Bill Gates thought that computer hardware was a commodity business and that the real arena of competition lay in software. In 2004, Clayton Christensen wrote in The Innovator’s Solution that the computer industry was switching to a modular, open architecture approach and that Apple was being disrupted. Again in 2006, he predicted that Apple would fail. And yet Apple never has been disrupted.

Christensen discusses this aberration in a recent article:

But there has always been one company that doesn’t follow that pattern. At some point in my class every year, a student raises his or her hand and asks: “What about Apple? Aren’t they a high-end, upmarket player? Why haven’t they been disrupted?

It’s a great question. Despite being perceived as a premium, high-end player, Apple under Jobs’ leadership has not simply managed to avoid being disrupted by others, it has disrupted entire industries — many of them. Even more impressive, it’s disrupting itself.

According to Christensen, Apple has avoided disruption because “profitability isn’t at the centre of every decision Apple makes. Apple’s focus is on making truly great products.” As examples of this thinking, he points to Apple’s decision to move from selling $2,000 computers to the much cheaper iPod as well as the iPad’s potential to disrupt the Mac business. Christensen also says that Jobs’ instinct was always to focus on the job that the customer was trying to do.

What are the lessons in disruption that the legal industry can learn from Steve Jobs?

First, it’s all about execution. The fact that you have come up with a disruptive business model is in itself no guarantee of success. A successfully executed disruption is far removed from its starting point as a half-formed idea.

As Businessweek put it, “Jobs's real genius was seizing upon existing concepts, simplifying and perfecting them, and then putting them forward at exactly the right moment."

When Apple casually mentioned in the product launch for the iPhone 4C that it had a new product for greeting cards, shares of greeting card companies tumbled. People knew that, if anyone could execute a disruption of the greeting card market, Apple could.

Second, you have to move as far away from the old paradigm as possible and build on something new. For example, unlike previous tablets, the iPad was not a stripped-down version of the personal computer. Instead, it was a product of evolution. The iPod evolved into the iPhone, which in turn evolved into the iPad. A former senior director of marketing at Apple said that “the real insight was not shrinking the Mac but growing the iPhone." As the product evolved, the number of business models that were being disrupted continued to grow.

Building something new does not involve doing market research with your existing customers. Jobs was quoted to say, “It’s not the consumers’ job to know what they want.” This echoes an old quote from Henry Ford: “If I had asked people what they wanted, they would have said faster horses.”

I'll leave you with my favorite Steve Jobs quote, one that I believe captures the essence of both the man and of disruption: “Don’t be trapped by dogma, which is living with the results of other people’s thinking.”

My experience to date with legal knowledge engineering has consisted of using decision trees to automate legal documents in a field known as document assembly. I have never done hard coding or played with expert system shells. Indeed, there are not many of them to play with. The only ones I am aware of are those developed by Neota Logic (formerly Jnana) and RuleBurst (since acquired by Oracle).

So it was interesting to meet Dr. Pamela Gray, a legal knowledge engineer from Charles Sturt University, and her son Xenogene Gray, a computational physicist. Together they have developed a legal expert system shell called eGanges that relies not on decision tree logic but rather on something called river logic, a refined Ishikawa fishbone.

The Ishikawa fishbone was developed by Kaoru Ishikawa of Japan in the post World War II era. It originally was used in quality control as part of quality defect prevention. Visually, a fishbone diagram looks like a fish skeleton, with the end result, or effect, forming a fish’s head and the various causes of that effect forming the skeleton of the fish. The deeper into the causes you go, the finer the bones of the fish.

Another way to visualize the Ishikawa fishbone is as a river. eGanges has adapted the Ishikawa fishbone to apply to legal problems but it uses the metaphor of a river rather than a fish skeleton. Legal rules flow downstream until they achieve a particular outcome at the river mouth.

River logic works in some ways like a decision tree in reverse. You can begin at any point of the river, but if you begin at the mouth of the river (the final result) you can trace the logic back up the various tributaries, then to the creeks, and ultimately to the different sources of those creeks. As you progress upstream, you may answer the questions put to establish the points for the user's case. At any time during a consultation with an eGanges application, the cumulative result can be viewed for your case. When you are finished, you have a complete list of the factors that led to the final current result.

Take, for example, a breach of contract case. The outcome at the river mouth is predetermined as entitlement to compensation. The rules which lead to the entitlement constitute the river system. The main tributaries of the river might consist of contractual rights and performance. Along the contractual rights tributary might be nodes such as time provision, notification term, and rights term. Alternative creeks might flow into the rights term, such as right to compensation and right to be reimbursed for payment of expenditures.

It feels easier and more intuitive to map out legal problems as rivers rather than as decision trees. A decision tree has no logic structure, just backward and forward chaining. You have to build all the logic and spell out all possible alternatives for each node. With river logic, you don’t have to be as explicitly detailed. eGanges adds intelligence at the node level. There are built-in heuristics, which is another way of saying that the machine is able to work out implicit knowledge. Each node has four possible answers: yes, no, uncertain (there is evidence of uncertainty), and no answer (there is no evidence). Uncertainty identifies areas where further evidence is required, due to such factors as the memory failure of a witness, conflicting evidence of witnesses, or lack of credibility of a witness. The software keeps track of the answers for each node.

In our previous example, if work is required to be done to effect performance of the contract (so that you can ultimately claim the compensation), then the river mouth outcome will never be positive unless the work node is also positive. If you change the work node answer, the river mouth outcome will update automatically.

There can also be a gloss, or annotation, placed on each node, similar to the judicial glosses that we are familiar with in court decisions. In addition, there is an option to insert neutral nodes. For example, in contract law, a request for further information about an offer does not terminate the offer – it does not have the same consequence as a counter-offer. Thus, it does not matter to the formation of a contract whether or not there is a request for further information. 

River logic can be used to build a case against an opponent, to ferret out the logical errors in new statutes, or to automate the interpretation of a particularly complex statute. Working with well-known Sydney solicitor Philip Argy, Dr. Gray built a Spam Act application using eGanges several years ago.

Here is a link to a sample eGanges applet: http://www.grayske.com/FinLawTrial/index.html

Free copies of the software are available in return for providing Grays Institute with an application that can be posted as an applet on its planned new website, graysinstitute.org. The Grays Institute website will be open for free public access in January, 2012.

Foolkit, which stands for Free Legal Toolkit, provides free comprehensive access to legal resources in every Australian state except Western Australia. Produced by an Adelaide lawyer named Andrew Rogers, it is a collection of resources for lawyers, support staff, law students and the general public. By some measures, Foolkit is one of the largest access to law websites in Australia. Foolkit gets over 2 million hits per month and Rogers estimates that it is used by about 20 percent of lawyers in Australia.

Foolkit’s goal for lawyers is to improve the efficiency and quality of practice and professional life. It concentrates on providing legal information that is practical and that will be used frequently. While the site itself has minimal contentcommentary, what it does contain are some 14,881 links to content provided by others. These links are offered in a structured manner according to jurisdiction, practice area, and the job to be done. For example, a family lawyer is given access to relevant statutes, court lists, adoption services, paid subscription services, and calculators. According to Rogers, lawyers using Foolkit can expect to save up to one hour per week and secretaries up to ½ hour per week.

Andrew Rogers originally developed Foolkit as an Intranet for his small commercial practice. Its evolution took an accidental lurch in 2006 when a programmer forgot to set a password for it. Google crawled the site, it became available to the general public, and the rest is history.

Since that time, Rogers has sold his law practice that he built over 30 years. He has expanded the website beyond South Australia and now runs it as a full-time job with an investment of substantial amounts of his own money. Graphic artists, programmers and researchers located in the Netherlands, the Philippines, and Egypt, and various Australian States have worked on Foolkit. The Foolkit paper toy was designed by a graphic artist in Brazil.

Rogers’ daily routine involves an automated check of over 5,000 links followed by a manual check of 300-400 links to see if they are still valid or have something new. Typically 50 to 100 links per day are changed or added. It’s interesting to observe that many information service providers do not provide static links.

The features of Foolkit I like best include the Foolkit’s Desktop Detective, which gives links to resources for finding out information about people, such as the Electoral Roll and the National Person Insolvency Index, and the more esoteric Image Error Level Analyser, which allows you to detect if an image has been Photoshopped.

AustLII Easy Search provides a way of searching the Australian Legal Information Institute website without using Boolean terms. Legislation searching gives you the option to search a given piece of legislation via AustLII or the State or Commonwealth legislature website. And Foolkit provides direct links into the latest available Australian Federal and State legislation and Court rules and forms.

The management side of Foolkit connects to resources and recent articles on HR, wellbeing, client relations, financial issues, marketing and risk. 

In keeping with the time management focus of the site, there are plenty of links to things like local restaurants and movie theatres so that you do not wander too far on the Web but are able to stay on task.

The Public side of the website contains information on Do-It-Yourself legal kits, answers to common questions, working well with a lawyer, counselling, industry ombudsmen, and legal aid, and how to choose a lawyer..

Rogers describes Foolkit as a hybrid venture of for profit and social enterprise.The current revenue model is paid advertising, with a possible move to a freemium model where access to most areas of the site would be free but access to others premium content would require payment.

He estimates that the site is about 70 percent complete; and he describes Foolkit as a work in progress. He is currently working on adding multi-media and more practice areas. He also plans to expand to include the remaining jurisdictions in the Australian States and then progress eventually to working on the UK, and Canada, and the United States. 

 If you would like to create a starter page of links to your favourite resources for the Provinces of Ontario, British Columbia, or Alberta, please send it to Andrew at rogersa@internode.on.net or andrewr@foolkit.com.au.

Several weeks ago I spoke at the Sinch Online Legal Services Conference in Sydney. My topic was the state of play in legal innovation and I covered what I thought were the most significant events of the past year (and of the near future). This column addresses some of those events. Special thanks goes to Jordan Furlong and Stephanie Kimbro for their input and, as always, to Simon Lewis for organizing the conference.

Disruptive Business Models

In November, 2010, Thomson Reuters acquired legal process outsourcing company Pangea3 and at the same time put bar examination preparation course provider BAR-BRI up for sale. This is a potentially transformative acquisition. As Furlong says in his blog, law21.ca, Thomson Reuters is going from being a law firm supplier to a law firm competitor, from a legal support services provider to something brand new. Outsourcing is potentially disruptive to conventional law firm business models because it can be done by in-house legal departments themselves, bypassing the law firms entirely (Rio Tinto, for example).

In October, 2011, alternative business structures will come into being in the UK. Described as law’s “Big Bang”, this regulatory change will allow non-lawyer investment in law firms for the first time. Richard Susskind says that existing law firms make unattractive investments and predicts that “external investment will be made exclusively in new forms of legal business.” These new business models will not be encumbered by existing organizational or cultural baggage and will be engineered for disruption from the ground up.

Australia, which already allows non-lawyers to invest in law firms, is currently working toward achieving national regulation of the legal profession to facilitate a national legal services market. So far, Western Australia and South Australia have chosen to opt out. However, multi-jurisdictional practice is already a reality in Australia because of existing mutual recognition rules among the various states. 

LegalZoom has launched in Canada, in association with CorporationCentre.ca. LegalZoom, a document preparation service, is perhaps the best known and best funded disruptor of the legal profession that exists to date.

In a recent journal article, I discussed Chrissy Burns’ PhD thesis findings that computers are good at rule-based thinking and logical intricacy (for example matching facts with the requirements of a rule) but not at work that requires judgment or conceptual thinking. During the past year, a couple of examples of where software is poised to replace lawyers have come to the fore. 

The first is a New York Times article on e-discovery entitled, “Armies of Expensive Lawyers, Replaced by Cheaper Software”. Using software for e-discovery is significantly cheaper than using lawyers and the cost ratio will change as the software improves. Documents that are flagged still have to be read by someone, but now one lawyer does the work that 1,000 did previously. Last year, DLA Piper used Clearwell software to run through 570,000 documents in two days. One lawyer ran documents from the 1980s and 1990s through e-discovery software and discovered that the lawyers had been only 60 percent accurate. 

As Furlong says, “It’s tempting to dismiss these forecasts as bleeding-edge speculation, and to repeat the old canard that a machine will never replace what a lawyer can do. But that’s not the issue. The issue is how much longer lawyers will try to replace what a machine can do.”

Meanwhile, IBM has moved on from chess applications to Jeopardy. IBM supercomputer Watson beat two human experts at Jeopardy before losing to another. Watson uses algorithms to understand natural language. Robert Weber, IBM’s general counsel, thinks that Watson could be used to extend the capabilities of lawyers when gathering facts or identifying ideas. 

Online Legal Services

The American Bar Association Ethics 20/20 Commission is investigating the use of technology to deliver legal services online. This is a 3-year project that will review “the U.S. system of lawyer regulation in the context of advances in technology and global legal practice developments.” It is looking at such things as cloud computing, social networking, lawyer websites, and blogging.

Two new organizations in the online legal services field were born in the past year. First, the Legal Cloud Computing Association came into existence, providing a voice to vendors in the cloud computing market. Members include Clio, DirectLaw, RocketMatter, and Total Attorneys. 

Second, LIIofIndia, the Legal Information Institute of India, came into being with the assistance of Graham Greenleaf and the team at AustLII, the Australasian Legal Information Institute. It provides free access to statutes and case law. LIIofIndia is the 34th member of the “free access to law” movement, whose core belief is that, if ignorance of the law is no excuse, then free access to the law should be made available to all. I view these information services as a base layer on top of which future online legal knowledge products can be built.

Expansion and Dissolution

UK law firm Norton Rose has expanded into Canada and South Africa after earlier moving into Australia. London-based firms Allen & Overy and Clifford Chance have recently established Sydney offices.

Meanwhile, Washington, D.C. based litigation firm Howrey has dissolved. A Wall Street Journal blog says that two factors were involved. First, alternative billing (contingency fees) led to partners walking out because they didn’t like the uncertainty of income. Second, third party document discovery specialists could provide competing litigation support services at lower rates.

Legal Education

Many doubts have been expressed recently about the sustainability of the current business model for legal education. Harvard and NYU have put together a contest that focuses on innovation in legal education. Proposals put forth at the April, 2011 conference included “Apps for justice: learning law by creating software” and “seriously gamifying legal learning”.

Predicting the Future

Transcendent Man, a new documentary about futurist Ray Kurzweil, was released earlier this year. Kurzweil says that we are just now at the knee of the technology curve and that the pace of change is happening at an exponential rate. The movie shows how Kurzweil’s relationship with his late father and a desire to resurrect him in digital form are a driving force in his life.

Tyler Cowen is more pessimistic than Kurzweil. In his new e-book called The Great Stagnation, he argues that the low-hanging fruit of free land, technological breakthroughs, and smart and uneducated children has already been picked in the United States. In his view, the Internet can’t compare to previous inventions like the automobile because it provides personal growth but little revenue or employment. He points out that companies like Facebook and Twitter don’t have that many employees. Twitter has an estimated 190 million users and perhaps 300 employees. 

Although the book is thought-provoking, I find these arguments to be unconvincing as the Internet continues to embed itself in all forms of commerce that can be digitized. Books and videos are the latest example. Increasingly, almost all businesses will derive revenue from the Internet.

Finally, Paul Krugman of the New York Times has written an article on the hollowing out of jobs for highly educated workers. He states that there is a hole in the middle caused by computerization and off shoring and that education is no longer the key to success that it once was. Work with a manual labour component is more difficult to automate or outsource. There are no robot electricians or plumbers.

As an active participant in the eLawyering task force of the American Bar Association, I have volunteered to compile a list of the types of regulations that inhibit the growth of virtual law practice. In a world plagued by access to justice issues, these regulations add to the cost of operating a virtual law practice and can make it economically unfeasible to do so, particularly for solos. I am not advocating the wholesale demolition of ethical rules but I would like to point out areas of regulation that need to be rethought in the modern context, as they are impeding innovation in their current form. As Canadian law professor David Vaver said (in relation to Crown copyright), “The smell of the crumbling pages of 17th century law reports hangs over the dancing pixels on the electronic highway.”

Special thanks goes to Stephanie Kimbro and other members of the task force for their assistance.

Here is the list.

1. New Jersey has a "bona fide" office rule that requires you to have a physical office in the jurisdiction. One of the pioneers of virtual law practice, Richard Granat practices Maryland law from his office in Florida. If he instead wanted to practice New Jersey law, he would be stopped in his tracks. Kimbro states that this appears to be the “old regime” trying to protect their traditional ways of operating and their market share and thereby limiting access to justice. 

Other states, such as Delaware, Florida, Louisiana, Michigan, Missouri, New York, and Texas, also place office location restrictions on members of their bar associations.

2. Jurisdictions need to adopt rules that address the provision of unbundled legal services and limited scope representation. Generally speaking, ethical rules do not prohibit limited scope representation: they simply fail to mention it at all. Virtual law practice by its very nature consists of limited scope representation because lawyers are limited in what they can do for clients without physically meeting with them. Clients will need to do some things on their own, such as arrange to have their wills executed and witnessed. According to Kimbro, “ There are such specific checklists for each practice area when you are unbundling different types of cases that I think there need to be ethics requirements, especially with regard to things like authorship on ghostwritten pleadings.”
3. Cloud computing regulations are on the horizon in several U.S. states that treat the digital space differently from the physical world. For example, the ABA 20/20 Commission is proposing to change Model Rule 5.3 to lump cloud computing together with outsourcing and require notice and consent to clients and supervision of cloud computing providers. Kimbro asserts that existing ethical rules are sufficient and states, "I don't need amended rules or comments to figure out how the rules translate with the technology." She believes that guidelines and best practices are what is needed instead of regulatory changes.
4. Lack of uniformity among U.S. state trust accounting and advertising rules makes compliance difficult. One attorney licensed in California and North Carolina has created two separate virtual law office websites to make sure that he doesn’t get in trouble with the respective state bars for misleading advertising or unauthorized practice of law. 

There are issues in other countries, as well. The Australian states of New South Wales and Queensland ban most advertising relating to personal injury legal services, so virtual law practice is pretty much out of the question in this field. New South Wales also has trust accounting rules that make it costly and difficult to accept credit card payment in advance for legal services. This is in contrast with U.S. and Canadian jurisdictions that have exempted virtual law practices from trust accounting rules because of the small amounts of money involved.

5. Temporary and permanent mobility rules form another barrier. Ideally, a virtual law practice could operate in a discrete area of practice in multiple jurisdictions without having to have a different qualified lawyer in each jurisdiction. 

The U.S. bar admission rules make it difficult for lawyers qualified in one state to requalify in another state and there is no meaningful ability to practice the laws of another state temporarily. This creates problems in the context of virtual law practice. For example, a patent attorney can handle the client’s patent, trademark, and copyright needs from across the U.S. but then can’t draft a state-specific contract for that client without the approval of an attorney licensed in that state.

It is relatively simple for Canadian lawyers to requalify in other provinces, but costly, due to extra insurance premiums and bar admission fees. In terms of temporary mobility, lawyers in Canada are permitted to practice for up to 100 days in other Canadian provinces but they are not allowed to hold themselves out as qualified or willing to do so. It must happen incidentally while they are doing work for an existing client. Australian lawyers have greater temporary and permanent mobility and Australia is moving toward national regulation of the legal profession. 

Operating a virtual law practice from outside your home country is an even more difficult proposition. A Canadian lawyer operating a virtual law practice in New South Wales would have to register as a foreign legal consultant and comply with New South Wales trust accounting rules. Because New Zealand lawyers can practice in Australia without requalifying, it is actually much easier for a New Zealand lawyer to practice Australian law through a virtual law practice than for, say, a California lawyer to practice New York law.

6. U.S. and Canadian jurisdictions have rules that prohibit fee sharing with non-lawyers. These rules mean that a virtual law practice that licenses automated documents from a third party provider cannot pay the provider a percentage fee per document generated. The virtual law practice also cannot pay percentage-based referral fees to third parties who bring in business online.
7. Under the Patriot Act, the U.S. government can access data hosted on U.S. servers to investigate domestic or international terrorism (a) with prior court approval or (b) by administrative subpoena to the Internet Service Provider without prior court approval. There is no statutory requirement that the hosting provider notify the lawyer of any data requests prior to producing the data. Any such notification requirement needs to be written into the contract between the lawyer and the hosting provider.

Although the risk is minimal, these rules have made some lawyers outside the U.S. reluctant to use cloud-based services that are hosted in the U.S. However, they often have little practical choice.

8. Canadian client verification rules that were enacted to combat money laundering make it difficult to open a virtual law practice in a field such as conveyancing that involves financial transactions. These rules require the lawyer to take steps to verify the client’s identification using independent source documents and then to keep copies of those source documents. This would make it complicated to operate a virtual conveyancing practice such as Australia’s ozpropertylaw.com. Other jurisdictions have procedures that verify purchaser and borrower identification without putting the burden on the lawyer.
9. U.S. and Canadian jurisdictions have rules that restrict law firms from raising outside capital (in contrast to the UK and Australia). These rules make it difficult for virtual law practices to achieve economies of scale so that they can emerge from “cottage industry” status. Non law firm competitors such as LegalZoom face no such restrictions.
10. Crown copyright in statutory forms in Commonwealth countries such as the UK, Canada, and Australia makes it difficult to gain permission to offer automated statutory forms from a website. Statutes, cases, and statutory forms are in the public domain in the United States and this has not resulted in any noticeable adverse effects in that country.

I recently migrated to Sydney, Australia with my Australian-born wife and our three children. Australia’s remote location seems to allow a freedom to experiment without the pressure to conform to U.S. or European norms that one experiences in a country like Canada. Or perhaps Australia is simply, as a friend calls it, a “nation of iconoclasts”. In any event, I have observed over the years that regulatory change related to the legal profession in the common law world begins in Australia and then moves around the globe, first to the UK, and finally to North America. As a newly arrived Canadian, I am by no means an expert on the Australian legal system. However, here are some of the features that I’ve observed so far.

Diploma in Law. It is possible (though not common) to become a lawyer in Australia without ever obtaining a university degree. The Legal Profession Admission Board offers the diploma in law path to people with various qualifications, including those who hold a college diploma, who have worked as a legal secretary or paralegal for at least three years, and who have worked as a registered nurse or police officer. These mature students typically attend evening or weekend classes while working full-time and take four years or more to obtain the diploma. The trade-off for improved access to a legal education is a high attrition rate.

Incorporated legal practices. New South Wales allows incorporated legal practices (“ILPs”) and has done so since 1991. Responsibility for managing the legal services of the ILP falls with an employee called the legal practitioner director. Unlike in Canada, there are no requirements that shareholders be lawyers or their family members. This is important because outside equity investment is often necessary to raise the money required for large capital expenditures. Two law firms, Slater & Gordon and Integrated Legal Holdings, have listed publicly. University of Melbourne academic Dr. Christine Parker has written extensively about incorporated legal practices. 

Multi-disciplinary practices. Lawyers are permitted to enter into multi-disciplinary practices with non-lawyers and these business arrangements can take the form of partnerships (MDPs) or corporations (ILPs).

“Co-regulatory” model. In New South Wales, lawyers are no longer self-governing and they share power using a co-regulatory model. An independent statutory authority called the Legal Services Commissioner oversees the Council of the Law Society (solicitors) and the Council of the Bar Association (barristers). The Legal Services Commissioner receives complaints and shares the power to investigate complaints with the Council of the Law Society and the Council of the Bar Association. 

You can see the influence of a consumer protection approach in the cost disclosure requirements. Lawyers must make written disclosure of a wide range of matters relating to the cost of legal services shortly after being retained, such as the basis on which legal costs are calculated and a range of estimates of total legal costs. There is compulsory mediation of consumer disputes when required by the Legal Services Commissioner. 

National regulation. The Council of Australian Governments (“COAG”) is an intergovernmental forum that exists to implement national policy reforms. COAG is working toward achieving national regulation of the legal profession to facilitate a national legal services market. This involves implementing the co-regulatory model at the federal level. A National Legal Services Board will oversee admissions and licensing and will set the national rules. A National Legal Services Ombudsman will regulate the profession, together with disciplinary tribunals and Supreme Courts. There will be a single practising certificate for the entire country. Of course, this is easier to achieve when you don’t have two different legal traditions (civil law and common law) to contend with. 

Unauthorized practice of law. There are prohibitions on engaging in legal practice when not entitled to do so, but these appear to have significant exceptions. For example, licensed conveyancers, who are not lawyers, do residential conveyancing in several states. Unlike in the U.S., there don’t appear to be any concerns that software providing situation-specific legal guidance will be held to be engaged in the unauthorized practice of law.

Barriers to Innovation. As proof that no country is without its quirks, New South Wales prohibits contingency fee arrangements and bans most advertising related to personal injury legal services. Finally, the trust accounting obligations are simply too onerous for a lawyer who wants to experiment with small scale transactions; for example, by setting up a simple virtual law practice and charging clients in advance by credit card. Canadian and American regulators provide exemptions from trust accounting requirements in these situations because the amounts involved are so small.

Results. Australia’s experience demonstrates that legal professional rules that act as a drag on innovation are not set in stone: they can be changed. Perhaps no country has moved as far in this direction as Australia.

At the same time, not all marriages of law and entrepreneurship will be successful. eCommLegal Pty Ltd., the Commonwealth Bank’s online law firm, was established to provide estate planning to its customers. It closed up shop in 2008.

Nonetheless, if you had the ambition to roll out a business model with national scope, combining legal and non-legal services, relying heavily on technology, and employing lawyers who are qualified in multiple jurisdictions, Australia would be a good place to start.

Unless the technology makes buyers’ lives dramatically simpler, more convenient, more productive, less risky, or more fun and fashionable, it will not attract the masses no matter how many awards it wins…Value innovation is not the same as technology innovation.
–W.Chan Kim and Renée Mauborgne, Blue Ocean Strategy, page 120.

This is a column about legal technology, but sometimes legal innovation involves creating new business models that have little to do with technology. One such business model is called Lawyers Real Estate.

Peter Mericka is a Melbourne-based lawyer who is revolutionizing the sale of real estate in Australia. Mericka has adopted what is known as a “Blue Ocean Strategy” by simultaneously practising law and expanding into another industry, the real estate industry. He will sell your home, act as your lawyer to negotiate the agreement and do your conveyancing, all for a flat fee of AUD 4,400.

Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant is a book by W. Chan Kim and Renée Mauborgne. It describes how in “red oceans”, organizations such as law firms compete for a share of limited demand and prices are pushed ever lower. However, sometimes competitors enter “blue oceans” by creating an uncontested market space that makes the competition irrelevant. Canada’s own Cirque du Soleil, which reinvented the circus with intellectual sophistication, is a good example of a blue ocean strategy.

Mericka has decided to leave the “red ocean” of ever-static conveyancing fees and move into the blue ocean inhabited by handsome real estate fees. He sees real estate services as an industry that can be broken down into component parts and done more cheaply by players other than traditional real estate agents. For example, if you are selling a property, you can hire an appraiser to value it, a videographer or photographer to take the photographs, and a sign maker to make your sign (Australian real estate signs are typically billboards that feature large photos of the property). You can show the house yourself, because you are the person who can best answer questions about your property. Finally, to protect your legal interests, negotiate and draft the agreement of purchase and sale on your behalf, and ensure that you get legal title, you can have the benefit of a lawyer.

The Eliminate-Reduce-Raise-Create Grid is a concept that was introduced in Blue Ocean Strategy. It allows you to quickly compare innovative business models to traditional business models. If you look at the grid for Lawyers Real Estate (see below), you will notice some important differences. Lawyers Real Estate eliminates commissions and open houses, reduces advertising spend and the focus on agent name recognition, and purports to raise ethical standards by minimizing conflicts of interest. Lawyers Real Estate creates a one-stop shopping experience where a lawyer displaces the real estate agent entirely and also provides the legal advice and assistance required to take the sale from listing to closing. 

The house is valued by an independent appraiser and then placed on the Australian equivalent of MLS. Interested buyers who see the listing on the Internet then approach the seller directly (Australia does not have many buyers’ agents and those who do exist are paid directly by the buyers). The seller takes the potential purchaser through the home at a mutually convenient time. There are no open houses (Mericka sees these as an opportunity for theft and agent self-promotion). A party wanting to make an offer is advised to get legal counsel. The buyer’s lawyer and Mericka then negotiate the terms of the purchase agreement.

Mericka believes that this approach raises ethical standards considerably by minimizing potential conflicts of interest:

• Lawyers Real Estate gets paid half of the fee when the property is listed for sale. The balance of the fee is paid only if the property is sold and further legal work (conveyancing) is required. When a realtor is paid by commission, the temptation is to get a sale at any price rather than at a price that is best for the vendor.
• Lawyers Real Estate is not paid by commission. Many listing contracts in Australia provide that an offer for a minimum stated price will trigger a commission. This may put pressure on the real estate agent to convince the vendor to sell for a low amount.
• The property is valued by an independent appraiser rather than by the selling agent, eliminating the temptation to manipulate the valuation too high (to win the listing) or too low (to get a quick sale).

Mericka never negotiates on behalf of purchasers when he represents the seller. Again, he highlights the absence of conflict of interest inherent in this approach. In Australia, the seller’s agent often assists the buyer to prepare the buyer’s offer, which can be problematic. He finds the Canadian system, where the buyer’s agent gets paid only if the deal goes through, makes more commission the more his or her client pays, and gets paid by the party that he or she is negotiating against, to be rife with conflicts of interest. “What strikes me about the Canadian system is that it facilitates collusion because it creates a situation where it is always in both agents’ interest to get a sale at any price,” he says.

Assisted by Australian rules that allow incorporated legal practices and access to non-lawyer capital, Mericka is franchising his operation across Australia to create what he believes is the world’s first law firm franchise. 

With the recent changes to CREA rules that allow real estate agents to unbundles their services, the Canadian real estate market is more open to innovation than ever before. Canadian lawyers have dabbled in the sale of real estate thanks to various exemptions from real estate licensing requirements. However, Lawyers Real Estate provides a template for what we could achieve.

I'm a member of the eLawyering Task Force of the American Bar Association. Our purpose is to promote practising law over the Internet. When I joined in 2004, we were a marginal group within the ABA. Things have changed. Our e-mail discussion group has over 120 members. We have had people attend our teleconferences from as far away as New Zealand. A member of the ABA Board of Governors attended our most recent meeting in Las Vegas. And in the past year, co-chief Richard Granat has been profiled as a "Legal Rebel" in a recent ABA Journal series and again in a Wired Magazine article entitled "The Good Enough Revolution: When Cheap and Simple is Just Fine." 

What has prompted the shift?

The shift came as we grew tired of talking and decided to take more action. Richard Granat founded DirectLaw, which provides a software platform for virtual law firms. I automated templates for Richard and opened mybclawyer.com, a virtual law practice that uses the DirectLaw platform. Our task force has also been joined by Stephanie Kimbro. Stephanie was the 2009 winner of our James Keane Award for excellence in eLawyering and she recently sold VLO Tech, her virtual law firm platform, to Total Attorneys. Both Kimbro and Granat teach courses on eLawyering-related topics at a new online venture called Solo Practice University. Our other co-chief, Marc Lauritsen, has recently authored a book called "The Lawyer's Guide to Working Smarter with Knowledge Tools".

Before the birth of virtual law practice, legal consumers were limited to solutions at opposite ends of the spectrum: traditional legal advice and document preparation services. Neither provides a satisfactory solution to the legal problems faced by many consumers. Virtual law practice provides a blend of computers and people that lies somewhere in the middle. There is a quote attributed to Einstein that says, 'Computers are incredibly fast, accurate, and stupid; humans are incredibly slow, inaccurate and brilliant; together they are powerful beyond imagination.'

We have defined virtual law practice as 'a professional law practice that exists securely online, is accessible to the legal professional and his or her clients, and provides an environment where the client can purchase and access legal services securely online.' Others use the term to describe people who practise law from home-based, satellite offices but we don't include these law practices in our definition unless they have a secure client portal.

A lawyer with a traditional law office may operate a virtual law practice as an extension of his or her office-based physical practice or a virtual law practice may be completely online, without physical interaction between the lawyer and client. A virtual law practice often operates "in the cloud", which means that its data is stored in an offsite, secure location. Technologies that can be used in a virtual law practice include secure HTTP, SSL certificates, encryption, artificial intelligence, and document assembly. 

Our recent marriage of theory and action has been very productive. Today we are an energized group that discusses many topics that have arisen from our experience, such as liability insurers' requirements, regulatory hurdles to virtual law practice, and minimum requirements for law firms delivering legal services online. Hopefully, our increased energy level is symbolic of new energy that is in the eLawyering field. See this excellent blog post by slaw's own Jordan Furlong.

We look forward to a time when, like "motorcar", the term eLawyering will lose the prefix and will be called, simply, "lawyering".