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December 30, 2008 5:00 AM

Innovation Agenda (Part Two): Are You Betting Against the Web?

Posted by Susan Beck

The following is the second article arising from discussions at the Leading Legal Innovation conference in December sponsored by the University of Southern California Gould School of Law’s Innovation Project.  [Click here for Part One]

When a group of lawyers, and one economist, gathered in San Diego earlier this month for a conference called Leading Legal Innovation, much of the discussion focused on parallels between the legal profession and U.S. automakers, and the two industries' shared resistance to innovation. If, as most at the conference believed, significant change in the legal market is inevitable, what will the new world of legal services look like?

As in the world at large, the influence of the Web will increase. “The power of the Web is immense,” says Harvey Anderson, the general counsel of Mozilla Corporation. “It will make available more information faster than you can imagine. If you’re putting yourself in a position where you’re betting against the Web, you will lose.” Is the legal profession doing that? “I think as a whole they are,” says Anderson. “But they don’t realize that’s what’s going on.”

Lawyers, he explained, are trained to think of their knowledge and work as proprietary. But that flies in the face of the Web’s “open source” culture. Anderson recalls a patent matter he handled where he asked the relevant Web community for information about prior art. “I found more prior art in five days than I did for a large sum in legal fees,” he says.

“Lawyers as a whole are not cognizant of the mountain of information available that will encroach on what attorneys traditionally do,” he says. He notes that his internal clients at Mozilla get a good part of their legal information directly from Web, and not from him or outside lawyers. When the Federal Circuit U.S. Court of Appeals addressed the application of copyright law to open source licenses in Jacobsen v. Katzer, his executives went directly to blogs for updates. “All my clients knew about the decision before I could talk to them.” He adds, “If you get a newsletter a week or two later from a law firm, that’s old at that point.”

One fledgling effort to get lawyers to collaborate more and share information is Legal OnRamp, founded by conference participant--and Am Law Daily contributor--Paul Lippe. [See "The Provacateur," The American Lawyer, December 2008]. Legal OnRamp is an online community for select lawyers, counting roughly 7,000 attorneys around the world as members.

“Lawyers are perfectly capable of innovating to whatever the context is,” says Lippe, who predicts “huge change” in the next 12 years. “The question for lawyers is, are they going to be leaders in that change or just protecting their institutional interests.”

Preston McAfee, an economist at the California Institute of Technology notes that other professions use computer models to analyze problems. In medicine, computerized diagnostic tools “blow away” doctors' ability to diagnose, he says. The same goes for weather forecasting, where computers consistently beat meteorologists. USC law professor Gillian Hadfield, the main organizer of this conference, noted that much of a law practice involves predictions, but the legal profession has largely shunned this type of quantitative approach. “We do almost no data analysis in the law,” she said.

At large firms, the problem isn’t just the use of technology, but the use of labor. There aren’t many efficient uses for a first-year associate making $160,000 a year and billing $300 an hour. That value gap has created a market for cheaper service providers, including two represented at the conference: Axiom Legal, led by former Davis Polk & Wardwell associate Mark Harris; and Virtual Law Partners, started by Silicon Valley veteran Craig Johnson.

San Francisco-based Axiom provides experienced temporary lawyers for in-house legal departments, and currently has 250 placed at companies. Axiom hires only lawyers with at least five years experience, and charges 50-70 percent less than the cost of hiring a comparable lawyer in private practice, according to Harris. The eight-year old firm projects revenues of $50 million this year. “We need to be an industry that just tries things out,” says Harris.

Following a similar model, Craig Johnson this year founded Virtual Law Partners, a law firm with no offices. Johnson’s new firm has 24 lawyers—all partners—with at least five years experience. (Johnson’s first brainchild, Venture Law Group, was acquired by Heller Ehrman White & McAuliffe, and disappeared this year with that firm.) VLP’s lawyers work from home, set their own rates, and keep 85 percent of what they bill.

It’s notable that both Axiom and VLP have steered clear of entry-level lawyers, since it’s hard to provide good value with such inexperienced talent. Robert Cusumano, a former Simpson Thacher & Bartlett partner who is general counsel of ACE Insurance, says he views the cost of a junior associate’s time as a tax on getting access to a partner like Mary Jo White, the white-collar specialist at Debevoise & Plimpton.

Even if the real cost of White, with the associate tax factored in, is close to $5,000 an hour, it’s still worth her expertise. “Three minutes of a voila moment is worth three years of associates’ work,” he says. Still, he knows there’s a better way. “What I want to see is competent and low-rate outsourcing of pedestrian tasks.” He also suggested that firms hire fewer associates, and give them more challenging work. “[Firms] could hone their business to the insight business.”

That, by the way, is the model that conference participant Fred Bartlit uses at Bartlit Beck Herman Palenchar & Scott [The American Lawyer's Litigation Boutique of the Year]. The litigation-only boutique turned the pyramid model on its head, by operating with 47 partners and 15 associates. Bartlit believes that big firms won’t be willing to make such a drastic change: “They probably have 75 percent too many qualified associates, and they’ve got all this real estate and stuff. You’ve got to take a butcher knife and slash it to a real lean outfit, and nobody will do that.”

Next: A look at innovation at law schools.

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