Topics of Interest Archives: Legal

ILTACON 2015 Pre-Conference Announcements Show Legal Technology Suite Maturation

ILTACON is just now kicking off in earnest, but legal technology vendors have been busy with announcements and press releases in the run up. Of course, the large majority of announcements address incremental product improvements, new customer wins, booth invitations, or positioning efforts. The more meaningful announcements trotted out within this flurry often provide key indications about the future development of the space. While these “meaningful” announcements can point in innumerable directions, it is often possible to identify clusters of common themes that deserve attention.

ILTACON 2015 presents just that sort of opportunity. Amid the many varied and important announcements made in the last several weeks, we can observe a clustering of common themes pointing towards maturation of legal technology enterprise suites. Some of these announcements represent “big news” events while others carry relatively little weight, but all point to a growing shift from best-of-breed toolset orientations to a broader availability of integrated functionality and data sets serving particular roles or operational needs.  Without attempting to be inclusive, we can look at several signs of these trends, both large and small. . .

Mitratech Acquires CaseTrack – Shortly after its July acquisition of Bridgeway Software, Mitratech acquired Economic Analysis Group’s CaseTrack business. Where the Bridgeway acquisition was significant for how it positioned Mitratech strategically to address emerging and established ELM market needs, CaseTrack is primarily valuable for the net increase in Mitratech’s customer base, now approximately 750 organizations. Given CaseTrack’s age, maturity, and core market demographics, its customer base provides Mitratech with a strong pipeline of test candidates for its burgeoning vision for the future of ELM. As such, the acquisition doesn’t add to Mitratech’s capabilities as much as serve as an indication it is prepared to move from vision to concrete customer movement…and isn’t afraid to use acquisition dollars to make that happen.

LexisNexis Advances Legal Workspace Evolution – Recent announcements made by various business units within LexisNexis have struck remarkably similar chords. These include the integration of Digital Library with the Handshake Software platform, Lexis for Microsoft Office functionality improvements and the integration of Microsystems EagleEye legal document editing tools, and the integration of Lexis Advance within the CaseMap litigation management tool. This integration of information with function represents a long overdue, if largely unrecognized, need in the profession. Each of these announcements serves to further dissolve the borders between legal knowledge resources and operational and workspace environments.

Handshake Software Partners with Neudesic Firm Directory -  Handshake Software also announced a partnership with Neudesic Pulse’s Firm Directory expertise management solution. Where the LexisNexis partnership expands knowledge resources available within Handshake’s Microsoft SharePoint-based collaboration environments, the Firm Directory integration adds awareness of internal attorney skill sets and expertise levels. Doing so expands the scope of integrated business, talent management, and knowledge resources available within the firm management environment. Again, this results in a further dissolution of barriers between applications and resource, while simultaneously increasing the accessibility of information. As Firm Directory works by helping firm stakeholders identify internal human resource talent to fit emerging client needs, this increased accessibility also has the potential to increase the value offered.

Thomson Reuters Elite Business Development Premier 3E Integration – Continuing the knowledge and workspace integration, Thomson Reuters Elite announced the launch of Business Development Premier 2015.2, which integrates 3E client data into its marketing platform. The intent is to consolidate access to client data in order to improve law firm business development effectiveness and efficiency. This announcement echoes the Handshake and Neudesic Pulse partnership’s focus on law firm business management through improved information access. As such, it points to similar growth in the sophistication of legal operations solutions and sensitivity to ongoing client engagement and development challenges within the industry.

BigHand Launches Workflow Planning and Management – Voice productivity solutions provider BigHand has announced an ambitious strategy for ILTACON 2015.  This includes a rebranding campaign, the global launch of its BigHand 5 platform, integration of its Esquire Innovations within BigHand Office, and new products in BigHand Now and Capacity Manager. It’s these last actions (announced in January) that are particularly interesting in how they expand BigHand’s workflow capabilities to reach a broader array of law firm operations beyond the dictation process management process that has made up their core focus. As such, the solution offers new strides in the availability of cross-enterprise management of law firm business processes and support operations workflow, while significantly expanding the scope of BigHand’s offerings.

What Should We Take Away? 

Traditionally, the legal technology market has been dominated by best-of-breed solutions. Even in the range of offerings from the largest vendors, solutions have been largely siloed and standalone sets of functionality. The announcements ahead of ILTACON reveal various instances of the eradication of borders between knowledge and process management resources, expansion in the scope of law firm operations managed, and a vendor’s use of acquisition to prime the pump for a move from vision setting to concrete market development.

Until this point, the legal technology market has not been presented with opportunities to make that shift. Whether the industry is prepared to follow the developments presented by vendors remains unclear. Consider, for example, to what extent eDiscovery solution use is still determined on a project-by-project basis. To this end: I left ILTACON last year considering the contradictions presented by the legal sector’s simultaneous intent to develop strategic IT investment initiatives and persistent inactivity and difficulty effectuating change. If I am reading the tea leaves correctly and more vendors will be promoting a shift towards solution portfolios, the question will increasingly be whether these trends will promote the sort of shifts in investment priorities and attitudes that vendors are betting on.

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Taking Stock of the Legal Cloud (2/2): Paths to a Secure Legal Cloud

VictoryPreviously, I observed how the evolution of the cloud has led to considerable growth in cloud solutions within legal environments. At the same time, concerns about the security and privacy of cloud environments have created obstacles to adoption among the profession. For the legal community, the contradictory opportunities and risks presented by the legal cloud results in a tension between attitudes that, at their extremes, we can refer to as “cloud complacence” (or an uncritical trust in cloud providers) and “cloud anxiety” (an uncritical refusal to consider cloud solutions). Cloud-complacent and cloud-anxious attitudes both work, in effect, to increase law firms’ vulnerability to risks, on the one hand, or to deprive them of the real benefits of a cloud solutions, on the other.

Part of the problem is that both cloud anxiety and cloud complacence stem from very reasonable responses to cloud computing. It is not unreasonable to believe that cloud providers (who by the very nature of their expertise and business models) will invest in the security and integrity of their solutions, generally with a sophistication that is lacking at law firms. Nor is it unforgivable to feel uncertain about the sufficiency of these efforts, particularly given some high profile incidents which have erupted over the past year. In fact, for a reasoned articulation of (and response to) cloud anxiety, see Sam Glover’s take on Lawyerist. The trick lies in understanding how much trust or suspicion (or both) is reasonable to find a way that balances the risks and benefits of the cloud. This requires understanding the nature and sensitivity of the data that you putting into the cloud, and how a particular solution protects and potentially exposes that data.

There are a several relevant factors to consider here. First, a basic understanding of what’s involved in data security when using mobile-cloud (the successor to the endpoint-server paradigm):

1) Servers – Generally, cloud offerings transfer data that was held on dedicated hardware physically located within the walls of the firm to remote, shared servers controlled by third parties. What those third parties do to protect and maintain the integrity of these servers is thus an important aspect of cloud security. It is also the most obvious element to consider. Other important questions here relate to multi-location failure, and the extent to which server space is shared or dedicated.

2) Transfer – For the cloud to work, the data and applications stored on remote servers must be accessible by users through their computers and mobile devices. How this data is exposed or protected in transit between cloud servers and these access points is also a crucial element of the overall security of the cloud. The core questions here typically relate to identity encryption and secure data transfer.

3) Access Points –One of the advantages of the cloud is how it opens up the freedom to access data from a wide variety of devices and locations. This also increases the opportunities for exposure. Many devices automatically log into cloud systems and save local copies of the files stored on the cloud servers. As such, we need to be concerned with the security of the device itself, as well as the ability to control it after it leaves physical possession of the firm. The security literacy of users is often an important element here as well.

Different providers take different approaches in how they address these needs, leaving firms with a range of options to consider. Let’s look at a few basic approaches to provide some context for these strategies, and what they mean for your firm’s use of the cloud.

Showcasing Fortification

Again, we’ll start with the obvious option. Many legal cloud vendors have responded to the market’s concerns by improving encryption and server security. The need for strong security has prompted vendors to use security efforts as a matter of differentiation. Key factors here are the security certifications and protocols used by the cloud provider. Firms with dedicated IT resources can suss out the meaning of the terms that are used in these environments, but smaller firms often lack the background to translate the terms and standards referenced into a practical understanding of how secure it will be.

While a little self-education is a healthy thing, vendors often opt to use a number of shorthand tricks to signal the trustworthiness of their platforms by highlighting the:

- Number of certifications obtained. For example, cloud practice management provider Clio highlights that it possesses three certifications (by VeriSign, TRUSTe, and McAfee Security), even if the standards themselves are somewhat redundant, primarily verifying the use of Secure Sockets Layer (SSL) encryption (although the TRUSTe certification also identifies incorporation of its privacy standards).

- Adoption of known security standards or industry requirements. For example, Box and Microsoft Matter Center for Office 365 both underline their compliance with HIPAA and EU security and privacy standards as a way to indicate their appropriateness for legal environment. (Microsoft also lists ISO 27001 and Federal Information Security Act compliance, and goes so far as to identify its own security expertise as a consultative value-add for legal customers.) MyCase (which leases cloud space from Amazon Web Services EC2) and cloud ediscovery provider Logikcull both take pains to identify that they leverage “bank grade” security (which again is largely SSL).

- Physical security at data center sites. Box and MyCase highlight the physical security and disaster precautions of their data centers. Kroll Ontrack goes further, identifying steps taken to ensure temperature control and power supply redundancy.

Moving to a Private Cloud

Generally speaking, when we refer to cloud offerings (in the legal sector or otherwise), we are speaking of “the public cloud,” or cloud resources that are available for public use. On public clouds, server space is shared, and an individual user’s data might be distributed across multiple servers and data center locations. In this way, public cloud offerings maximize the economies of scale that supply the cost advantages of cloud solutions, and can potentially create exposures and a lack of transparency regarding data location and control.

Private clouds represent an effort to avoid the latter issues through dedicated cloud resources. While they can be provided by third parties (or maintained internally), private clouds are distinguished in that the servers involved are only used to support a single organization. This helps maintain the control over the network. In addition, hybrid clouds offer a middle ground to segregate data between private and public clouds as appropriate.

Typically, legal cloud providers are public cloud providers, with private and hybrid offerings generally offered by core IT infrastructure vendors, such as IBM, HP, VMware, and others. The leading voice for private clouds in the legal technology space has been Abacus Law. While its roots lie in practice management, Abacus Law has recently made strides as a hosted legal infrastructure provider through its Abacus Private Cloud environments. The provider takes an agnostic approach to its private cloud offerings that do not tie customers to its practice management solutions, or any sort of solution. In fact, the company has indicated its willingness to run other vendors’ solutions within its environments, effectively adding an extra layer of assurance for cloud offerings and flexibility for other applications.

Private clouds reduce some risk of public clouds, but are not a panacea. In particular, they do not necessarily alleviate the need to perform complete due diligence. Firms still need to understand the security related to servers and data transfer, particularly with respect to hosted solutions. Private clouds also do not protect the end access points of the solution.

Flexible Deployment

A third approach taken by vendors is to maintain flexibility in deployment, offering customers the ability to select cloud or on-premises options, rather than force them to use a particular offering. Generally speaking, these efforts are dictated by a desire to maintain flexibility to meet varying customer need. As such, in some part, they function as accommodations to cloud anxieties. Prominent examples of this strategy include Microsoft’s Matter Center for Office 365 and Amicus Attorney, both of whom have stressed the flexibility to offer public cloud, hybrid cloud, and on-premises offerings. Ediscovery vendors, who frequently encounter tensions between data storage, multi-party access, and high privacy sensitivity, have been particularly open to maintaining the flexibility of deployment options. To this end, Guidance Software, kCura, Recommind, Kroll Ontrack, and LexisNexis Concordance (to name a just a few) all offer options for hosted and on-premises solutions.

Ultimately for the vendors, this approach is about preserving opportunities by adapting to end-user comfort levels. For end users, it’s about obtaining the desired software capabilities with the flexibility to select or avoid the risks of cloud deployment. However, while this approach offers multiple paths, it does not necessarily answer questions about the vendor’s cloud solutions. In other words, while vendors falling into this category can often respond to end user preferences for deployment, firms selecting cloud options will still need to perform full due diligence regarding the solution.

Securing Access and Collaboration

The final category we’ll consider is primarily about securing the access points we mentioned above as much as anything else. If the other categories described largely related to differentiating solutions through reassuring firms about server and data transfer security, this category is about mitigating the risks associated with the expanded accessibility of cloud offerings. In other words, we’re discussing approaches intended to neutralize access-point risks.

Because this is a by-product risk of the legal cloud, rather than a barrier to adoption, this area has not received the same amount of focus as the approaches mentioned above. That said, a few players have sought ways to combat these issues, primarily by partnership with providers focused on supporting mobile environments. The primary strategy in this context has been to supply enterprise mobile management (EMM) or mobile data management (MDM) providers with expertise in supporting the distribution and control of data across large and diverse sets of device users. Leaders in this area include LexisNexis for its integration of Firm Manager with WatchDox, and kCura for its integration of Relativity Binders with MobileIron. Generally speaking, these integrations focus on combatting end-user risk by providing the capability to monitor, manage, and eliminate cloud access and data use on individual devices.

While the opportunities created by these integrations largely turn on the use of a particular legal function-oriented vendor (typically practice management), other vendors have focused on this particular need. To this end, EMM vendor AirWatch has sought to provide device and mobile content management capabilities independent of other solutions. Similarly, Box has focused on providing similar capabilities for managing and monitoring access to file permissions, access, and use from its storage environments. Microsoft’s Matter Center product responds to these concerns by keeping all data within cloud environments, eliminating local data exposures.

By and large, major movements in this area relate to either dedicated offerings, or integrations involving cross-enterprise providers tailored within the legal space. That does not mean that other options are not available. In particular, the last year has seen the entrance of TitanFile. TitanFile stands out as a provider focused on offering a secure collaboration platform for the legal space, without tying users to a particular data or document management environment. Rather, TitanFile encrypts files at the end-user source and serves as a content management and secure collaboration layer for attorney and client communications and document sharing.

Determining the Fit to Your Organization

Given the variety of paths that vendors take across these needs, it can be difficult for firms to compare providers to determine exactly what they need. In practice, this reinforces the need for self-education on the part of firms regarding the mechanics of the legal cloud. At the same time, it points to the need for a dedicated data security standard within the legal industry. The closest we currently come is ILTA’s LawSec efforts to disseminate ISO 27000 within the legal industry. While ISO 27000 is a prominent and well-regarded standard, it is not tailored to the legal sector.

There is a significant opportunity here for solution providers, firms, state bars, and professional associations to come together to develop a meaningful set of requirements and certifications for the industry. Even if it’s just an application of ISO 27000, the creation of industry-specific standards will go a long way to facilitate law firms’ understanding (and likely adoption) of security practices as well as help navigate a path through the extreme responses to the legal cloud.

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Foundations of Social Media Risk Management

This report gives a basic overview of the types and sources of social media risk. Overcoming these challenges requires sophisticated and sensitive oversight and guidance that engages and educates employees to use social media in a manner that minimizes corporate risk. This report provides an overview of the scope of the problem and discusses issues that organizations must review in order to develop effective responses to social media risk.

Please use the form on the right to download this report.

Social Media Risk

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Taking Stock of the Legal Cloud (1 of 2): Opportunities and Pitfalls

1 The past several years have seen tremendous expansion in cloud solutions and cloud platforms within the legal technology landscape. We’ve seen growing adoption and interest in these solutions among law firms as well. The 2014 ILTA / Inside Legal Technology Purchasing Survey reports that 35% of surveyed firms purchased a cloud storage solution (a new category for the survey), with 17% planning purchases in the following year. Similarly, the 2013 ABA Technology Survey showed a jump to 31% of lawyers using of cloud-based solutions, a 48% increase from the prior year’s 21%.

That doesn’t mean that cloud solutions are a given for legal environments. Unsurprisingly, cloud adoption within the legal sector lags behind larger corporate trends. A 2013 study by Northbridge Venture Partners study puts use of “some sort of cloud platform” in 75% of the broader business community. The industry has some good reason to be sensitive to data security and privacy stemming from ethical obligations and practical concerns that should emerge when organizations hold a great deal of sensitive information. To this end, LexisNexis’s Cloud Technology in the Legal Industry Report (which itself tracks an increase in interest in cloud solutions among small firms and about a 39% adoption, perhaps with some bias) reports that approximately 40% of surveyed firms ranked security as the #1 most significant fear related to cloud solutions (followed by ethical concerns). Despite their fears, firms often fail to engage in the necessary due diligence required to effectively take advantage of cloud solutions. Even with cloud adoption on the rise, these factors stand to impede the growth of the legal cloud and (paradoxically) put law firms at risk.

Advantages and Risks of the Legal Cloud

Let’s start with the advantages the cloud offers. I’ve touched on this before. Cloud platforms offer flexibility, remote access, lowered costs of ownership, data backup and redundancy, and enhanced collaboration options. While advantages for any firm’s IT environment, these characteristics have made cloud deployment (in combination with SaaS models) a particularly effective (and attractive) means to offer software solutions into small and solo firms.

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Source: Blue Hill Research, September 2014

For my money, the greatest of these advantages fall in the form of remote access and sharing of firm documents (something LexisNexis’s survey indicates 46% of firms agree with me on this one). The advantages that follow that aren’t just about flexibility and efficiency, but help to reduce overhead as well.

Of course, these benefits come with some attendant tradeoffs. Any solution that increases capacity for sharing and accessing data also has the potential to increase the risk of that data getting into hands that it shouldn’t. Cloud solutions should raise questions about data security, encryption, and custody in storage and in transit. Understanding these dynamics and what a cloud provider responds to them is a mandatory aspect of cloud use (both by statute and simple prudence).

See Related Research

Cloud Complacence & Anxiety

Blue Hill research interviews have found that firms, those using cloud solutions and those not, fail to engage sufficiently with the dynamics of the cloud. The alternatives can take two forms, which (at their extremes) are best characterized as “cloud complacence” and “cloud anxiety.”

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Cloud anxiety (or the refusal to engage with cloud solutions) is potentially the more pragmatic of the two responses. A number of events of the past year, such as the Heartbleed fiasco, the NSA spying controversy, and the iCloud celebrity photo incident, have renewed concerns about data security as well as in cloud environments. Law firms themselves are undergoing a growing recognition of the “soft underbelly” that they present to their clients’ data security initiatives (not to mention an application of Willie Sutton’s attributed reason for robbing banks), which contributes some hesitance to deploy cloud solutions.

Of course, some of the concerns raised have seemed somewhat incongruous in the light of legal’s poor track record in data security investment and awareness, but this is exactly what is problematic about the cloud anxiety responses: they are typically excuses for inaction that fail to address real and present threats, regardless of the firm’s use of the cloud. At the same time, these firms also forgo the real value that cloud platforms offer.

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Firms demonstrating cloud complacence take advantage of cloud solutions, but fail to engage in the necessary due diligence and actions needed to mitigate the risk that these solutions can present. I repeatedly heard from these firms state that “everything is going to the cloud,” as if ubiquity resolved the underlying risks. These firms are getting the benefits or cloud solutions, but leave themselves very much exposed. Now, it is true that cloud solution providers have an incentive to maintain the highest standards of security and that legal cloud providers, in particular, tend to focus efforts on providing for the unique needs of the profession.

However, not all solutions are good enough to permit lawyers to overlook diligence. Firms that fail to do so can end up with solutions that do not meet their needs. Cloud complacence presents a further issue in that users opt to trust “the cloud” and fail to take needed steps to address security risks. It’s not for no reason that studies have shown that 30% of data breaches are the result of human error. While this attitude has yet to produce any high profile breaches within the legal world, it is inevitable…and when it does, we can expect that firms to react by abandoning cloud offering more quickly than by renewing due diligence.

Both of these responses stem from a lack of engagement with cloud solutions. Like big data, disruption, and other effective software marketing buzzwords, “cloud” makes something that is very complex sound simple – and even friendly. For most attorneys (like most people), cloud signifies a hosted server and (very likely) a SaaS (software as a service) subscription model.

Whatever professional obligations might apply, most attorneys are not prepared to dig into the core principles underlying cloud, of the distinctions between public, private, and hybrid cloud models, or the niceties of how (or where) their data is transmitted and stored. These makes performing the needed due diligence overwhelming, making it much easier to opt to forego the cloud or rely on a vendor’s expertise. While this may be understandable, it’s increasingly problematic.

Notably, we saw these same dynamics and questions when email was rolled out to law firms. I’d argue that as acceptance has grown, we’ve seen firms fall into the “complacence” camp as much as take actions needed to secure and encrypt email…or even fully respect the tool they are using. Small firms and sole practitioners (those for whom cloud is opening up opportunities) are most at risk as they lack the dedicated IT resources to investigate and manage these issues. Large firms are not immune of course. Whatever steps their IT teams take, complacent attorneys within the firm can easily (and often) use personal cloud platforms to hold client or firm documents.

What’s Next for the Legal Cloud?

Cloud complacent and cloud anxiety attitudes present substantial risks to law firms, whether by increasing their vulnerability or by foregoing the upsides of a cloud platform. The only way to mitigate these risks is by negotiation. As the legal cloud landscape evolves, education about and engagement with these issues is mandatory. By no means is this responsibility limited to firms moving to the cloud, attorneys need to consider it a basic requirement of practice in a data-rich, online world. Failure to take these actions threatens the growth of the legal cloud, whether by capping its growth or by the backlashes following the first prominent breaches.

Of course, there’s another constituency that has a stake in the development of the legal cloud: the providers of these solutions. In our next post, I’ll take a look at how the companies that offer cloud solutions to the legal sector are taking steps to address these same issues.

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Abacus Private Cloud for Secure And Flexible Law Firm IT (Infographic)

A cloud platform makes systems and servers remotely available from anywhere with an internet or mobile connection. As such, cloud platforms expand a law firm’s access to it’s documents, files, and applications while reducing IT costs and burdens. At the same time uncertainty complacence regarding security, data ownership, and attorneys’ obligations regarding technology due diligence and confidentiality has led to two extremes: (1) disregard for cloud drawbacks and (2) anxiety and total refusal to adopt cloud solutions. To help firms’ evaluations of solutions, this infographic profiles two small law firms’ investigation of cloud options and selection of Abacus Private Cloud.

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infographic-post

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Building a Business Case for Law Practice Management

Blue Hill conducted research interviews with 45 law firms with approximately 50 or fewer attorneys regarding their evaluation and implementation of practice management solutions. This report highlights the reported experiences of participants with respect to their own investment drivers, evaluation criteria, and business case development. Benefits reported by firms implementing practice management included a four to eight hour per month reduction in non-billable activity as well as 40% fewer support staff than firms with out practice management.

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Does ILTA 2014 Offer Indicators of a Shift to Strategic Law Firm IT?

ILTAPhoto.jpgLast Monday, the International Legal Technology Association’s ILTA 2014 kicked off in Nashville to Dr. Peter Diamandis’s exhortation to innovation. With its “Six D’s of Distruption,” his keynote sounded more like Silicon Valley evangelization than what we always associate with a legal IT audience. Of course, Dr. Diamandis is behind the X-Prize Foundation and has multiple TED Talks under his belt, so it is quite fitting for him. The speech was well received . . . and did seem to set the tone for an event whose one-word mission statement was: “Imagine.” Certainly, Dr. Diamandis struck the note that ILTA wanted. The organization has been increasingly bullish, between its Legal Technology Future Horizons study (co-developed with Fast Future), which prophesized an imminent and expanding competitive impact of strategic technology investment.

Of course, as our international legal technology association, we should expect ILTA to set the vision and lead the cheer for industry. What’s more important is how this spirit seemed to be echoed in the attendees

The Survey Says…

Let’s start with some background points. First: Nashville ranked as one of ILTA’s highest attended events of all time, with over 3,000 attendees. Second, the 2014 ILTA / Legal Insider Technology Purchasing Survey (itself released to coincide with the start of the event) offers some bullish indicators of its own. I have two ‘high level’ observations here. One: roughly half (49%) of ILTA’s participating law firms reported some increase in IT budget (up 6% from the prior year). Two: law firm tech spending as a percentage of revenue per attorney is up as well. In particular, ILTA reports increases at the $17,000 – $26,000 per attorney (3 points higher compared to 2013) and $26,000 – $35,000 range (two points higher), with corresponding contraction in the <$8,000 and $8,000 to $17,000 ranges…

That second point is particularly suggestive. Let’s unpack why: a comparison of spend as a ratio of revenue per attorney gives us a rough “per capita” understanding of the perceived importance of non-attorney assets to revenue generation. However small it may be, an increase on the IT-side of the ratio suggests some shift in how the firm feels its technology investment relates to its business.

I heard similar stories on the floor at the event.

Word on the Street

Both vendors and attendees I spoke with evinced their own bullish attitudes. The exhibitors confided that they were having deeper, “more engaged” conversations than they had in prior years. Attendees I met tended to give me the same sense that they had come to ILTA “with a mission” and a short-list to check off. Now, there’s a long road between conference-floor conversations and signed contracts, but compare February’s Legal Tech New York where, despite some exciting announcements and presentations (and arguably more rarefied titles among attendees) the most common interactions that I heard were either badge-scans or a business card exchanges.

I don’t mean to suggest a preference between LegalTech and ILTA. If anything, LegalTech attracts a more “business-orientated” attendee base than ILTA, whose core audience is law firm IT. Without commenting on the comparative value: it’s that difference in audience that is exactly the point.

If I might forgiven for painting with a broad brush: law firm IT does not have the best reputation as a business-sensitive partner (I welcome your objections). There are good and bad reasons for this: firm leadership tends not to engage with IT at strategic level; the industry has an IT talent attraction and retention challenge; and too much emphasis is typically given to electronic discovery and litigation support efforts. While there ‘s nothing necessarily wrong with any of this, it does tend to encourage support for the status quo over the development of new opportunities for firm value.

Some Highlights

With this in mind, the feedback I picked up at ILTA suggests (at the very least) a greater willingness to “stick one’s neck out” to find ways that technology can improve the business of a firm. Of course, I’m not prepared to take them on their own merits alone (while the minority: I did speak to vendors who gave the event a grade of “meh.”). My own conversations emphasized an interest in larger strategic investments and openness to new perspectives on the business role technology plays for law firms. Putting aside the long list of announcements from the vendors (there was many a good one, and a decent summary here), the conversations I had most frequently discussed points that underlined the strategic shift:

-       IBM Watson’s potential for legal. Diamandis mentioned Watson a few times in his presentation, but the solution was also a topic of conversation at sessions. As IBM grows the business applications of Watson, the company does have its eye on legal, starting with discovery use cases, but it has tremendous potential in research and knowledge management as well. I heard real interest in Watson at the event, even though participants were not necessarily clear on how to incorporate IBM’s vision into their firms.

-       Microsoft’s launch of Matter Center for Office 365. This is Microsoft’s document management and cloud collaboration platform for the legal industry. While the launch itself does not suggest anything in particular about law firm CIO’s, it does indicate Microsoft’s own recognition of expanded interest in software investment within the industry.

-       The Launch of the Flaherty / Suffolk Tech Audit. Kia Motors’s Casey Flaherty has been getting attention for his law firm technology audit for some time now, but ILTA saw the formal launch of the audit, co-developed with Suffolk University Law School’s Andy Perlman. A number of firm’s IT leaders I spoke with at ILTA brought up the audit and were considering action. 

-       E-discovery replacement cycles. I heard repeatedly from attendees and exhibitors (take the latter with a grain of salt) that firms were in the midst of “replacement cycles” for their e-discovery solutions. That is to say: firms were looking to replace legacy platforms with either new providers or significant updates from their existing providers.

-       Complaints of “Too Tactical” Topics. Far be it from me to name names, but this year’s event seemed to draw more complaints than usual about  presentations that were “too tactical” and that failed to provide sufficient insight into larger business impact. In and of itself, this is not particularly noteworthy. However, given how just five years ago, deeply practical, implementation-orientated topics would have been the highlight of the event, this sort of feedback suggests a meaningful shift in priorities among attendees.

An Alternative View

While all of this is encouraging for proponents of the opportunities presented by legal tech, it’s not quite enough to draw deep conclusions. For example, the devil’s advocates I spoke with argued that they weren’t seeing strategic spend as much as desperate spend. This argument ran as follows: law firms (an audience roughly five years behind the curve to start with) shut down its IT spend in 2008 and have remained stagnant since. The consequence is that as firms roll into 2015, they are encountering end of life issues and other “too big to ignore” limitations in their IT environments. The fact that this is a macro-trend, then, is not an indicator of a change in attitude as much as a recognition that the firm can’t push any farther forward on its expiring systems.

Generally, I would agree with those observations and that “end of life” of legacy investments tends to be a top driver in the space. Still, the character of the conversations I found myself in suggested something else. Whether or not it’s a real shift or not is yet to be seen, but the seeds were there. Then again, I’d love to hear what others found.

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Calculating the Value of Legal Research Efficiency

Blue Hill’s prior Analyst Insight Balancing the Cost of Legal Research explored the labor and access costs legal research creates for a law firm. The fees and time associated with legal research represent a Cost of Goods Sold for legal services that affects firm profitability. Excess research time, in particular, while often monetized in hourly billings, nevertheless generates losses in the form of write-offs and lost potential revenue. Increasing the efficiency of legal research practices often offers the means to avoid these scenarios and increase the workload capacity of associate attorneys, which potentially offers to help increase revenue per attorney and, in some scenarios, reduce overhead. This report reviews these principles to build on Blue Hill’s prior analysis to provide additional context related to the larger impact of research efficiency on the profitability of a law firm. Drawing from a variety of publicly available data, this report reviews the labor costs of legal research and the value of efficiency for a hypothetical, midsize law firm.

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report screenshot

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Some Rough Sketches Sizing the Legal IT Market

Earlier this year, I left the groundswell of legal tech start-ups I encountered at Legal Tech 2014, Reinvent Law, and Lex Redux thinking about the $300 billion legal vertical market size I’d heard about throughout the week. My primary issue at the time was that the number (which is an aggregate of spend on legal and related services) is casually referred to by some as the total addressable market (TAM) for legal technology — itself an overbroad category. My conclusion was that a humbler (more accurate) number, combined with a well-aligned product and clear plan of attack, would provide more value (say, for a start-up seeking funding) than the wow-effect of $300 billion. At the time, I did not offer any thoughts on how one might locate that humble number.

I was inspired to revisit the question by this year’s Legal Tech West after a very early stage start-up asked me to do exactly that. I’m not sure how helpful I was in the moment, but they did get me thinking (apologies again, guys, I hope this makes up for it). Generally, I don’t put much stock in TAM figures. They necessarily invite a good deal of fuzzy math and assumption. At the same time, I recognize their value. If we’re going to do it, we might as well do so in a respectable fashion. Below, I’ve put together my thoughts towards a reasonable approximation using the numbers I have available. This will be a working session, so please be prepared to offer your comments and do not rely on the numbers here (I wouldn’t).

What Are We Asking?

The first step is the hardest. We need to know what market that we are sizing. “Legal IT” is not a useful market tag for even the largest solution providers in the space (more on this in a moment). Two upfront questions are critical for setting the right scope: (1) who is your target audience and (2) what problem are you solving. Answers here can be a bit complicated and require on appraisal by a product-by-product or a use-case-by-use-case basis.

The question of problem lends itself to a great deal of variety, particularly among providers that are pushing the borders of the market. The goal should be to identify a sub-set of analogous or competing solutions, such as e-discovery, practice management, or enterprise content management.

The question of audience is a bit simpler. We can divide the legal IT market generally into solutions targeting: (1) individual consumers of legal services, (2) corporate consumers of legal services, (3) law firms, and (4) related service providers. Of course, these segments can (and should) be subdivided into size and geographic groups that will be relevant as well.

Once we have these contours, we can start using the information we have available to fill in the whitespace. Since I don’t have a product to pitch, I’ll skip over the first question for now. For the second, we’ll focus on the law firm market within the United States, because I have the most figures on hand to support it. We can then look to one product category as an illustrative example of connecting the dots.

The Total Addressable Market of Law Firm IT

How can we find the market size for IT among law firms? The 2013 ILTA / InsideLegal Technology Purchasing Survey offers some handy starting points. This survey offers a few insights into law firm spend on IT solutions that exclude internal salaries and services. Using these questions, I arrived at the following rough yardsticks for law firm technology budgets: 3.4% of revenue or $12,815 per attorney. Bearing in mind that the numbers may be a bit skewed to firms with over 50 attorneys (reportedly ~60% of their respondent base) and thus not quite representative of the US legal market, let’s see what we can extrapolate.

According to 2012 United States Census data, there are 173,332 organizations registered as “Offices of Lawyers.” In May 2013, the Bureau of Labor Statistics told us that there were 592,670 employed lawyers in the country. At roughly the same time, The American Lawyer reported that the 200 largest generated about $98 billion in gross revenue. I do not have estimated aggregate revenue for the remaining 173,132 law firms, but we have enough to get some back-of-the-napkin figures:

Dave1.jpeg

Our rough takeaway is: $7.6 billion for IT spend by law firms with the AmLaw 200 representing 44% of the market spend. Is that a useful TAM for the law firm market? Yes and No.

I am certainly of the opinion that we should not be projecting boundaries that are exceedingly far away from what people are currently spending. From that perspective, $7.6 billion gives us a rough margin to work with – and one that’s a far cry from $300 billion.

In the smaller figure’s defense, it does seem about right. Consider, for example, the two behemoths in the space. Between them, the legal divisions of Thomson Reuters and Reed Elsevier (LexisNexis’s parent) earned about $5.4 billion in 2013. While keepiSee Related Research: Charting the Future of Business Networksng in mind that number includes a range of products that fall inside and outside of IT spend, it suggests that $7.6 offers a workable ballpark.

However, even this smaller number is still over-broad. We’re talking about a total budget for technology. It’s a figure that ranges from phones, printers, and MS Office to e-discovery solutions, billing, knowledge management, and ligation support tools. It does not give us a sense of any one of those subcategories within law firms. Nor does it reveal the full contours of those categories across the full range of legal buyers, such as Gartner’s $1.8 billion valuation of the e-discovery market, which cuts across corporate consumer and law firm segments.

The Solution-Pricing Approach: Practice Management

Let’s take another approach to TAM, this time looking at estimated market tolerance for a particular solution. For our purposes, I’ve chosen law practice management. That limits our audience to law firms. We’ll further constrain our view to small-to-midsize law firms. This makes sense, as practice management’s combination of business and case management makes it something of a generalist solution. Larger firms tend to use more specialized solution sets. In keeping with some of the industry shorthand, we’ll cap this category at <50 attorneys.

Going back to the United States census data, we can’t get insight into the number of attorneys, but we can find 170,575 Offices of Lawyers employing less than 50 individuals. I’ll take that as my rough approximation.

While not the only option, the practice management market has become dominated by cloud solutions charging monthly per-user subscriptions. With that in mind, we’ll use a cross-section of those fees for our calculation. Those fees can vary quite a bit from vendor to vendor and depending on whether or not the user is an attorney or support personnel. Using the inventory of monthly subscription fees put together by LawSites in February, we have a high of $72/per user and a low of $29/per user with a weighted midpoint of ~$49/per user. This time, I’ll use Excel.

Dave2.jpg

The result is an estimated range of between $302 million and $750 million, with a rough weighted mid-point of $511 million. Without looking into the revenue of firms like Clio, MyCase, Rocket Matter, or Abacus Law, this feels about right, particularly with the estimates we put together above. The next question for a new entrant into the space would be incumbent penetration. How many of these firms still lack a solution? What would need to be displaced?

Where to Go From Here

We’ve taken two rough sketches at TAM within legal tech: an overall number drawn from reported survey estimates, and a segment-specific figure from projections based on pricing. Both analyses are fairly basic, drawn on some very broad math, and premised on numbers I had at hand. While I wouldn’t use either for investment purposes, they can offer us the beginnings of approaches to look at particular segments within the legal IT market. In particular, we’ve left out the (I expect) larger and more aggressive corporate consumer market. A deeper analysis would also explore the revenue streams of competitors and the size of the unaddressed market.

That deeper look goes a bit farther than what we’d hope to achieve here today, but I hope this discussion lets us agree on one important point: the legal IT market is a whole lot closer to $10 billion than $300 billion. For entrants to the market, that means that you really need to put aside the panning-for-gold declarations that “all we need is to tap 0.1% of what’s there.” Rather, be prepared to discuss how your solution can provide value in a way that will penetrate the market that’s there or expand its borders in a meaningful way.

Personally, I would also be interested to know your pricing structure, the length of your sales cycle, and your average number of deals in a year. I’ll draw my own conclusions from there.

Posted in Blog, Legal, Legal Technology | Tagged | 2 Comments

How Tesla Played 'Fox' With Its Patent Pledge

ElonMuskTwo weeks ago, Tesla Motor’s Elon Musk set certain corners of the internet abuzz with a cheeky blog post announcing that the company would not bring infringement actions against companies using its patents “in good faith.” Exactly what Musk promises is unclear. Tesla owns a very large reserve of patents. This has not stopped commenters to announce Tesla’s shot fired at the broken patent system or commitment to the environment. The move has been described as both altruistic and savvy (it is both), but not necessarily for the reasons discussed.

Conventional wisdom would have that Tesla should hold onto the monopoly the USPTO provides, which is largely monetized either through licenses or a patent’s competitive blocking power. While we can generally agree that a patent portfolio is among a company’s most valuable assets, patent valuation is a tricky art. Undoubtedly, Tesla has spent a lot of money on R&D, patent prosecution, and acquisition, but as an emerging technology provider in a less-than-established market, there are some real questions about what the company’s licensing opportunities and monopolies are worth. What Musk’s post then, demonstrates is a canny understanding of how those patents can still provide value in unconventional circumstances.

A Rising Tide Lifts All Ships

Musk observes (and is unlikely to see much debate) that Tesla’s biggest competitors are not electric carmakers, but the established auto industry, which is largely happy with its diesel and gas products. While Musk gets the parties right, the statement obscures the deeper challenge, which is not market competition, but the barriers to customer adoption.

Automotive marketing relies on the notion of freedom, but the truth is that the product is heavily reliant on an established network of resource providers for its support. A car is only permits movement as far long as roads and fuel stations are available.  The system of roads is certainly there for Tesla, but the fuel stations are not. As of May 2013, there were 20,138 electric vehicle charging stations in the country. For contrast: according the U.S. Census 2012 County Business Patterns database, there are over 114,000 gas stations. Until those numbers start to even out a bit more, the usefulness of an electric vehicle, no matter how hip or environmentally sound, will remain limited, making it more than a challenge to justify the $63,000 starting price tag on what is essentially an oversized paperweight in much of the country.

This presents a chicken-and-egg problem for the electric vehicle industry. Fuel centers will not really take off until there are sufficient electric vehicles on the road to create a sufficient market. Likewise, people will not buy electric vehicles in great numbers until the infrastructure permits use that is at least similar to what is available through oil and gas-driven vehicles.  In this environment, the monopoly afforded by a patent is next to worthless. For the market, Tesla’s patent portfolio represents just another barrier to entry. . . and far from the most pressing. In fact, compare the software industry, where patents are so valuable and so fiercely litigated precisely because the barriers of entry are so (comparatively) low.

The company’s new IP enforcement stance, then, is less of a windmill tilt than it is a recognition that its future rests in the emergence of a thriving market. As other commenters have pointed out, Telsa “cannot meet the challenge alone.” Tesla is removing both a legal barrier as well as a potential R&D investment barrier, as competitors will now be able to co-opt the company’s hard-won R&D learning and innovations.  The tradeoff for Tesla, of course, is that it seeds a market that will shoulder the costs of building the needed infrastructure and customer demand. Already, the Financial Times has reported that Nissan and BMW have demonstrated interest in collaboration. Should Tesla’s inchoate competitors react the way it hopes, this will be a major win. Tesla will have both externalized market development costs and secured itself the ethical high ground in a market that (at least for now) positions itself on ethical as well as economical buying behavior. If competitors don’t respond, then: no harm no foul, really, because the patent protections Tesla ostensibly gave up will prove to have relatively little value in the first place.

How Tesla Makes its Patents Available Is What Matters

Tesla has not waived any of its patent rights. They have stated that they will not enforce patents against practitioners who infringe in “good faith.” What exactly Musk means is not clear, although the words tend to have a specific meaning for the attorneys in the room (here’s one definition).

Now, I don’t know an attorney that would advise a client to rely on a non-enforcement pledge included in a blog post. So the real question is: how exactly will these patents be made available?

Musk appealed to the open source movement in his post, which is exactly the strategy I expect the company to take. What most people hopefully have come to appreciate at this point is that there is a wide gap between open source and public domain. An open source license carves out a certain set of uses that the licensor makes available generally, typically under a particular set of conditions. The well-known Creative Commons licenses, for example, typically include attribution, limitations on commercial use, or controls on derivative works. These licenses may also include assignment- or license-back on derivative works or mutual non-enforcement provisions. While there’s no indication of what Tesla has in mind, the fact of the matter is that the company has a fair number of options for continuing to control how its technology becomes available. Given that Musk has expressed concerns about the state of patent litigation in the mobile industry, I expect that preserving that control, or at least a strong defensive position, matters as much to the company as openness.

How Tesla incorporates these concerns in its agreements will play a major role in the success of its strategy. Fortune has pointed out that there appears to be interest in Tesla’s patents, but the automotive industry is reluctant to adopt technology developed externally.  The company needs to be open enough to spark others to take it up on its offer while continuing to protect its interests. Even if it strikes the right balance, there is no saying that a thriving electric vehicle industry will follow. Tesla seems to have removed one barrier to entry. I don’t imagine that Tesla’s patents were the sole obstacle to market entry. Still, as invitations to compete go, this one isn’t bad. We’ll need to see if anyone is willing to bite.

Posted in Blog, Research | Tagged | 1 Comment

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