We have written a lot about opportunities in the legal space. The emergence of the Chief Legal Officer (CLO) and their burgeoning software budgets; how AI can reinvent the cost structure of medical record analysis, how the duopoly in legal research is finally looking vulnerable.

So far, not much from us on the consumer side of legal – why not?

“Retail” legal is not just a light focus for us, it’s a light focus for legaltech, period. There are some efforts, but the products are limited and the momentum is muted. The better question to ask is why the light focus?

I’m Gonna Need to See Your License.

In the US, we are beholden to the limitations around the Unauthorized Practice of Law Doctrine (UPL). UPL isn’t federal law. Instead, it’s a patchwork of state-specific indicating who can give legal advice. Each state has different scaffolding, be it legislation or case law that sets the precedent, but the intent is the same – offering legal advice without being a member of the bar is a punishable offense. In some cases with jail time!

UPL itself is a many-splendored thing, and I’ll avoid going into the inherent-powers doctrine on which it relies or the history of its existence. The meat of the issue is that UPL stands in the way of GPT lawyers. In fact, UPL has limited access to justice well before AI legal guidance was even an option; it also prohibits the average person, no matter how much they managed to teach themselves about the law, from practicing it. You may remember it is the thing that brought down Mike Ross’s promising career in Suits. (spoiler alert!)

There are very good reasons to put parameters around who (or what) can and cannot practice law, and it’s far from our domain to argue about that. We are more interested in how technology and legislation are creating some fissures in UPL, and whether that presents opportunity for what could be an enormous category of software.

What Can Tech Do? Is That Changing?

Basically, providing legal information is allowed; offering legal advice is not. Technology can only support counsel in delivering guidance. A platform can generate forms or surface research, as long as no guidance is given and there are no efforts made to actually automatically file motions with a court or be defended by a robot lawyer (how futuristic!). To apply the publicly available statutes and case law to personal circumstances, you need to find yourself a licensed attorney.

That is pretty limiting, but there have already been a number of challenges to the policy and some bring hope of broader opportunity. The most commonly referenced challenge is Alternative Business Structures. Arizona’s elimination of the American Bar Association’s Model Rule 5.4 opened up ownership of legal firms and the sharing of legal profits with non-lawyers. Today, there are about 100 entities thusly registered, and a majority of them are either wholly or mostly owned by nonlawyers.

DC also has a looser version of 5.4 in place, and California has recently ok’d some profit sharing with non-lawyer owned non-profits. Utah offers a twist with their legal “sandbox,” though that is much less permissive. In Utah, a company can get a license from the Utah Supreme Court to operate outside UPL, closely monitored, for a period of time. There have been efforts to enable lawyers to practice across jurisdictions, which today they can largely only do on a short-term basis with local counsel around a specific case; these would also effectively spread the impact of the ABS-supporting territories.

These represent proactive efforts to peel back UPL; UPL also faces regular tussles in the courts. For example, efforts at cost-effective community law have long been happening; think training local aides to do volunteer legal support. A variety of actors often step on UPL, and across states the responses are uneven. Think realtors, insurance adjusters and even authors who offer legal advice in published work.

Research suggests harm from some of the narrower, non-profit efforts to broaden access have been limited. These were the basis for a 2020 reform effort from the California Bar, though that was shut down. At a national level, the ABA is discouraging ABS efforts, and it’s fair to say most purely commercial endeavors face an uphill battle. But when it comes to access to justice, there are signs that a more permissive environment might come.

The ABA is still encouraging innovation in tech that increases access to justice. A variety of states have already made efforts, though these are by nature much less open than an ABS. So think, for example, platforms that match underrepresented communities with reduced cost counsel, or software to support scaling legal professionals’ effort at a lower price point.

With a whimper, not a bang

So some states are leaning forward on innovation, while others are showing lukewarm appetite for compromise in largely nonprofit circumstances. Some of the future here will be decided by something much less proactive than rule changes and judicial opinions –  UPL has already been accommodating tech to a degree by the simple fact of the challenge of enforcement. For example, even if a legal tech platform is leveraging counsel, it is hard to confirm that the counsel behind the scenes is a member of the Bar in each jurisdiction the platform operates in. A variety of activity suggests that action against these solutions has also been limited, perhaps resulting over time in a blurry line.

Frankly, even before tech made it harder, “practice of law” was a hard thing to define: “it is difficult, if not impossible, to lay down a formula or definition of what constitutes the practice of law.” This has resulted in some really funny definitions: in Virginia, the practice of law [is defined] as someone providing legal advice for a third party who is “not his regular employer.” In Illinois, the threshold is if acts “require legal expertise or knowledge or more than ordinary business intelligence, they constitute the practice of law.”

So perhaps it is unsurprising to see some chinks in the UPL armor in cases from state to state. For example, a NY judge ruled in favor of Upsolve, a company that was training professionals to support folks responding to debt collection lawsuits. The court ruled the support, even though it was offered by non-lawyers, was protected under free speech; and importantly factored in that consumer harm in this case was mitigated.

This mirrors what was discussed above, that these policies might be especially permissive in cases that involve increasing access to justice without material evidence of harm. The latter bit there is meaningful; one major concern in a world without UPL is that lawyers are bound to a variety of ethical considerations in dealing with their clients, and non-lawyers (human or otherwise) are not. For example, the confidentiality that comes with attorney-client privilege is not inherent to a software platform. Neither is the lawyer’s commitment to act in your best interest: “the court expressed concern over the risk that the non-lawyer company’s profit-based goals would conflict with the professional obligation of lawyers to act in their clients’ best interests.” [Source]

As a result, it is possible that UPL may fade a bit in non-profit contexts but remain enforced in for-profit ones, though there is hope for tech reducing the cost of counsel: “At the moment, the impact appears limited to non-profit organizations…but does indicate a potential shift in jurisprudence that may result in a judicially-led push towards liberalization of UPL for low-income legal advice.” [source]

Even that is a big market

This is a big gap, and likely a big market. Here’s some context for Utah that might capture why they leaned into the sandbox: “in the family law arena in Utah, one or both parties go unrepresented in over 60 percent of the cases, in debt collection approximately 99 percent of respondents are unrepresented, and in landlord/tenant, approximately 98 percent are unrepresented.” [Source]

By some estimates, each year 30 million people in the U.S. are forced to tackle civil legal problems on their own, and in two-thirds of all civil cases, at least one party goes to court without a lawyer.

That’s a huge opportunity, and it’s even bigger than it sounds. This isn’t about cannibalizing legal work with a cheaper alternative, or trying to monetize the poorest populations who are already seeking legal aid. This is about opening up a massive, unserved market – legal issues that are ignored or tackled without help.

It’s a B2B thing, too

This isn’t just about helping individuals – $1200/hr gives sticker shock to young companies, too. Consider how much legal formation has been aided by the existence of LegalZoom. All of the emerging legal tech efforts in patent drafting, searching prior art, building claim charts etc. stand to decrease costs of protecting intellectual assets as well as empowering even the smallest firms to defend their property.

Just think – if legal advice was a few bucks a question, how many questions might you ask? How often might you opt for a legal opinion on documents or conflicts?

Should you give it a go?

Set aside the regulatory for a minute. The reason this conversation is relevant now is a new commercial viability to efforts here. One obvious vector is the ability to process the data needed to offer legal advice without material human assistance – we have written about why technology is making the research duopoly finally vulnerable to cheaper alternatives. But providing legal guidance comes down to more than better indexing of court cases.

Applying guidance requires reasoning through a variety of scenarios, isolating relevant “good law” (ie unchallenged in the courts), highlighting geographically specific action items, etc. It may also involve making the output intelligible – say, without legalese, or in another language. And should an attorney need to get involved, AI should theoretically do a faster and better job of matching up a lawyer and the profile of emerging case.

Native language queries are certainly tech that has made legal research more approachable to consumers, but tech that enables a consumer to upload an eviction notice, a prenup, an estate plan etc and get thoughtful feedback on it is game changing.

Still, it might not be time just yet. Legalzoom alone has been sued 8 times over the issue. In addition to the typical challenges of scaling a company, a founder operating on the UPL line can expect massive headwinds and require some meaningful runway just to tackle the likely litigation. That said, as cases provide more state-by-state clarity, and zones of opportunity like Arizona and Utah open up, the possibility of locking in a few profitable markets does exist.

Clearly our focus is on the for-profit entities, but we see hope in some of this movement, especially for software that operates in a limited purview. Specifically, where the case for justice expansion vs potential consumer harm is more clear. Think tenants rights, fighting debt lawsuits, etc. Rasa, offering a swift solution for criminal expunctions, is a great example of a highly specific angle that also is increasingly condoned; even beyond its perch in Utah, many states are reflecting receptivity to automating the expunction process.

Another path to near term-market requires stepping out of the US. While similar restrictions exist in Canada, they do not in the UK. In the UK, any person can offer guidance based on law; you need to be a solicitor only for specific restricted activities. Companies like Contend Legal, though based in Canada, are operating in the UK while the regulatory environment on their home continent remains murky.

Gonna do it anyway?

It’s hard to take too much comfort in decisions like Upsolve’s given they reflect a state-level decision and could play out very differently elsewhere. If a company does choose to attack this there are some high-level requirements and risks that will likely be relevant. For example, every platform in this turf needs disclaimers. Making it incredibly clear to the end customer what guidance is and isn’t on offer is essential.

It’s also not enough to ostensibly have counsel in the mix. In an American Family case, even though living trust forms were routed to an attorney, the limited contact that attorney had with the end customers gave the court concern that the guidance was superficial and not meeting a standard of personalization. So even if a platform chooses to operate as a software-assisted service with lawyers on staff, the burden is heavy and margins will be tight to accommodate those requirements.

Another big consideration here is recourse. Basically, software can’t have it both ways – if technology leans into offering personalized legal guidance, it takes on the risk that any lawyer does if that counsel is wrong. As mentioned above, a big concern in a UPL vacuum is consumer harm, and we should expect that anyone operating in the gray takes on tort liability here.

Of course, just as the environment can open up, it can also tighten. If today we’re seeing opportunity in lighter enforcement or more permissive court rulings, that could change materially if consumer harm materializes. Many of the legal tech players are young, and that might come in a few years. For example, prenups that fail to protect a spouse or estate plans that fail to avoid probate won’t be problems that are felt immediately.

So…what now?

In many other verticals, AI is enabling powerful services automation, enabling firms that historically would not have been deemed “venture” scalable to operate with high margins and remarkable consistency of revenue. But in this department the law continues to resist. Even as technology shows opportunity to massively open up legal services across consumer and enterprise use cases, regulatory hurdles create meaningful constraints to finding a near-term large-scale outcome here. Still, we can’t help but be optimistic that there is room, with time, for an enormous shift to happen.

Talk to us about what you’re building in legaltech, we’d love to hear from you.