industry trends

Why COVID-19 Could Lead to Mark Zuckerberg Owning a Law Firm, Explained

Kyle Blog-01

There’s long been an elephant in the room when it comes to any sort of innovation or disruption of the legal space: the billable hour and partner model used by most US-based law firms naturally works against it. Could one of those items be on the outs in the United States within the next decade?

Possible Ripple Effects of COVID-19 In the Legal Industry

It’s already clear the effects of COVID-19 are going to cause a ripple effect that force further innovation across the legal industry. The crisis has further shed light on access-to-justice issues. At the very same time, lost profits from the economic pause while we battle the outbreak will cause organizations to take a closer look at legal spend. My friend, Bill Mooz, has written extensively on this in his latest post on Legal Evolution, and it’s a recommended read. (Note that I did not reference him to plug the emergence of more click-accept agreements he mentions are a possible byproduct of this pandemic’s economic consequences in legal; that’s another topic for another time.)

But the pandemic’s already hastened one piece of regulatory reform when it comes to our American legal system. For the first time ever in the United States, Utah is heading toward testing out allowing non-lawyers to own a partial stake of law firms.

Okay, so, what’s happening?

Last week, Utah’s Supreme Court released a new set of proposals that would, among other items, permit non-lawyers to own law firms. That’s a massive change to the legal industry, and a not-small disruption to the existing partner-based ownership model within firms here in the United States.

“We are envisioning a combination of lawyer and tech people working together to use the platforms of the 21st century in providing legal services,” said Utah Supreme Court Justice Deno Himonas, who leads the Utah Implementation Task Force on Regulatory Reform that created and recommended the changes.

The proposals aren’t final and are currently in a comment period through the summer ending July 23, so it’s quite possible they could look much different by the time they’re enacted. Still, it’s a pretty big development when it comes to legal innovation stateside. The ABA Journal has more on the development, which would include an official Office of Legal Innovation in Utah.

Will This Change the Legal Industry As We Know It?

Well, not tomorrow. But it’s a noteworthy step. Utah’s reforms to allow non-lawyers into firm ownership would be the most radical change enacted by any US state, but it’s already happening in other countries like the United Kingdom and Australia.

A single state allowing a few non-lawyers to buy into a partner model won’t overhaul the system, but it will definitely become interesting to watch where things go from here. Is this the beginning of the end of the partner model? Could a publicly traded legal services organization — staffed by lawyers but owned by others — traded on the NYSE?

How might have this affected the now-defunct hybrid software & legal services startup Atrium, which set out to change the paradigm on how legal services were delivered to companies?

Ten years from now, if other states begin to follow Utah’s pilot, we could work in a much different legal industry than we have today.

If you’re struggling to dream it up, let’s work with this hypothetical: assume a private equity had an interest in acquiring a small law firm to provide services, and it also scooped up the remains of Atrium. With added capitalization to protect against high start-up costs, some of the issues of unit economics that Atrium faced will then fall away. This new company is able to recruit legal talent devoted to only serving the Atrium client base via the technical platform. The private equity firm is okay with short-term losses in exchange for long-term gains, subsidizing cheap initial hourly rates while still paying its attorneys a healthy salary. It’s the Uber customer acquisition model applied to this adapted new-style law firm.

That’s the core of Utah’s bet here: that non-lawyer investment can help further drive competition and innovation in an industry that has sometimes been slow to change at best, and resistant to it altogether in others. In a vacuum, this would provide organizations better rates and better services from firms than they get today — while ordinary individuals off the street would have access to better, cheaper legal services than are available to them today through existing models.

Could the Mark Zuckerbergs of the World Own a Law Firm?

Will that be the case? Could these developments ultimately lead to Mark Zuckerberg owning a law firm? It’s hard to say. The injection of private capital into an American legal system with all sorts of systemic inequities that already exist is worth your skepticism and will need to be monitored closely.

Utah should at least get credit for working with the discussed “sandbox” concept to start installing an Office of Legal Innovation to monitor it all — they’re hardly opening up the industry to just any outside investor. But there’s still no doubt this could provide the sort of shakeup to the entrenched American legal structures that could lead to better value and lower cost services for clients. That’s important both in the corporate legal realm when it comes to billing issues, but for broader access-to-justice issues in underserved communities as well.

For now, it’s just a proposal. But it’s one early trend to watch when it comes to how the legal industry will respond and reshape after this pandemic over the long-term.

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