The Legal Innovation Defense (LID) Fund

§ October 16th, 2014 § Filed under Projects § 5 Comments

For some time, I’ve been talking to people about how to resolve a systemic issue in the legal technology industry, what you might call “The Uncertainty Loop.” It identifies at least one factor that inhibits the rise of innovative startups in the space, and contributes to the general state of inertia in modernizing legal practice.

“The Uncertainty Loop” is a simple idea – it works like this:

1. legal uncertainty in the doctrine around unauthorized practice of law (UPL) exists, mostly as a result of unclear regulations and sometimes even less clear judicial decisions,
2. this uncertainty creates risks for would-be entrepreneurs in the space, and also hinders the ability for those entrepreneurs to acquire capital to pursue innovative ideas,
3. this creates a relatively weak field of underdeveloped tools, which hinders adoption within the legal industry,
4. lack of adoption prevents momentum from gathering within the profession to clarify UPL rules and permit increased innovation activity, which starts the Uncertainty Loop again

The Uncertainty Loop is real: I’ve seen it hamper businesses built around amazing technology, block talent from entering the space, and suffocate in the crib numerous great ideas emerging in the community. While it doesn’t fully explain all of the systemic problems in cultivating a vibrant ecosystem of innovation in the legal industry, it is certainly an important part of it.

I was intrigued by a point made by LegalZoom co-founder Eddie Hartman at FutureLaw 2014 earlier this year. On a panel that largely centered around UPL issues, he noted that the landscape of legal technology is much better than what it was even a decade or so ago because successful legal technology companies have slowly gained the financial capital to challenge and fight UPL actions nationwide. The willingness to go into the ring on these cases has created a better balance of power between the bar associations and companies, and helped to force crystallization around the boundaries of UPL.

Everyone in legal technology interested in real change – companies, public interest activists, and lawyers themselves – have a collective interest in ensuring that UPL is not a barrier to continued innovation. UPL doctrines are intensely vague, and professional interest in keeping them that way drives the Uncertainty Loop. The issue is: how do we create effective shields that provide the critical balance of power with bar associations to all people working in legal technology, regardless of size or access to financial resources?

Today, I want to propose an idea I’ve been working on for awhile, and finally ready to push forwards. I call it The Legal Innovation Defense (LID) Fund. The idea is simple: the LID Fund will create a collective insurance program that provides a defense system against the low probability, high impact possibility that a new technology in the legal space will be later discovered to have engaged in UPL.

§ Read the rest of this entry…

Project Report: Legal Securities Schematic

§ November 21st, 2010 § Filed under Legal Securities, Projects § 1 Comment

One of the projects that we’ve been working on here at Robot Robot and Hwang headquarters is an open source project to develop the legal infrastructure to allow for large scale securitizing of lawsuits. We’ve been working on some of the basic pseudocode necessary for this to happen that’ll be releasing up on Github in a little bit, but wanted to drop out a post outlining the project and what we’ve been thinking about recently.

The basic concept is that there’s convertible risk in the current setup that’d allow for a potential restructuring of the legal market. Individual people have legal claims that they might want to pursue, but pursuing them tends to be an extremely costly and potentially risky proposition. There’s situations where they’d prefer to take an upfront, certain payout in exchange for the rights to a risky payment from pursuing the case.

Firms that have the capital are able to pool the risk by taking on a large number of claims, and reaping the benefit from the payments that come back. At the same time, these pooled bodies of lawsuits are also potentially attractive investments as assets for a whole range of financial firms, who would be willing to buy the rights and take a chunk of the payment as they are processed by firms and the court system. Firms would be willing to sell these pools as bundled assets if there was a framework, since it’d allow them to receive money upfront and fund the pursuit of these claims in the first place. As we’ve noted before, this happens already — though generally on a more one-off scale that doesn’t permit for a larger market to form.

The legal securities project is an effort to set up the legal code that’d put this into place and allow for this to happen. Specifically, there’s two big chunks of contract language that’s needed for something like this to happen:

1) A compiler: Which would allow for a standardized, boilerplate structure for people with claims to exchange the rights to the payout from those claims for a certain upfront payment. These claims would be sold to a bundler, who would act as a wholesale buyer of claims. In the simplest form of the idea, the bundler is a large law firm, who would also take on the role of processing these claims. In future iterations, we might add an initial decoupling step where the bundler sells the claims out to bidding law firms before assembling the complete security.

2) A “securitizer”: Which would allow for a bundler or law firm to stack and merge these purchased claims into a single contract which could then be sold out in the open market. Essentially the contract would allow a purchaser to receive regular payouts as the lawsuits are processed by the bundler.

We’re currently cranking on getting an alpha version of the compiler together and documented so people can take a look at the source and contribute/make suggestions. Stay tuned.