Is Free the Right Price for Legal Documents?

Monday night I put the following question to Bill Carleton in a comment to an older piece on his blog:

Bill: I revisited this piece because I’ve been thinking about your discussion with Ken [Adams] about whether the benefit of contract standards lies in increasing quality vs. increasing transaction efficiency/lowering costs. Commoditizing contract drafting should drive down costs significantly, whether your aim is lowering costs or increasing efficiency.

But why does the cost of basic legal documents need to be zero, even for startups?

You can read Bill’s response here and my response to his response here.

Bill’s been a long-time companion in the blogosphere and he’s a proponent of change in the legal services industry, as am I. He’s also a fan of technological innovation, as am I.

Here’s what prompted me to revisit Bill’s conversation with Ken Adams. In Bill’s back-and-forth with Ken about the value of open-sourcing legal documents, Bill made this statement: “I don’t see a strong case for reforming contract drafting style.” That surprised me because I’d seen quality and efficiency as the twin benefits of standardization, and I hadn’t really thought of pursuing standardization for efficiency without being concerned about whether quality should be improved. Certainly, you can have standardization without quality (I’m sure a lot of people would argue that LegalZoom achieves this quite well), but in the context of corporate legal practice — which is all I’ve ever known — quality is always essential, whether standardized or not.

Bill’s position on standardization in the context of standard legal documents as I understand it is this: What most startups need in legal documents is largely the same from company to company. Customization (i.e., bespoke drafting) is an unnecessary expense, as well as an unnecessary complexity, which in turn leads to more unnecessary expense down the line. I believe Bill would also argue that standardization commoditizes contracts, which drives the value to zero. Thus, they should be free.

What do you think? Is standardization a worthy pursuit, and if so, for purposes of increased quality or increased efficiency? And finally, is free really the right price for legal documents?

In Category: Contract Drafting

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  • Ken Adams November 21, 2012, 10:47 am

    Brian: Startup documents should be free? Sure, just like my car should be free. And my clothes. And my daughter’s education. And so on.

    Currently people churn out startup documents of varying quality. Turning startup documents into a commodity would require expertise and some technology. If the necessary expertise were going to come from the crowd, it would have happened already. Some law firms offer document-assembly templates for free on their websites; isn’t that good enough for Bill? If not, a specialist would have to step in. I’d be happy to create a set of state-of-the-art startup documents, but I wouldn’t do it for free, and so far I haven’t found anyone willing to pay the modest amount required. But that’s something I might explore further in 2013.

    As for the notion that traditional contract language works just fine, I think that’s a view shared only by those who don’t have the time or inclination to consider the subject closely. Over the summer Bill and I exchanged comments regarding “efforts” standards (http://www.wac6.com/wac6/2012/08/do-your-commercially-reasonable-best.html), so he might have adjust somewhat his view of traditional contract language. What say you, Bill?

    Ken

    • William Carleton November 21, 2012, 11:17 am

      Ken, what I say is that is for startups looking to launch and seek angel funding, they don’t want literature, they want docs that feel standard to themselves, their employees and contractors, their investors and their lawyers.

      You got me on “commercially reasonable,” I’ll admit, but as I recall, that was due to your deeper knowledge of caselaw on the point!

      • Ken Adams November 21, 2012, 1:04 pm

        Bill: First you say “I don’t see a strong case for reforming contract drafting style.” Now you say, in your comment to this post, “Quality is not important, what’s important is to stick to the norms.”

        But many traditional contract-drafting norms are dysfunctional. You don’t see that because I suspect that you, like most other practitioners, learned to draft by recycling precedent contracts of questionable quality and relevance. So you feel free to dismiss the value of a more modern approach to contract language without even consulting my book. You accept that your notions regarding different “efforts” standards were in fact mistaken, but you don’t realize that that is just one issue regarding contract usage out of the hundreds that I address in my book. If you accepted the conventional wisdom regarding “efforts,” it’s a safe bet that you regard as unobjectionable many other usages that I’ve shown to be wanting.

        You might respond that hey, “quality is not important.” (By the way, that has to be the most depressing legal-practice mantra I’ve heard in a long while.) Fixing the problems with traditional contract language isn’t a matter of tarting up something that already does the job well enough. Instead, the idea is to (1) save companies the vast amounts of time and money that they waste thanks to bloated, confusing, and wrongheaded contract language and (2) reduce the risk of disputes of the sort that routinely arise due to confused drafting.

        That said, startup documents probably pose fewer problems of that sort than do, say, commercial and M&A contracts. But if the goal is standardized startup documents, why not to take the opportunity to make them clear and rigorous?

        Ken

  • William Carleton November 21, 2012, 11:01 am

    Brian, you’ve succinctly captured my views on this. Quality is not important, what’s important is to stick to the norms, deviating only on purpose (when there is a reason to deviate that can be identified and expressed), not incidentally or accidentally. There’s a quality control aspect to this approach, as well. If we’re all working off the same standard templates, we will know them better.

    Mark Anderson introduces the adjective “robust” to the discussion. I agree that at all times the docs need to be robust, not simple for simplicity’s sake; the docs need to be up to the job. But it’s not important that they meet a higher literary standard or even be articulated in anyone’s current idea of “plain English.”

    • Brian Rogers November 21, 2012, 1:12 pm

      Bill: I’m enjoying the dialog. I’m formulating my response to your question about whether a startup ecosystem without lawyers is a good thing or a bad thing ….

  • Andrew Mitton November 21, 2012, 3:48 pm

    My experience is that most contracts are signed then filed away never to be looked at again until there’s a dispute. If there is a dispute, the parties fight over how to interpret the contract no matter how well drafted it is. Almost all of these fights end in a settlement and a very small percentage actually go to trial and an even smaller percent end up under scrutiny of a supreme court justice. So from a practical standpoint I can see where you’re coming from. But lawyers can do better.

    The greatest value from a contract is in negotiations. It’s the best time to establish expectations. A contract is a great vehicle to do this. A well written contract easily understood by non-lawyers goes a long way towards well established expectations. This goes a long way towards preventing disputes down the road, which is the bread and butter for most attorneys.

    There’s also a huge opportunity to create contracts systems rather than documents that merely sit in a filing cabinet collecting dust or in hard drives collecting whatever documents in hard drives collect. For example, corporate bylaws establish dates for annual meetings, notice requirements, voting requirements, and the like. But a document does nothing to help the parties actually follow these provisions. They have to create the forms, the reminders, and the notices themselves or pay their lawyers big bucks to do so. A contract system would include the bylaws plus the mechanisms, such as a web application, to actually follow the contract. Such would hopefully prevent disputes.

    So the status quo just doesn’t cut it. My guess is that lawyers will learn the hard way as these systems start to push them out of the market.

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