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Dennis Kennedy

Technology Law and Legal Technology. Dennis Kennedy is one of the few technology lawyers who is also an expert on the underlying technologies. Dennis an award-winning leader in the application of technology and the Internet to the practice of law. DennisKennedy.com gives you access to a wide variety of Dennis Kennedy's resources on legal technology, his writings, his well-known blog, DennisKennedy.Blog, and information about how you can have Dennis speak to your organization or group.

Dennis Kennedy is one of the most knowledgeable legal technologists you will find. - Michael Arkfeld.

Dennis Kennedy, a lawyer and legal technology expert in St. Louis, Mo., has been a significant influence in the ever-evolving relationship between lawyers and the Web. - Robert Ambrogi

Archive for December, 2005

An Important Tip about Word Track Changes and the Metadata Problem

Wednesday, December 14th, 2005

I learned something new and a very important distinction to keep in mind about Microsoft Word metadata from Tom Mighell today.
Tom and I were discussing whether clicking on “Accept all Changes” and saving a document would protect you from having someone to whom you sent the document be able to turn the “Track Changes” back on or otherwise see revisions and comments you had made but thought you had hidden.
Tom contended that the “Accept all changes” approach would work. Based on my fuzzy memory of what I had been able to do in previous versions of Word and this article, I had my reservations – but I like to be cautious on these issues, but I trust Tom’s opinions.
We tried a few experiments, checked with a forensics expert and did a little research. I’m now willing to admit that Tom was right, with a few words of warning and some advice that you satisfy yourself about the answer.
Here are the lessons I learned:
1. I was equating turning off Track Changes with Accepting All Changes. They are very different and the approach of turning off Track Changes is the one that is dangerous and can lead you into embarrassing situations. My approach was overly conservative, which is not necessarily a bad thing in this area. The one thing that you must realize is that simply turning off “Track Changes” will not protect your document.
2. If you want to rely on the “Accept all Changes” approach, you really have to make sure that you know what you are doing and check all of the right boxes. Any “user error” can make your revisions and comments viewable to someone who knows what they are doing. Proceed very carefully. The devil truly is in the details.
3. Before you rely on this approach, you absolutely need to make sure that this approach works with the versions of Word and the default settings you are using.
4. Microsoft has some great information on its website about the Track Changes issues, including a very helpful demo that should be required viewing for everyone who uses Track Changes.
5. As the computer forensics experts like to say, there may well be other ways for experts to find the revisions.
So, I some new things today, courtesy of Tom, about an issue that more and more lawyers are worrying about. I highly recommend, however, that you watch the demo.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
This post brought to you by Dennis Kennedy’s half-day electronic discovery seminar – “Preparing for the New World of Electronic Discovery: Easing Your Transition from Paper to Electronic Discovery.” Contact Dennis today for more information and to schedule a seminar for your firm or legal department.

The Fully Connected Law Firm – Article

Tuesday, December 13th, 2005

[NOTE: This is another in the series of repostings of my previously-published articles. This article was written in early 2000 and comes from a presentation I gave based on the draft of a book I was then writing with the working title of "The Fully Connected Law Firm." Unfortunately, my publisher closed up its publishing business before the book was finished. I've lately been toying with the idea of going back to the book draft, so I'm interested in your comments on this article. I think many of these ideas are even more relevant (and possible) now than they were in 1998 - 2000 when I was first working on this material. This article is another favorite of mine – it reads like a bit of a Law 2.0 manifesto and it touches on many of the themes I've found most interesting and important over the years. If you read only one of the many articles I've posted, I suggest that this be the one.]
The Fully Connected Law Firm
Sometimes the best way to think about the future is to take a look at the past. So, rather than look 10 years into the future, I’d like to take us back in time about 550 years.
The year is 1454. The place is Germany. You’re in a small medieval village. You look up and see an ox cart on the road leading into your town. The cart has large wooden wheels. A lone driver is hauling a large piece of equipment covered with animal hides. As you wonder whether the stranger brings foreign conquest, a new pestilence, plague or promise, the man jumps off the cart and introduces himself as Johannes Gutenberg.
In his arms, he carries a box of books. He tells you that under the animal hides is his new invention — the movable type printing press. He regales you with stories of its potential. At the end of his conversation, he presents with three choices: Do you want to buy one of his books? Do you want to buy one of the printing presses? Or, do you want to invest in the pre-IPO stock of his new venture, which he calls Gutenberg.com?
We have the advantage of more than 500 years of hindsight in considering how we might answer this hypothetical Gutenberg’s questions. As a result, we know some of the legacies of the invention of the printing press: (1) universal literacy as books became widely available and used in education, (2) portability of information as people were no longer bound by geographic barriers, (3) new forms of communication such as the newspaper and magazines, (4) transformed political and religious structures, including the Protestant reformation and experiment in political democracy known as the United States of America, (5) the development of capitalism (some believe that the owners of printing presses were the first capitalists), and (6) the development of new forms of community, which I will later referred to as communities of interest, no longer based solely on geographic considerations.
But the most important legacy of the printing press was that ideas became as free as the air and, in a real sense, the genie was out of the bottle. And, as Major Anthony Nelson can tell us, once Genie is out of the bottle, it is very difficult to get her back inside.
I will cover (1) three key trends that underlie the development of the Internet and the Internet’s likely impact on the legal profession, (2) three practical areas to illustrate the impact the Internet is having and is likely to have on the practice of law, (3) where we are going and some ideas about how you should prepare to get where you’re going, and (4) six key points to think about over the next few days and weeks.
As we consider the legacy of Gutenberg and apply what we learn from the printing press to the Internet, you will see why I believe that the Internet is an event of historical dimension.
The Internet, however, has made its dramatic impact within a few short years, not several centuries. For my purposes, Internet history begins in 1995. Although we have recently celebrated the 30th birthday of the technical underpinnings of the Internet, to me, 1995 is the important birthday because it is the year that the Internet forced us to take notice of itself. It is also the year that Bill Gates publicly decided he was wrong about the Internet and turned the great ship of Microsoft toward becoming an Internet company. In January, 1995, somewhere between 8 and 15 law firms had any kind of Internet presence. According to recent surveys, over 90 percent of the largest 200 law firms have web sites and thousands of small firms and solos have web sites.
The demographics of the Internet audience are especially attractive to lawyers. Contrary to popular belief, the average Internet user tends to be older than the teenagers many people picture; less surprising, the average Internet user is more affluent and more educated than the average person. This demographic group is especially attractive for lawyers.
No technology, not the printing press, the telephone, the automobile, or the television, has achieved the level of market penetration in as short a time as the Internet has. The speed of acceptance of the Internet is startling and has yet to slow appreciably.
Along with the rapid rates of acceptance and change, the range of change the Internet has created is sweeping. In a matter of a year, an industry leader can be fighting for its very life. Take the example of Encyclopedia Britannica. New industry segments have grown up in months rather than decades. Billions of dollars of wealth have been created in a matter of year or two.
Let me emphasize that the change that the Internet has brought, and we all have begun to take for granted, has happened in the last five, not 500, years.
Three Key Trends.
There are three key trends to keep in mind about the Internet and its impact. By understanding these three trends you can analyze the impact that the Internet is likely to have on the practice of law and how you can prepare for and take advantage of what is to come. I sometimes think of these trends as the “three big words.”
These three key trends are disintermediation, collaboration and innovation.
But First, A Diversion: The Law of Unintended Consequences.
But before I talk about the three trends in detail, let’s briefly talk about the law of unintended consequences. The law of unintended consequences simply states that predicting the consequences of technology is extremely difficult, that technology and its consequences are in fact unpredictable, and that often the consequences we expect by not the consequences we get.
One example is the development of mass production techniques for automobiles by Henry Ford in the early 1900s. While it might have been easy to predict the likely effect of automobiles on blacksmiths and horse-drawn carriages, it was more difficult to predict the restructuring of the national economy, the development of roads, the impact of the automobile on railroads, and a variety of consequences that flowed from a widespread use of automobiles. Other effects which may not been intended or predictable include the demise of the family farm and an initial movement from the country to the city and the current movement to suburbs that is currently carving out the downtowns of many urban centers in this country.
At the root of the Internet phenomenon is the unintended consequence and the irony that was originally known as a computing tool has become a communication tool. Computers are fundamentally number crunching machines. The operation of ones and zeros perform a variety of high-speed mathematical calculations. In fact, in the early era of the computer, some experts thought we would not need more than a few computers in the world. Few foresaw the possibility that these number crunching computing tools would be used in their homes and offices. In a sense, most people do not visibly use the number crunching aspects of their computers. They focus instead on the ability to use a computer to communicate with people and, more important, to connect with people
As a result, people have been surprised to find that e-mail has turned into the “killer application” of computing. By killer application, I mean the one application that drives the purchase of computers for most people. People don’t really buy computers to do word processing or balance checkbooks. They want to communicate with friends and family and be connected by the Internet to others through e-mail. In the early era of the Internet, e-mail didn’t even exist. It came into play when someone got tired of constantly telephoning to connected computers to check if a file had arrived and invented a system to send a simple text message to which the receiving party could reply.
The unintended consequences of technology can be summed up in the notion of “high tech, high touch,” a phrase coined by John Naisbitt in his 1982 book, Megatrends. Naisbitt’s notion is that the higher the level of technology, the more important the personal element, that is, the “touch,” becomes. As he suggests, face-to-face contact becomes extremely important in a highly technical society. I like yet another sense of the term and suggest that the highest forms of technology in fact promote the highest forms of touch. The better the technology, the more it promotes the personal element. Simple tools like e-mail and browsers have allowed us to create communities where people could connect to each other and are excellent examples of creating high tech, high touch.
Disintermediation.
Disintermediation is a big but important word. It simply means eliminating the middleman. I’ve seen a cartoon that shows the classic scenario of a group of dark suited middle-aged white men surrounding a conference table. One of them says “on the one hand, eliminating the middleman will result in reduced costs, higher sales and greater customer satisfaction; on the other hand, we are the middleman.” We are the middlemen. Think about this notion and consider lawyers who perform essentially middlemen functions.
Bill Gates and others have talked about the “frictionless” economy. This is an economy that, using the Internet as a vehicle, tends to eliminate the drag and friction on transactions. In a frictionless economy, it becomes easy for buyers and sellers to transact business. Friction is reduced primarily by eliminating the middlemen who do not add value to transactions. Some examples might include car dealers and stockbrokers.
E-Bay has an online auction company where buyers and sellers exchange goods through an auction bid system. The friction involved with brokers, sellers or other techniques to bring buyers and sellers together can be reduced or eliminated by using the Internet. A true free market is established and value is set by using an auction bid system. E-Bay has implications not just for the obvious reasons, but also as we see auctions used to purchase and sell heavy equipment, commodities and other items not traditionally sold by auction methods.
Sales of cars also have been affected by the Internet. I leased my last car using a web site, Autobytel.com. Autobytel helped me make my deal by allowing me to specify the car that I wanted and the options that I wanted. It then matched me up with a local dealer who could give me the best price. As a result, I did not have to trudge from dealer to dealer and the buying process was relatively painless. Because for so many people the car buying experience is so unpleasant, the notion of frictionless economy has profound implications for the whole car dealer system. It can be argued, and many people do, that the car manufactures would be better off, as would consumers, if consumers could order from the factory exactly the car they wanted and then have it delivered to them within a week or so. That process has profound implications for the whole car dealer network, but car manufacturers are starting to move gingerly to explore this approach.
Stockbrokers have also seemed the competition of the Internet and the frictionless economy. Merrill Lynch recently sent up the white flag of surrender and reduced its brokerage commissions substantially in response to competition from online brokerage firms. The question became why should someone spend two hundred dollars in commissions for the execution of a trade that they can do with an online broker for fewer than ten dollars in less than 60 seconds?
What about lawyers? Lawyers are classic middlemen and, unfortunately, like car dealers and others, they are not held in high regard as middlemen. In fact, many businessmen try to figure out ways to minimize the role of lawyers. Most lawyers are often seen as the friction in transactions. The fact that the Internet tends to route around middlemen and reduce intermediation, and the public is wary of lawyers, an especially deadly combination in the Internet era. Lawyers may be especially vulnerable to the disintermediation process.
The key word to think about is reintermediation. Reintermediation simply means reintroducing a middleman because that middleman provides value to the transaction.
For example, Autobytel can do more than simply find me a local dealer. If it only did that, I might search the web sites of local dealers for low prices myself. In addition, though, Autobytel provides great consumer information, financing calculators and the ability to pair me up with the someone who can give me quotes on insurance policies and many other services necessary for the purchasing of a new car. As a result, you want to involve Autobytel as a middleman because they add value, not friction, to the process.
Lawyers must focus specifically on what value they add to the processes in which they are involved as middleman and concentrate on those areas.
Collaboration.
To me, collaboration means creation of communities of interest. The communities of interests refer to communities not based on the geographic constraints but those based on common interest. These interests can be business interests, hobby interests, academic interests or other interest. They can be temporary or long lasting, for one project for or for ongoing series of projects. In classic sense, a law firm is a community of interest.
An important question to ask a lawyer in a law firm in the Internet era is whether the expert he or she wants is really the person down the hall from him or her. If you can create communities of interest for a project using the Internet, is the real estate expert you need really your real estate partner in your firm or might somebody you met on an e-mail discussion group be better suited to your client and this project?
We will see the rise of the Hollywood production business model in the legal profession. In Hollywood, if we were making a movie, we would get a producer, a director, a crew of skilled people, and the actors we needed to create the movie. These people might be gathered from widely scattered parts of the country. Some may have worked together before. Some may have not. They would assemble for the project for several months, and then they would pack their bags and go their separate ways. Some of them might work on the next project together. Others might not work on projects ever again. The idea is to assemble the best team and the best talent for each project.
As a client, if you were able to assemble a dream team of lawyers and other professional service providers, why would you want to be limited to only particular lawyers solely because they are members of the same firm if they were not the best people for the project? This approach has profound implications for law firms.
In collaboration, all depends on the quality of the conversation. Collaborative efforts should be directed to improving the quality of the conversation of the team that you have involved on your projects. Collaboration can occur through intranets (internal Web sites), extranets (secure, private, limited Web sites) or a variety of other means and processes.
Collaboration in the legal profession will lead to the development of the virtual law firm. Must a law firm have continuing existence or can it form freely on a project basis? Does a law firm have a mortars-and-bricks location? What are the implications for law firms when lawyers from different firms begin to work freely together on projects or are expected to do so by clients?
Innovation.
The third key trend is innovation. Innovation simply means making good responses in a time of changing rules. In the short history of the Internet, we have seen how the Internet changes many of the basic assumptions and rules of many industries and organizations, including government and education. The people who have been successful in the short Internet era are the people who try new things, innovate and make changes.
The best approach is something called “fast prototyping.” The people who do well are often the first to market, those who have an idea and implement it quickly. You want to create your business model and try it. See if it works, then adjust, evolve or terminate it depending on the response you get.
There is a danger in a time of innovation of focusing on fighting the last war. History is replete with examples of victorious generals who continue to prepare to fight the last war only to find themselves in a difficult situation at the beginning of the next war when all the rules have changed. In the legal profession, the recent discussion of multidisciplinary practice seems to be an example of gearing up to fight the last war. The Internet has placed emphasis on global efforts, on routing around information gatekeepers, and breaking down barriers to monopolies. The response of lawyers has been to focus on state regulation to reinforce the rules of the legal economic monopoly and to implement barriers to competitors of the legal profession. All these seem to be seen symptoms of fighting last war.
Nicholas Negroponte of MIT has said “incrementalism is the enemy of innovation.” Tom Peter, whose book, “The Circle of Innovation” was influential in the preparation of this section of this article, notes that Negroponte says incrementalism is the enemy, not just an impediment. In simplest terms, this means that half steps and partial steps are no better than no steps. The innovative law firm wants to take bold new steps and follow through on them.
In area of innovation, we can learn from the examples of Amazon.com, the classic example of Internet business. Because of the short five-year history of Internet business, it is important to be careful not to draw too many concrete lessons from any example. In the case of Amazon.com, this is especially important since the company has yet to turn a profit on its primary business. Nevertheless, we have seen a few things that are worth noting in the legal context. First, it is extremely important to be the first to market because being the first to market can create an enormous competitive advantage on the Internet. Second, successful Internet companies are willing to challenge traditional assumptions and turn traditional business categories upside-down. Third, Amazon.com has been successful by continuing to try new things and to bring those new ideas to its business on a consistent and rapid basis. Fourth, Amazon.com has constantly focused on improving the customer experience.
The Practical Areas.
We now turn to three practical aspects of the legal profession to show some of the effects that the Internet has had on those areas and the impact that is likely to happen in the future. The three areas are research, communication, and marketing.
Research.
It has become essential for lawyers to be conversant with Internet research methods. It used to be that you needed to know the books and, if you were fortunate to be in a firm that could afford Lexis or Westlaw, those research services as well. Lexis and Westlaw were thought to have impregnable monopolies because they had huge databases of cases going back over hundred years. Primary source material, however, including cases from courts, statutes from legislatures, and regulations from governmental agencies, have all become available on the Internet. For free. Lawyers found that for some other cases they simply don’t need cases from the 1800s and the current cases suffice. A company like Versuslaw can create a niche market for lawyers who don’t need cases going back so far at a price like $6.95 a month rather than several thousand dollars a month.
As a result, Lexis and Westlaw have been scrambling to find Internet models and are starting to see that the value that they have comes not from the databases themselves, but from their method of searching, the key number system, attorneys’ familiarity with those methods, and the brands they have established.
The Internet has begun to alter the basic materials of research. It has become essential that lawyers be familiar with Internet tools such as Findlaw, CataLaw, LLRX and other Internet resources.
The biggest development to come in research will focus on the collaborative elements of research through the use of intranets and knowledge management techniques. Often in many large law firms, research is duplicated and the wheel gets reinvented many times. Intranets and other knowledge management techniques allow law firms to take advantage of research already done in the firm and use it as a basis for further research and to keep existing research constantly updated.
The roles of law librarians are also changing. As law firms realize that they have skilled professional librarians who can do research, we have started to see changes in the way those librarians are used in law firms. Some law firms have even started to contract out the research their librarians perform to clients and others. Some see the possibility that a library can begin to pay for itself or even to make money for the firm. As a client, the question may become whether you want to spend $30 an hour for professional librarians to find you a specific answer quickly or whether you want to unleash a team of four or five new associates to perform the same research at $150 an hour, producing a 45 page memo that really doesn’t seem to answer your specific question, and giving you a bill for $35,000? Increasingly, we will see the model for research in the law firm changing and the likely development of research attorneys and/or research librarians.
Legal publishing will likely change as well. Legal publications run the range of a continuum between timeliness of the information and quality of analysis. On the one end is the simple publication of a statue by a legislature at the time of the statute’s passage. It has excellent timeliness but because it is unanalyzed primary source material, it scores low on the quality of analysis scale. On the other end of the continuum is the classic law review article that has excellent quality of analysis but may be released the year or two after cases decided, giving it very poor timeliness.
The attractive part of the publications market will be the legal newspapers and publications that provide contemporaneous analysis. For example, if National Law Journal or Lawyers Weekly USA can provide within a few days a highly sophisticated analysis of the recently decided case, it has both excellent timeliness and excellent quality of analysis. A law professor who participates in your e-mail discussion group who writes a thoughtful response to a decision on the same date the decision is handed down also can provide timely, high-quality analysis. It is this niche of high timeliness and high quality that lawyers will increasingly look to and companies that fill that niche will do well. Publications with long lead times, such as law reviews, will be a competitive disadvantage.
An interesting new area in research is something called collaborative filtering. If you’ve been to Amazon.com and bought books, you will notice the next time you return some suggested books. Collaborating filtering is a technique allows someone like Amazon to use their customer databases to predict customer actions, such as what other books are bought people who bought the same books that you did. So, if you buy several books by the same author, the databases can predict, based on the behavior of others who bought books by the same author, what other books you might like. Legal research companies are looking at the same techniques. The model might look something like this: You enter a search of three or four keywords into Lexis and get your results. At the end of your research session, a box pops up and says people who also ran searches on those four keywords went on to do one or more of the ten following searches. Those searches may be irrelevant to you or they may be highly important to you. They may give you ideas that you wouldn’t otherwise have had and allow you to follow the paths of prior researchers as part of an anonymous community of interest.
Finally, as clients become even more skilled in the areas of Internet research, we are entering the era of the highly informed client. Lawyers, doctors and other professionals report that they are finding clients who are increasingly knowledgeable about the issues involved when they come to the professional. This is so because the clients have done their homework on the Internet. Not only do the clients who are highly informed come to doctors with diagnosis and suggested treatment and to lawyers with specific questions and solutions, but they want to and expect their professionals to be conversant with the same information. When I still had an estate planning practice several years ago, I was already seeing clients who used the Internet to find out a significant amount of information before coming to a lawyer.
Communication.
Tom Peters has said “distance is dead!” If you are stuck in traffic with a bridge between you and your home, distance certainly doesn’t seem dead. Peters, however, makes an important point. It is just as easy and fast to send email to someone in Hong Kong as it is to send it to someone down the hall. Similarly, a local phone call is no different than international one, at least conceptually.
When we think about communications, we need to take a look at Metcalfe’s Law. Metcalfe’s Law essentially says that the value of a network increases exponentially with the number of nodes on the network. The classic example is the fax machine. When there is only one fax machine with no one to send to, your fax machine has no real value. It becomes more valuable when someone else has a fax machine. The fax machine becomes highly valuable when millions of people have fax machines and you are connected to the world.
In the practice of law, email, intranets and extranets will become increasingly important means of communication. According to some reports, in 1998 more business messages were transmitted by email than were transmitted by telephone calls. E-mail has taken root in the legal profession and is likely to become even more important. The use of e-mail raises important issues about confidentiality, encryption and a record retention. Intranets for internal communication and knowledge, management will also become increasingly important.
Probably the key area development in communication for lawyers will be extranets. Extranets are private secure Web sites were people can share information, communicate, and collaborate. One example would be a mass tort litigation involving fifty law firms scattered around the country who use a secure, password-required web site to share research information, depositions, strategy discussions, and evidentiary material.
The key to communication is to focus on improving the quality of the conversation. Do the communication methods you are considering implementing improve the quality of your conversation with clients and others? Communication should also be focused on harnessing the power in the intelligence of the network. For many years, scientists have focused on creating artificial intelligence by brute force methods of throwing computing power at the problem and trying to create simple rules to mimic human intelligence. Now we’re starting to see that the true artificial intelligence comes from the network. If you ask a question you are likely to find an answer and see the network itself has intelligence. Communication efforts should be directed to harness the intelligence of your internal and external networks.
Communications efforts among lawyers will be largely client driven. It is clients who have seen the advantages of intranets, extranets, Lotus Notes and other groupware and want their law firms to participate in the benefits they have seen. Those companies want their law firms to be involved in the same processes. As a result, you’re likely to get push from clients for these new forms of communications. The savvy law firms will work with clients to implement these advances in communications.
Marketing.
Law firms need web sites. I’ve spoken to many lawyers about the value of web sites. Sometimes people were willing to listen. Sometimes they never saw the point. As I spent time on the Internet looking at lawyers’ web sites and observing what lawyers are doing, I began to realize that every firm already has an Internet presence, whether they know it or not. On the Internet, right now as you read this article, you and your law firm have an Internet presence that is available 24 hours a day, seven days a week. The presence may be a black hole. The presence may be a web site that embarrasses you. The Internet presence may include information that is inaccurate or incomplete. But that Internet presence is there.
You should be concerned about not just creating an Internet presence but managing the presence that you already have. Marketing on the Internet becomes largely a question of marketing and managing the image that you already have and starting to make improvements and bringing in your online image in line with what you want.
Marketing on the Internet should not be seen as something that takes the place of existing marketing techniques. Marketing on the Internet is just one component of your total marketing picture. Marketing on the Internet does not replace the face-to-face closing of sales. But marketing on the Internet can be funded through other marketing expenses, and directed toward making an effective and efficient uses of your marketing budget. Many law firms have boxes and boxes of brochures gathering dust in their closets. A web site allows you to revise and update those brochures and give them new life on the web, available to potential clients 24 hours a day.
The key to Internet marketing is creating a brand name for your law firm. Traditionally, lawyers have not developed brand names for their firms. You can be aware of hundreds of law firms and never really know what anyone stands for. Some of the firms that use television or other advertising media have begun to create some brand names, but these are largely local. It is rare that you find even a national law firm that is created a specific brand name. Most firms simply consider themselves full-service firms. Developing a brand and using on the Internet gives you access to those attractive Internet demographics which are ideally suited for law firms.
Law firms have used email newsletters, collaborative ventures and web sites to market their practices on the Internet. Unfortunately, some effective advertising techniques being used on the Internet by others cannot be used by lawyers because of existing ethical rules and state regulation. Ethical limitations on testimonials, specific words and phrases, and prior review that made sense in the context of television commercials are now in the process of being adapted to the Internet. The Internet is a moving target and current regulations make it difficult for lawyers to use existing technology. As an example, if there is a state requirement that they law firm keep a record of every advertisement for two years and a web site is deemed to be in advertisement, a web site built that is dynamically generated from a database (a common and useful technique) could not be used by law firm. Limiting the technology a firm can use would give law firms a competitive disadvantage against the Big 5 accounting firms and other consulting professionals.
We are of likely to see substantial changes in the ethical rules relating to marketing of law firms as law firms find themselves increasingly disadvantaged.
Internet Signals.
Here are some interesting developments that suggest that the Internet is arriving and its potential impact on the legal profession.
1. The Growth of Nontraditional Competition for Law Firms. From the big five accounting firms at the high end of the legal practice to legal publishers like Nolo Press and other providers of do-it-yourself legal kits, lawyers are experiencing the influx of nontraditional competition at both the high end and the low end. A few weeks ago I received in e-mail from Nolo with an offer that if I bought some do-it-yourself legal kits or purchased some books, I would receive a do-it-yourself will form free. For many people, the do-it-yourself legal kits are highly attractive. They see the efforts of the legal profession to shut down legal publishers providing these kits as another example of lawyers protecting their high-priced monopoly. On a regular basis, however, we’re seeing influx of nontraditional competition provided by the Internet.
2. Products Turning into Services. One of the trends we see on the Internet in the service industry is turning of services into products. These products might include books, pamphlets, videotapes, audiotapes and software programs. I received an e-mail from an attorney in Florida who realized that in an estate planning practice you tend to give the same explanations to clients over and over. Examples might include whether to use a will or a revocable trust, basics of the estate tax and other matters. This attorney prepared videotapes of her presentations on those topics and wanted to put the videotapes on her web site and direct clients to view the videos before coming and for an initial consultation. Not only would this streamline the estate planning process, but also it offers the opportunity to turn these videos into sellable products. We are seeing some of the larger firms turning presentations other materials into videos and products and putting them on the Internet, creating the possibility of an alternative income stream.
3. CyberSettle. Talk about eliminating the middleman! If you take the typical insurance company and insurance defense practice, there are a large number of cases on the docket and the sheer volume of those cases makes it impossible to determine which cases are actually worthy of being tried and which can and should be settled quickly. CyberSettle takes an interesting Internet approach. It allows plaintiffs and defendants to agree to submit cases to CyberSettle and submit offers of settlement to CyberSettle. When the CyberSettle web site receives the offers, it compares them. If offers are within 30 percent of each other, the parties have agreed to split the difference and the case is settled. The parties get three attempts to settle cases in this fashion. If none of the offers work out, no offer is revealed. At the end of three attempts, if the case cannot be settled, both sides know that they have a case that can and should be tried. This can be a way to reduce dramatically a large docket of cases.
4. Cherry Picking. We are already starting to see a trend toward cherry picking as law firms look for niche practices or to take lucrative segments of practice away from competitors. For example, a firm might do e-commerce law for a large corporation and strip away highly valuable and lucrative areas of representation from a traditional firm representing that client and leave the traditional firm with only lower-level or low margin work. Another example might be where a nonlegal competitor uses its skill set to provide services that can be highly lucrative, leaving law firms with less interesting work that cannot be compensated for as highly. An example might be litigation support or litigation management.
Key Questions.
As you consider these signals that are showing us some of the trends that the Internet is bringing to the profession, what else can we expect?
Here are five key questions I think are especially significant and worth your while to think about and discuss in your firm.
1. Who or what will be the Amazon.com of law? And, why shouldn’t it be you?
2. What is the practice of law? The most disappointing part of the current multi-disciplinary practice debate was the unwillingness to define what the practice of law is. This makes it difficult for both those inside and outside the profession. Outside the profession there is pressure to define the practice of law down to the smallest level possible (rendering written legal opinions? representing clients in state sanctioned courts?). Inside the profession, there is pressure to expand the notion of practice of law to cover everything the law firm might conceivably supply to a client, including business services, consulting advice, technology consulting and more, to sweep more activities into the legal monopoly.
3. Will the law become a commodity? In the areas of bankruptcy applications, simple wills and other legal documents, there is pressure to turn these documents into commodities. If the practice of law becomes the commodity, there will be tremendous pressure to reduce price. The lawyers left in that part of the market that produces commodity items will be increasing driven to high-volume, low-margin practices.
4. Is law really different than any other information business? If it is not, the same pressures that drove Encyclopedia Britannica from being the leading encyclopedia manufacturer and a highly successful business into fighting for its very life within a period of a few years will also apply to legal profession. The answer to this question is that the practice of law is not like any other information business, but lawyers have to understand why it is not, and focus on those differences as they develop their practices. The Internet tends to route around anyone who tries to become a gatekeeper to information. There are aspects of practice of law that involve being a gatekeeper to information. To the extent that you’re involved in the simple gatekeeping of information, you should be concerned what the Internet will mean to you and your practice.
5. What do you do?
Here are ten ideas about what to do:
1. Meditate on the word “reintermediation.” In what ways can you reinsert value into the process in which you are involved?
2. Embrace the Internet. Use the Internet to develop your ideas. As you develop your Internet presence, consider how the Internet changes your business model.
3. Think about what services you can turn into products. Videos, books, pamphlets.
4. Self-cannibalization. This term is used in the technology industry. The notion is that if you are aware that there are areas in which you’ll be vulnerable to competition in the next few years, then you should consider being your first and toughest competitor in those areas. You should be willing to put yourself out of those businesses. This approach has huge implications in a law firm where you may be considering a limiting certain areas of practices and focusing on others.
5. Fast prototyping. Get the idea, get it out there, and try it.
6. Do not fight the last war. Pulling up the drawbridges, relying on state regulation, and enforcing the legal monopoly are bound to be losers in the Internet.
7. Focus on cost-cutting, both for you and for your clients. The Internet gives you some ways to save postage, long distance and other costs. Focus on ways to save the money. More important, focus on ways to make it cheaper and easier for your clients to work with you. By reducing the costs the clients have associated with using your for legal work, you make it harder for your clients to leave you to go to another firm that cannot provide the same efficiencies.
8. Turn the kids loose. The Internet is largely a young person’s game. There is now a generation of people who will have grown up with no experience other than that of having the Internet available. They simply see a different world. Recent law school graduates understand the implications of the Internet and how to live in its environment. Law firms must be increasingly willing to turn over portions of their businesses and the growth and evolution of the firms to the younger generation of lawyers.
9. Gregory Bateson has said you can’t live without an eraser”. Be willing to try things, take a hard look at them and admit your mistakes. Then take an eraser and try again.
10. Wayne Gretzky has said “you miss 100 percent of the shots you don’t take.” The Nike commercials say “just do it.” In the Internet era, if you have opportunity, you must seize it. Don’t get involved in the bureaucratic situation of constantly planning and never implementing.
Conclusions.
The conclusions are simple, but the efforts involved and the implications are profound. Treat the Internet with respect. Keep your focus always on the clients. Innovate, collaborate and reintermediate.
In my thinking, the most important and unintended consequence of the Internet era and the greatest impact of the Internet on law firms will be the growth of meaningful diversity. For a half-dozen years, I was a member of the steering committee of the minority clerkship program in St. Louis. It is a joint effort to increase minority participation in larger law firms by providing summer clerkship opportunities for minority students. A lot of smart and creative people were involved in this process. When we look at the actual results we achieved, I think we would say that were disappointed with the results. The paradox of the Internet is that to be successful in this increasingly global and diverse marketplace, you must have an increasingly global and diverse law firm to respond. As an unintended consequence of technology, we are very likely to see firms making steps to diversify themselves in meaningful ways not through mandated programs or well-intentioned efforts, but because that is what it takes to survive in the Internet era. This diversification will be one unintended, but welcome and overdue, result of the Internet revolution in the practice of law.
Finally, the choice is yours. Gutenberg stands before you and makes you an offer to invest in his book, his printing press, or Gutenberg.com. What is your choice? Now, apply that lesson to the Internet.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
This post brought to you by Dennis Kennedy’s legal technology consulting services, featuring RSS and blogging consulting, technology audit, strategic planning and technology committee coaching packages especially for medium-sized law firms (15 – 100 lawyers) and corporate legal departments. More information on the “Second Pair of Eyes” packages for legal technology audits and strategic planning may be found here (PDF).

The Last(?) “By Request Day”of 2005, the Blawggie Awards and Other Housekeeping Matters

Tuesday, December 13th, 2005

I had an appointment for tomorrow cancelled and thought it might be a good day to run another “By Request Day” on this blog, possibly the last one of the year. You know the drill – leave your questions in the comments to this post or email me at denniskennedyblog @ gmail . com with your question and I’ll try to answer the questions I get, plus a few I’ve been holding.
A number of people have been asking me when I’ll announce the 2005 edition of my annual “Blawggie” awards for excellence in legal blogging. I noticed that I did those on December 26 last year, but that seems like a busy day and I think that I’ll do them before Christmas this year – tentatively on December 22nd.
As the end of the year approaches like a freight train, you can expect to see on this blog an effort to finish the job of reposting my articles, which has proven to be a popular feature. My goal is to finish by the end of the year – I was surprised by how many articles I’ve written over the years. I’m nearly finished with the legal tech articles and will be mixing in some more of my technology law articles.
The 2006 version of my annual legal technology predictions article is in draft form and that will be published this month, perhaps in a long version and a short version. Details to come. The crystal ball was quite interesting in its revelations this year.
I’m also looking for a few volunteers to participate in a roundtable article on Web 2.0 tools for the next issue of Law Practice Today. Let me know if you are interested.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/
This post brought to you by LexThink!(TM) – The Conference, Re-imagined. LexThink! – Think big thoughts, do cool things, change the world. Ask us about private LexThink retreats and conferences for your firm, business or organization.

Yet Another Reason I’m a Big Fan of Law Librarian Blogs

Monday, December 12th, 2005

Betsy McKenzie’s post “Rex Libris – Librarian Regnant!” on the Out of the Jungle blog is a celebration of law libraries and law librarians, an enjoyable read and an invitation to read further into the excellent Out of the Jungle blog (and subscribe to its RSS feed).
The post starts out like this and is a pleasure to read (and I encourage you to do so):
Here is what I think is important and timeless about libraries and librarians: we embody the culture and caring of our society, passed down over the ages. From the Great Library of Alexandria, where items on the shelves were scrolls and finding aids were lists and it was a huge technical leap to arrange things in alphabetical order — through the medieval monasteries which kept learning alive in western Europe by hand copying Bibles and commentaries and classical manuscripts — to today’s libraries where we are in danger of forgetting our heritage and meaning.
I’ve long felt that the law librarian blawgs as a group represent some of the very best work in all of legal blogging. And, as I’ve asked before, will employers please give these librarians some nice raises and bonuses for their work in the blogging world?
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
This post brought to you by LexThink!(TM) – The Conference, Re-imagined. LexThink! – Think big thoughts, do cool things, change the world. Ask us about private LexThink retreats and conferences for your firm, business or organization.

15 Internet Legal Research Tips – Article

Monday, December 12th, 2005

[NOTE: This is another in the series of repostings of my previously-published articles. This short list of legal research tips was written in mid-2004. I have not updated references for historical reasons. These are meant to be simple, handy tips for the average Internet user. I hope you find some of these tips useful.]
15 Internet Legal Research Tips
1. Keep Adding Tools to Your Toolbox. The Internet is not static and your use of it should not be static either. The best legal researchers are constantly adding new tools and techniques and evaluating their existing approaches. If anything is clear at this point, it is that no one has all the answers. New tools become available all of the time.
2. Subscribe to the Email Legal Research Email Newsletters. The Virtual Chase Alert and The Internet Legal Research Weekly are just two examples of the great, free email newsletters that cover developments in legal research and consistently provide new resources and tips. There is no reason for you to try to keep up with all of these developments on your own when great resources like these are available to help you.
3. Soup Up Your Knowledge of Google with Google Hacks. For better or worse, most people use Google as their primary search tool. Soup up the Google search engine by learning some of the hidden features of Google. Tara Calishan’s book Google Hacks describes one hundred ways you can use these features and make better use of Google.
4. Use Quotation Marks to Enhance Your Results. For the non-Booleans, nothing is simpler and quicker than improving your results by putting quotes around a name or phrase. For some names, you need to use quotes to bring up relevant hits. A great, but underused, technique is to put quotes around a phrase that you might expect to find in the best hit for your search. For example, a search for “the capital of Alaska is” may bring you the result you want better than a simple word search.
5. Use Special Words to Locate Good Introductory Materials. When looking for good introductory or comprehensive materials on a topic, especially one for which a search on the phrase might turn up thousands of hits (e.g., “intellectual property”), do a few quick searches in which you add a word like “primer,” “overview,” “resources,” “guide,” “faq” or something similar. By doing so, you can often locate a great introduction that will lead you to some of the best resources and experts.
6. Use File Types to Find Presentations, Handout Materials and Articles. Many of the most comprehensive legal resources take the form of extended articles, seminar slides, handout materials and outlines. In a great number of cases, these materials are not put into HTML. Instead, they are placed on the Web as PDF files or PowerPoint files. Adding the additional search term of “pdf” or “ppt” can bring you right to many of these excellent resources.
7. Bring Information to You With News Aggregators. It’s no secret that RSS feeds and news aggregators are becoming the primary way to get current quality information delivered directly to you. Do not miss this train as it leaves the station. Feeds and aggregators promise to change legal research for the better.
8. Add Blawgs to Your Search Lists. Legal blogs, or “blawgs,” especially the law librarian blogs (e.g., BeSpacific.com), are tremendous resources for current developments, news and commentary. Many are written by leading figures in their fields and have a timeliness that print publications cannot match. Using Technorati, Feedster or other blog search tools is all but mandatory today.
9. Create Google Alerts and Other Automatic Searches. Probably the hottest area in search today involves the notion of “saved searches,” in one form or another. From RSS tools to Google email alerts, you can set up standard searches and have them automatically run with the results sent to you by email or RSS feeds. These are very powerful tools that just keep working for you with no additional effort.
10. Make Use of Links Collections. Since the earliest days of the Web, nothing has been more helpful that an updated, well-chosen list of links on a topic chosen by a person knowledgeable in the field. The practice of creating links pages has diminished greatly over the years, but there are many still out there. It’s also worth finding and collecting them.
11. Look for Specialty Search Tools. You can get better results by narrowing the field. Specialty search engines are great tools. From FindLaw to very specific search tools, you can find many specialty search engines, each of which allow you to dig deeper and locate more relevant resources on your topic by reducing the amount of “noise” you find in the general search engines.
12. Use “News” Search for Current Issues. It can take a long time for items to show up in search engines such as Google. As a result, search engines are not the best place to look for information on breaking stories. Simply switching over to the “news” search engine on Google will give you dramatically better results. Blogs are another set of great resources on breaking stories.
13. Don’t Overlook Law Professor Pages. Many law professors today have web pages with heavily annotated syllabi for their courses. These pages are tremendous resources for anyone wanted to learn about certain areas of law. They also give the most important cases and note trends and areas of contention. Law professor blogs are also good sources of information.
14. Keep Up-to-Date with Search Engine Developments. Search engines change their search algorithms, spidering practices and even their underlying database technologies on a regular basis. These changes can produce unexpected results. Staying familiar with these developments, such as by visiting Searchenginewatch.com, will definitely improve your techniques and results.
15. Collect Tips, Tricks and New Techniques in a Way that You Can Use Them. You might well be able to collect ten or more new research tips, tricks, tools or techniques in an average week. They won’t do you much good if you don’t use them.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
This post brought to you by Dennis Kennedy’s legal technology consulting services, featuring RSS and blogging consulting, technology audit, strategic planning and technology committee coaching packages especially for medium-sized law firms (15 – 100 lawyers) and corporate legal departments. More information on the “Second Pair of Eyes” packages for legal technology audits and strategic planning may be found here (PDF).

Promoting Your Web Site: A Twelve Step Plan for Reaching Your Target Audience – Article

Monday, December 12th, 2005

[NOTE: This is another in the series of repostings of my previously-published articles. This article on developing a promotion plan for your website was published in April 1999, in the pre-Google era, as you will see below. I have not updated references for historical reasons. The same basic principles still apply for websites and blogs, even though the techniques and tools are now somewhat different, and the article still has a lot of value. I'm usually known for my patience, but I've been known to get irritated when a self-styled "web marketing expert" condescendingly lectures me about these same principles while trying to impress me with his or her expertise. That's an area where you want to be talking to the real experts, especially those with real legal marketing experience, who you can spot because they listen and discuss rather than merely talk at you. At the time the article came out, I had nearly four years of experience promoting my own website. I still believe that most people do not do enough non-Internet promotion of their websites and blogs, and promotion plans are still few and far between.]
Promoting Your Web Site: A Twelve Step Plan for Reaching Your Target Audience
The greatest web page in the world does you no good if no one visits it. Much has been written about how to design web pages, but relatively little information is available on how to promote your web site and make it findable.
You cannot simply launch your page, sit back, and expect your page to be a success. Based on my own experiences with my own web pages, I have come to the conclusion that you need a strategic plan for your promotional efforts. You should put in at least as much effort into promoting your web site as you do into its design and your choice of graphics. Here are twelve steps for creating a strategic plan for promoting your web site.
1. Why do you have this web page? Your plan to promote your web page begins with this basic question. Your answer will help you define your target audience and give you a sense of the level of promotional efforts you want to make. Are you simply providing information? Are you supplementing other existing marketing efforts? Do you want to generate new business directly from the web page? Or do you want to sell new products or services to existing customers? Most importantly, what is your target audience?
2. What are your goals for the page? Your goals should be specific, well defined and attainable. A goal may be as simple as generating enough savings or revenues to pay the costs for the page. If you want to have a million hits a day on your web page, different efforts will be required than if you are simply providing customer support or supplemental information to existing clients or customers. While web pages can also be used to sell products directly, other valuable uses include streamlining customer support, providing technical information and reducing costs of printing and postage catalogs and other marketing information. Goals can change over the course of time, but your goals will help you create a framework for your promotional efforts. Goal number one will be finding good ways to reach your target audience.
3. A written plan. Promoting your web page is a continuing process that will evolve after a number of false starts. You will need to develop some checklists and logs of what you have done to promote the page. Take notes on how well each of the strategies has worked. Keeping a written record of this information will help you avoid duplicate your efforts and give you a road map for promoting new pages you may develop.
4. Thoughtful choice of a domain name. Web users will typically try the most obvious domain name, e.g., www.yourcompany.com, to find your page before they will resort to search engines or other finding techniques. If you have not chosen a domain name well, you will make unnecessarily difficult for people to find your site. You will want to avoid using initials used only by insiders in your company or other non intuitive choices. It is also helpful to avoid long, unwieldy web addresses for commercial sites.
5. Listing your page effectively on search engines. The most common way that somebody will find your web page is by using a search engine. Search engines are extremely large databases containing information on millions of web pages which allow you to do keyword searches to find web pages. The larger search engines are AltaVista, HotBot, Excite and Infoseek. [Note: Wow! I wrote this article in the pre-Google era.] When you use a search engine you are not searching the World Wide Web itself. Instead, you are simply searching a database that the search engine company has created which is designed to mirror the World Wide Web. By definition, the search engine will always be somewhat out-of-date and never completely and accurately index the World Wide Web.
It is extremely important to realize that your page will not simply appear in a search engine or any other index. You must add your page to the search engines index. You can do this by simply clicking on an “Add URL” button at the bottom of most search engine home pages and submitting the requested information.
Simply getting your page listed on a search engine is not enough. You need to design your page and promote it in such a way that when someone does a keyword search on a topic he or she will find your page. You need to keep your target audience in mind. If, for example, you are targeting people are looking for a St. Louis law firm, then you will want your page to appear high on the list of responses of someone who does a key word search on “St. Louis law firm.” If, on the other hand, your target audience is anyone who is interested in securities law, your strategy will focus on a different set of keywords.
There are a number of ways to enhance your findability on search engines. You can use programming techniques such as metatags, which are hidden codes which help you specify the key words which a search engine will index your page. You might also buy banner advertising for certain key words. You can also strategically use word placement on your page to help your page receive a higher priority in response to key word searches. All of these techniques require you to develop a good understanding of how search engines work.
6. Placement in directories and finding lists.Good promotion involves a narrowing of your focus to your target audience. In most cases, search engines are not the most effective means to promote your page. Directories, such as Yahoo (www.yahoo.com) or FindLaw (www.findlaw.com) for attorneys, and finding or “subject matter” lists can allow your page to be included on a specialized list of pages relating to a given topic. For example, if you are a computer consultant, you will want to find directories of computer consultants and other lists of consultants and get your page placed in those lists. This technique narrows the scope of your promotion and helps you direct web users more interested in your topic to your page. As a general matter, someone who finds your page through the use of a directory or finding list is someone more interested in your page than someone who found your page through a search engine.
7. Reciprocal links and targeted web advertising. If you do your homework on the World Wide Web before you publish your page, you will find a number of excellent web sites and lists of resources on which you would like to have your page listed. The real utility (and beauty) of the World Wide Web comes from these lists of hyperlinked pages. The way to get your page listed on a page you like is simply to request that the webmaster of that page add a link to your site on his or her page. In exchange, he or she will generally ask you to add a link to his or her site on your page. Since every webmaster is interested in getting more publicity for his or her page, this method works very nicely. Since every webmaster would also like to earn some money from his or her page, offering to place banner ads which link to your web site can also be a very effective means of generating traffic. [Note: My, how the world has changed! Reciprocal links are still a good thing, but the practice has been so abused that it's hard to get them any more. As for banner ads . . . ]
8. Announcements, advertising and other non-Internet techniques. Excellent, focused promotion of your page can come from both Web and non-Web efforts. Letting your existing customers know about your web page is an extremely important first step that can be overlooked if you focus too much on getting listed on search engines. Put the address of your web page on your business card, stationery and yellow page listing. Announcing the debut of your page in brochures, by a special mailing or even by e-mail will be very beneficial. Even on the Internet, nothing works better than word of mouth. Tell your employees and friends about your page so that they understand the benefits of the page. As you have undoubtedly noticed, many television and radio commercials and other advertisements routinely include a mention of a company’s web page address. You’ve already paid for the time or space, so why not include a mention of your web page? Be creative.
9. Obtain favorable mentions from others. People are eight times more likely to believe a recommendation from an independent source than they are to believe an advertisement. An excellent way to promote your web page is try to secure favorable mentions of your site from independent sources. This method, of course, implies that you have good content, good design or something else that will cause independent sources to give your page favorable reviews. You can enhance your prospects of getting favorable publicity by sending an e-mail to a columnist or other writers who write on Internet topics or offering to write an article yourself. The bottom line in web promotion is that it never hurts to ask.
10. Pay attention to your promotion efforts. Many times, people put a lot of effort in promoting the rollout of their web page and then neglect to follow up with other promotional efforts. As I mentioned previously, your web page can fall down in priority on a search engine or even fall off a search engine. If you are adding content on a regular basis and updating the graphic design of your page, it makes good sense to focus on promotional efforts at the same time. Attention to promotional efforts is as important as attention to updating content.
11. Evaluate results on a regular basis.You must have a method to evaluate the success of your promotional efforts. Many pages have a simple counter that counts the number of visitors to a page. These counters provide useful information, but for the most part they are inadequate to help you with promotional efforts. More sophisticated web monitoring software is available and can generally be supplied as a part of your web page hosting arrangement. These programs will let you know how successful different techniques have been. Subscriptions to e-mail newsletters available on your web page are another excellent way to assess the number of quality visits. And, obviously, sales from the page may be the most important measure of all for some sites. This information should be analyzed and used to help you reinforce existing sources of traffic and to help you find new locations on which to put links and advertising.
12. Go back to the first item and start again. Do you still have the same reason for having your page? Do you still have the same goals? Do you now have a better understanding of your target audience and how to reach it? You will certainly have a better sense of what works and what doesn’t work. Like content and design, your promotional efforts will evolve as you learn and as new techniques become available. A written plan will help you focus your marketing efforts and to improve these efforts on an ongoing basis.
Maintaining a great web page is a commitment. One key part of that commitment is to develop new ideas and new ways to publicize your page. Web pages can be extremely beneficial to you and your company, but you cannot expect simply to create a web page and to see results without making any other efforts. Your promotional plan will put you well ahead of many other companies with web sites, give you an important competitive advantage and help you connect with the audience you want to find.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
This post brought to you by Dennis Kennedy’s legal technology consulting services, featuring RSS and blogging consulting, technology audit, strategic planning and technology committee coaching packages especially for medium-sized law firms (15 – 100 lawyers) and corporate legal departments. More information on the “Second Pair of Eyes” packages for legal technology audits and strategic planning may be found here (PDF).

It’s About the Deal, Not You: A Lawyer’s “To Do and To Not Do” List for IT Contract Negotiations – Article

Friday, December 9th, 2005

[NOTE: This is another in the series of repostings of my previously-published articles. After a frustrating conference call negotiating an IT contract, I sat down and wrote this article (2004). In it, I tried to capture whatever wisdom I might have learned over the years as a lawyer involved in negotiating matters. It's my approach, but I think most of the ideas would be useful to many lawyers. I'm always looking to improve, so I welcome the suggestions of others who have experience in these areas. Warning: it's a very long article, but I think it is a good article, with lots of practical tips and pointers.]
It’s About the Deal, Not You: A Lawyer’s “To Do and To Not Do” List for IT Contract Negotiations
Many moons ago, as a third-year law student at Georgetown, I took a class called “Business Planning.” We spent the first few weeks of the class studying negotiation, reading some of the now classic books on the subject and doing mock negotiations. At the time, the idea of “win-win” approaches to negotiation was just beginning to become popular, but that was our focus. We were also taught that the role of the lawyer was not to kill deals (as many lawyers make business people believe), but instead to help make deals happen by creatively solving problems.
I later had the good fortune to work with a good number of excellent lawyers who had a similar approach. I also have had the chance to see in action some of the lawyers who fall into the deal-killer category and the damage they can do in deals that have great potential, sometimes costing their clients millions of dollars of lost revenue in circumstances where the business issues were essentially resolved.
As a result, I’ve formed some strong opinions about the role of lawyers in negotiations and the behaviors lawyers should adopt in the normal negotiating session. While there can be special circumstances when approaches that are more theatrical are called for, in most events the lawyer should play a limited role.
I recently spent what seemed like an eternity on a conference call with a lawyer who broke every rule I can think of for how to handle a negotiation by conference call. My clients even remarked after the call ended that if the deal fell through, it would be because of this lawyer. I submit that this comment is one of the worst evaluations a transactional lawyer can receive.
Even worse, I felt embarrassed for the legal profession because this lawyer confirmed almost every negative stereotype business people have about lawyers. Ironically, people feel that they compliment me by saying, “Dennis is a lawyer, but he’s not like most lawyers.”
My experience was instructive and I wanted to use it to illustrate some points about negotiation, especially how lawyers should behave in negotiations and how business people might better manage their lawyers in this setting, both to save on legal fees and better use their lawyers’ expertise.
Here’s the background. Assume my client wants to enter into an “e-commerce” arrangement and the business people have been negotiating for a few months, like each other and want the deal to happen. I get a call that the business issues are all worked out and there will be a conference call that includes the lawyers with the following agenda: (1) confirm that everyone is in agreement on the final checklist of outstanding business issues, and (2) discuss briefly any remaining legal issues and get the revised draft of the agreement moving. Both parties believe that it will help speed up the process if the lawyers hear the discussion of the business issues.
I like this approach. In many cases, the best use of lawyer time is to discuss the significant legal issues and then the business people work out the deal points to their satisfaction before getting the lawyer back into the process. It makes good sense to nail down the deal and then have the lawyers document the deal. Having lawyers working away as the deal evolves often results in expensive legal time being spent on language that later becomes irrelevant.
My reaction to this call is very positive, because it sounds like we are ready to roll and get this deal finalized and signed. I expect a conference call that will last about an hour, and maybe ninety minutes at most.
Given the stage of the negotiations and the purpose of the call, I have the following goals for this conference call:
1. Support my client’s representative in the most helpful way I can. In the case where the business people have been carrying the conversation, I expect that this will mean that I will (1) prep the rep on key issues, points that may still need to be dressed or clarified, possible approaches on likely issues of contention and the like, (2) be ready to discuss issues with the rep when he or she puts the speakerphone on mute and be ready to make comments or handle issues when prompted by the rep, (3) determine any other role I’m wanted to play, and (4) at the end of the discussion of business issues, be prepared to clarify any legal or drafting issues that need the input of the business person and, only to the extent necessary, clear up any significant legal questions and follow-up steps that it makes sense to handle with the other attorney during this call.
2. Obtain the information needed to document the actual deal accurately. “Does the invoice cover the prior month or the following month?” “Does the license also include independent contractors as well as employees?”
3. Identify and frame legal issues in ways that business decisions can be made. “Under this language, if X happens, Y will result. I want to make sure that Y is what is supposed to happen.”
4. Explain what I meant by language I drafted or how a certain issue is covered. “I think we handled that in Section 3.3 rather than in the section you are looking at. Let’s take a look and be sure.”
5. Keep the process moving. “The best approach is probably to get some words on the page that cover the concept, and maybe leave some blanks for time periods, and then adjust them once we can look at something in writing. Why don’t I put something together and get it to everyone? I have a good understanding of what each side has in mind. I think we can then knock off the next issue pretty easily.”
6. Provide the blessing or play the bad cop. As I mentioned earlier, especially as people work together over time, clients prefer that a lawyer play a certain type of role. Sometimes a client prefers that a lawyer bless the acquiescence to a point so the client does not actually concede the point. Sometimes the client wants the lawyer to hold the line on legal grounds so the client can appear to be accommodating but constrained by the lawyer.
7. Keep a positive attitude about how close we are to getting the deal done. “We’re almost there on the business points. It’s down to finding the right language.” “I see that we have two main points that are keeping us from putting this to bed. Are they deal-breakers or can we nail this down now?”
8. Leave my client feeling good about my role in the meeting. Lawyers do not need to be present in every meeting in which a contract is negotiated. Over time, I want to educate my clients and give them the tools with which to handle everything that they are comfortable in handling and bring me in at the points where it makes the most sense and does the most good. Each client has a different comfort level, but I would like to find at the end of each meeting that my client felt that it was appropriate that I participated and that I gave them what they needed for that meeting. In some cases, this may mean that they are ready to “graduate” and handle similar meetings on their own or with me available by phone on an as needed basis.
Sixteen Suggestions.
In my hypothetical situation, assume that I have a knowledgeable and focused CIO who had carried the negotiations to this point. She has a specific checklist of the key points to cover. We talk about the legal issues before the call and positions to take on a few points that may still be unresolved. I fully expect to say very little, primarily covering a couple of legal points. I also expect that I may offer to draft some proposed language if the discussion of a point bogs down. Otherwise, the CIO is more than capable of handling the discussion.
In the real situation that formed the basis for my hypothetical, the call lasted over four hours, left everyone with the feeling that positions were farther apart than before the call, and left my client and I shaking our heads. Unfortunately, the blame for all of that fell squarely on the other lawyer. Perhaps the nadir of the call occurred when my client had to interrupt a monologue from the other lawyer to say, “It’s our deal, not yours.”
After the call, I jotted down the following list of sixteen rules for lawyers involved in negotiations, especially when your client is also present or on the phone call. I made this list because I felt the other lawyer broke every single one of these rules in that one phone call and I’d like other lawyers to avoid going down that road. For those of you who are not lawyers, this list will help you prep your lawyers so that they work with in the most helpful ways and so that you can recognize counter-productive behavior and change it rather than simply accept it as “what lawyers do.”
However, I can sum them up in five words, “It’s not about the lawyer.”
In other words, if the other party or your client reminds you that “it’s our deal, not yours,” you are not part of the solution, you are the problem.
1. Know the Purpose of the Meeting. I spent some time earlier in this article explaining the underlying scenario because the purpose of the meeting greatly influences the role of a lawyer. In that type of meeting, the business issues are front and center and the lawyer’s role will be limited. If the purpose of the meeting is to work out technical issues about indemnification language, the lawyer’s role will naturally be greater. The better a lawyer understands the purpose of a meeting and the wanted or expected results, the better the job the lawyer can do. A hint: if both parties start the call by making a statement of how much they like working with each other, how much they want the deal and the relationship to work, and how they schedule the meeting or call to confirm the details and get the lawyers to work on finalizing the agreement, you not only should get a good feel for the purpose of the meeting, but you should also get a clue that your contemplated role is not to raise objections to every proposed change, complicate every process, not give on any point, large or small, and generally take over the call.
2. Discuss Your Role in the Conversation with Your Client. It simply makes good sense for the people who have been talking to do most of the talking and lead the conversation in this type of call or meeting. In most cases, it also makes sense for a lawyer to talk mainly with the other lawyer and not have an extended discussion (or, even worse, an argument) with the other party, unless that is the approach that the client wants you to take. If a lawyer takes over or monopolizes the call, the lawyer runs the risk of undercutting or embarrassing the client rep in front of the person they will be dealing with on an ongoing basis. Worse yet, many women and young business people are sensitive, I believe correctly, to this issue and will complain to superiors about your approach. The client rep on the call has ownership of this deal, it may well be the most important thing that they working on, and it may also be a major opportunity to show that they can handle this type of deal. Ignoring their preferences or directions and turning the meeting into the “lawyer show” is a recipe for disaster.
3. Agree on Your Signals. This rule goes hand in hand with rule #2. There will be times when the client wants the lawyer to step in or stay out. There will be times when a client wants the lawyer to give on a point, stay firm on a point or move on. There will also be occasions where you want to take a break or discuss a point in private. By signals, I do not mean engaging in skullduggery. Signals might be physical when you are in the same room with your client only, such as when you are on a conference call. They might be verbal when both sides are present. Simply pointing to who takes the lead, indicating when to mute the speakerphone your side of the conversation or asking for a break can all work as signals that will keep you and your client in sync. A tip: if you need to take a break to discuss a point, you will find at least one participant more than happy to agree if you ask for a bathroom break any time after an hour into a meeting.
4. Do Not Confess Your Lack of Preparation. There is only one exception to this rule. In certain rare circumstances, you may “confess” that you haven’t had time to look at the revisions closely, apologize and then spend the rest of the meeting citing section and paragraph numbers and showing complete knowledge of the draft. Obviously, you take this approach only when you are fully prepared and primarily as a tactic to make people wonder how good you would be if you did have time to review the document closely. There are three things worse than simply confessing your lack of preparation. The first is mentioning it two or more times throughout the meeting. The second is confirming the fact time after time by not knowing either what is in the agreement or the fundamental aspects of the deal. The third is giving your client good reason to wonder why they are paying you.
5. Do Not Bluff on Your Knowledge or Your Experience. No matter what lawyers like to believe, law is not rocket science. Business people who work with contracts develop a good understanding of the major issues, the common compromises, what is normal and what is an overreach, the legal issues that matter to their business, and have heard many arguments posed by lawyers many times. Your argument that “even Microsoft can’t get that concession” will make you look ridiculous when you are talking with someone who routinely gets that concession. Worse yet, many lawyers will try to bluff on their knowledge of the underlying technology, software or operations. While this approach usually just results in a good laugh for people who understand the technology, it can make the lawyer look foolish and lead to an agreement that does not cover key issues adequately.
6. Know When to Move On. As we all know, it is possible for a lawyer to beat a point to death. It is also possible to run into issues where it’s not possible to hammer out all the points. At some point, the lawyer needs to say either “Why don’t we have the lawyers draft some language that we can look at?” or “Let’s come back to this point and see if we can get everything else done.” The first approach turns an uncomfortable discussion into a “to do” item for the lawyer. The second approach is the standard negotiation strategy of putting the tough items aside and getting agreement and momentum on what can be agreed upon with the hope that the “held” issue will seem smaller and easier to resolve when you come back to it. Either approach advances the negotiation and keeps the ball moving.
7. Understand Standard Negotiation Practices. If you read the literature on negotiation tactics, you’ll see that there are some standard practices and approaches to negotiation. It’s important to learn to recognize those and to use them where appropriate. You will also find that there are some general principles of negotiation etiquette. If you don’t recognize these or run roughshod over them, you take the risk that the other side will dig in its heels and turn a relatively small point into a deal-breaker. For example, if I say that we are very close and we want to get the deal in place and then accede to your first point, pointing out my willingness to not create issues that get in the way of the deal, that means that I expect you to take the same approach on some issues that mean more to me than they do to you. If you instead decide that it means that you are going to win on every point and never relent, there will likely come a time where my client will dig its heels in on an issue that you will not see as important. Part of the reason is that you have set off alarm bells for my client that your client will be difficult to work with when the deal is implemented.
8. Avoid High Pressure Sales Techniques. “We never negotiate on this.” “We’ll only give you these terms if you sign today.” “It’s our policy and our hands are tied.” On occasion, you find lawyers whose conversation sounds like a Negotiating 101 class because they use every negotiating cliche in the book. While there are occasions that one of these approaches makes sense, most of the time they are boring, tedious and get in the way of meaningful negotiation. In addition, you later look foolish when you have to back off from these positions and lose important credibility when you need to take a position on something that matters. Good responses to consider are: “We have a policy never to agree to those terms. Where does that leave us?” or “OK, if it’s deal-breaker, tell us and we’ll go back and make a business decision about whether we want to call things off right now.” The last response is “calling your bluff” and may not result in an answer you want to hear, but if you are willing to walk away from the deal, it can be fun and instructive to see what happens when you use it. I routinely use this approach when a publisher wants me to agree to a one-sided agreement to publish or reprint one of my own articles because I have no trouble walking away in those cases.
9. Avoid Explaining Basic Law School Concepts and Turning Everything into Legal Jargon. I’ll admit that I find this approach more irritating since I started to teach a law school class. Lawyers can do a great service by explaining legal issues when they are asked to do so. However, some lawyers cannot resist jumping in with lengthy explanations of standard principles that everyone in the conversation is already familiar with. It’s usually a little insulting and it’s invariably not responsive to the issue at hand. Similarly, the use of legal jargon generally interferes with effective communication and will grind a discussion to a halt.
10. Remember Business People Are Not As Fascinated by Legal Issues As Lawyers Are. It’s sometime difficult for lawyers to believe that not everyone wants to be a lawyer. Legal education teaches lawyers to excel at spotting legal issues. Unfortunately, almost everyone else is interested in getting the deal done. A legal issue should always be discussed in connection with potential solutions and/or the business risks involved in making one choice over another. Raising “interesting” legal issues in a negotiation meeting is pretty much a “no-no.” If a legal issue will affect your client, you need to discuss it privately, not brainstorm about it in the meeting. I’m fascinated by the number of lawyers who will launch into rambling, thinking-out-loud discussions of legal issues that may have a negative impact on their clients.
11. Don’t Be a Know-it-all. I’ve always found negotiating sessions to be a great way to learn more about my client’s business, the other side’s business, the industry and what economic and other issues are most important these days. I even have a tendency to ask questions about processes and the subject matter of the agreement. In a good number of cases, learning more about the underlying subject matter will help make the agreement better or show ways that an “irresolvable” issue can be handled satisfactorily. Too many lawyers take the attitude that either there is nothing new under the sun or that they don’t have anything to learn. A big part of this approach comes from an unwillingness to admit they don’t know something, which will be taken as a sign of weakness. Unfortunately, the result is that the lawyer doesn’t “hear” what the client insists is a key concern or that they use a “standard” agreement for something that is not standard at all. My favorite example is lawyers who want to use standard software license agreements for application service provider arrangements. As lawyers like to say, those are “apples and oranges,” and not interchangeable at all.
12. Don’t Be Condescending. There’s a step past being a know-it-all that will get you in trouble. Taking a condescending approach will push hot buttons, which means that it can, in certain cases, be used as a tactic, but most of the time it will cause the other side to stiffen its opposition. Most lawyers respond very negatively to being treated in a condescending matter, almost as if it is part of the “lawyer personality.” Taking that approach with a lawyer is almost guaranteed to make him or her less cooperative. Taking that approach with the business person on the other side is likely both to confirm stereotypes about lawyers and make the business person less likely to agree to legal changes. Taking that approach with your client, which I’ve seen too often, is unforgivable in my book.
13. Don’t Cut Off or Undercut Your Client. I cringe when I see or hear this one. I have the old-fashioned notion that a lawyer should be on the side of his or her client and be of assistance. While I don’t think that this point needs much explanation, the fact is that it occurs all too often. If I think I can help by jumping in, I use the agreed-upon signal or pass a note to my client. Too often lawyers jump in when they don’t understand what their client is saying and either address a point that is not at issue or confuse a point that everyone else was clear on. This is especially true when the discussion focuses on a technology issue that is not understood by the lawyer.
14. Don’t Interrupt or Talk Over the Other Party. Lawyers are used to arguments and dealing with other lawyers. Non-lawyers are not. Lawyers have learned not to take things personally, but that’s not usually the case for non-lawyers. To my horror, I listened recently to a lawyer interrupt the ultimate business decision-maker for my client, talk over the top of him and generally not let him get in a word edgewise. At the same time, the lawyer was doing the same thing to her client. I honestly think that I could feel that lawyer’s client sinking down into his chair over the telephone. People will attribute the behavior of another party’s lawyer to the other party and a lawyer’s rudeness can have a very negative affect on a deal.
15. Don’t Imply You Don’t Trust the Other Side For No Reason. Look, sometimes there are good reasons that you don’t trust the other side. In my opinion, if that’s the case, you need to be questioning whether you want to do the deal at all. In those cases, it’s important to address the issue directly. However, there is no good reason to imply that you don’t trust the other party for no reason at all. Here’s a great example. The conversation is over, everyone feels great and it’s time to turn to the lawyers to draft the changes. I ask for the Microsoft Word version of the document so I can easily make the changes, noting that the other side sent the prior draft as in the PDF format. The proper answer should be ‘yes.” If you have concerns about changes not being properly reflected in a redlined version, take steps on your end to be able to prepare a redlined version that you can check. Here’s what recently happened to me that I would caution you to avoid at all costs. “No, we can’t do that. We’d have to check what you send us word by word to make sure that you didn’t change things other than what we talked about.” My client said, “But that’s what ‘Track Changes’ are for.” The other attorney would not give an inch and my client was looking at paying me to type in a whole set of changes by hand when an electronic version was readily available. There was a certain irony to this situation because an earlier draft from the other side contained metadata that should have been scrubbed before the document was sent to us. In this case, I resolved the situation by saying that I’d simply copy what I needed out of the PDF document, being 99% sure that they hadn’t taken steps to prevent me from doing that. Not surprisingly, we got the Word document the next day. What purpose did insulting us serve?
16. Remember That It’s About the Deal, Not About You. It’s easy for lawyers to get caught up in being the lawyer and wanting to take the stage. What almost invariably results is that the focus moves away from getting the deal done. The best lawyers keep their clients’ concerns and the deal as their priorities. That’s a hard skill to learn, but one that benefits clients greatly.
Conclusion. It is no easy chore to try to follow each of these rules, but they give lawyers a good target to shoot at and clients a good checklist to use in preparing and evaluating their lawyers. Notice that all these rules can be followed no matter how easy-going or aggressive a lawyer might be. Those tactics can and do vary from one deal to the next and you can be extremely aggressive and still follow every one of these rules. These rules create a solid foundation from which you can advance a deal, protect clients and treat everyone in a way that will lead to good ongoing relationships. The contract is important, but ultimately the business relationship you develop matters most.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
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Useful Technologies We Don’t Use

Thursday, December 8th, 2005

A great conversation-starting article from Dave Pollard, one of my favorite bloggers, lists four “Useful Technologies That Are Too Complicated or Geeky to Use.”
As a preview, they are:
1. Videoconferencing (although I’ve recently seen a videoconferencing demo that really impressed me).
2. Voice recognition (it’s getting better, but it fits the description).
3. 3D Display Video Eyewear (I’d like to see this one actually work well).
4. Music and Video Composers (It’d be great if these got easier to use).
Given my bad luck with cell phones, I’d be tempted to put them on my list.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
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Keeping Pace While Keeping Your Cash Flow: Technology Leasing for Lawyers – Article

Thursday, December 8th, 2005

[NOTE: This is another in the series of repostings of my previously-published articles. I first wrote about technology leasing for law firms in the late 1990s in my Lawyers Weekly USA column. I revisited the subject in 2004. I'm intrigued by the opportunities leasing can create to reach higher and farther when implementing technologies. You may decide against leasing, but it's always a good idea to "run the numbers" and consider leasing as an option.]
Keeping Pace While Keeping Your Cash Flow: Technology Leasing for Lawyers
Remember the first time that you realized that the reason your neighbor was driving a new BMW was not because he was embezzling money from his employer but because he was leasing the BMW? Now we take for granted that many people with new cars are leasing them, in the process changing attitudes toward leasing and the culture of ownership.
The next time you notice an opposing party with another new notebook computer or a competitor law firm with all new hardware, you might be seeing evidence of the movement of technology leasing into the legal profession.
The adoption of technology leasing by lawyers and law firms should not surprise you. Many small businesses lease technology as a common practice. Some have suggested that as many as 80% of all businesses use or have used technology leasing to one degree or another.
The New Popularity of Technology Leasing for Law Firms
Computer technology is an attractive area to consider leasing. Computer systems get outdated quickly. There are good reasons to keep pace with technological change. Experts consistently recommend replacing computers on about a three-year schedule. After three years, the typical computer has little or no market value and will no longer be covered by warranty. Hardware costs, especially for servers, add up quickly and may require large cash outlays for new purchases.
The combination of these factors creates a situation that is similar to the new car sales business before leasing became so prominent. As a result, many individuals have started to look for comparable leasing opportunities for computer systems.
A new car lease is an excellent analogy when considering technology leasing. There are financial aspects of the decision – effective rates, time value of money, total costs, and the like. There are economic considerations – cash on hand, available credit, and the like. There are needs factors – potential growth, future requirements, likely usage, and the like. Finally, there are some X factors – “moving up” to a platform you can’t afford to buy, having newer and better equipment, meeting prestige or other requirements, simply getting what you want, and the like.
While there are some people who can make the lease vs. buy decision purely based on financial factors, most of us will make the decision as a result of a more complex dynamic.
The good news is that many creative leasing options are available to small businesses and individuals, one or more of these options may make good economic sense for you, and the so-called “smart leases” or “value leases” extend the benefit of leasing by, in certain cases, letting you bundle hardware, software and consulting services into a single monthly payment.
If you strip the business of a law practice of all the subtleties, we are ultimately in a cash flow business. The main goal of both a new firm and an existing practice is to reach and maintain a positive cash flow. In that light, technology leasing deserves a close look as a way to spread out expenses and create a more predictable cash flow, in addition to the benefits of keeping you current on technology.
Leasing is especially attractive to law firms that want to stay closer to the cutting edge in technology and to smooth out their cash flow and to protect their working capital while avoiding large periodic expenses for the purchase of new technology.
Technology as a Utility Cost and Other Financial Considerations
Legal technology consultant, Bill Coplin, in St. Louis, Missouri, explained the benefits of leasing to me quite a few years ago and the same principles still apply today. His approach goes to the root of the issue. He believes that leasing allows law firms to “fix their costs per seat” for technology on an ongoing basis. But he goes further than that and says, “All firms should begin to look at computer costs as utility costs and not capital costs.” A lease allows you to stay at an appropriate level of technology for a set monthly cost that you can budget for in advance.
However, the lease analysis is often far less sophisticated or subtle. Studies are consistently showing that technology expenses have grown to roughly 5% to 6% of the total expenses of the average law firm. At these levels, paying cash may no longer be a viable option. Even firms that traditionally only pay cash or wait to purchase technology until the proverbial “good year” will look at leasing options today once they see the dollars required for a purchase and factor in software, training, support and other services. Often those firms will cut costs and cut corners on other parts of the package, most often training, and not realize all the hoped-for benefits of a technology upgrade. Sometimes this approach is known as being penny wise and pound foolish.
The “smart” leases give you a way to roll services, hardware and software into your monthly lease payment. This type of bundling allows a firm to consider an appropriate monthly cost of technology and reach a little higher on hardware, while not cutting corners on training and support. For example, a bundled lease may even provide a way for a smaller firm to afford a high-level consulting firm, better software or a robust network infrastructure.
Can you just walk into a leasing company and expect to obtain a lease? Not necessarily. You still have to show credit-worthiness. Be aware that some technology leasing companies may require more financials than a small or new law firm can provide. On the other hand, vendors such as Dell, HP, Microsoft and others offer leasing options to their small business customers as a standard option and may prove to be better alternatives for certain firms. In each case, however, leasing companies and vendors will probably more willing to work with you than traditional banks.
The Leasing Mentality
In many law offices, the newest and best technology can be often be found in the copiers, which are typically the only pieces of equipment a firm is leasing. Lawyers, however, tend to think of computers as capital costs or as equipment that they must own. Are copiers really so different?
A lessee is a user, not an owner. We often are caught up in the notion of ownership. However, in the case of the office itself, copiers and our cars, we are quite comfortable with leasing. Technology leasing requires a similar approach, or a “leasing mentality.”
In other words, if you are currently leasing your car, you may be very receptive to leasing your computer. If, on the other hand, you are proud of telling people that your car has 150,000 miles on it and you haven’t yet noticed that you tend to start out many conversations with “my mechanic was saying the other day …”, you may have more difficulty.
As a general rule, younger lawyers, lawyers starting a solo or small firm practice and lawyers with small bank accounts will tend to have a leasing mentality.
Leasing Advantages and Disadvantages
Advantages of leasing include:

  • Reduce your initial investment and capital expenditures
  • Spread out your technology costs over time
  • Make your technology costs more predictable for budgeting and other purposes
  • Give you favorable tax treatment in certain cases
  • Make it easier for you to upgrade computers and systems
  • Allow you to bundle software and services costs into monthly lease payment
  • Reduce the impact on your cash availability and credit limits
  • You may be able to qualify for a lease more easily than for a loan
  • Lessor handles disposal of old equipment
  • Offers you better terms than available for bank loans or other financing
  • Gives you the convenience of one-stop shop

Disadvantages

  • You do not own your equipment
  • Potentially larger total outlay of funds over the term of the lease
  • Cancellation fees will likely apply if you want to get out of a lease
  • Leases may not be assignable or contain other onerous provisions
  • Financial viability of lessor may affect your lease arrangement
  • Make it too easy to add additional equipment
  • If not carefully crafted, you may not get desired tax benefits
  • Leases may be based on prices for equipment substantially higher than what you could buy the equipment for
  • Actual finance rate may be quite high
  • In the case of vendor leases, becoming “captive” to one provider

Getting Your Toes Wet
Some law firms test out the idea of leasing with notebook computers before moving to leasing desktop computers. The duration of leases for notebooks is typically eighteen to twenty-four months, while leases for desktop computers typically last twenty-four to thirty-six months.
Leases can be creative, customized and flexible. A leasing arrangement may involve a master lease schedule with a phase-in of equipment. Another type of lease might allow you to add equipment on an as-needed basis and simply incorporate new items into the lease arrangement.
As mentioned above, leasing companies, hardware vendors and some consulting firms can put together a package that includes hardware, software and consulting services into a single monthly lease payment. Some leasing companies, however, may require a fixed percentage of the lease to be based on the hardware.
Another good starting point to experiment with leasing is with a new network server. I know of several lawyers who received quotes for the server set-ups they wanted that greatly exceeded what they had budgeted for all technology costs. Buying a server is far more than simply buying the “box.” As a result, firms often cut corners on memory, backup, redundancy and other important features when they make the initial purchase and try to eke more service out of badly outdated servers as replacement time approaches. Given the vital importance of stable and well-run networks to today’s law firm, these approaches create vulnerabilities at precisely the place you want to be strongest. A lease arrangement for your server will let you experiment with the leasing concept in a limited way, but allow you to take advantage of cost-spreading and other benefits of leasing to help you get the sufficient and reliable network infrastructure you need.
End of Lease Options
What happens at the end of a lease? Despite the available purchase option, the purchase of three-year-old, heavily-used equipment at the end of a lease term is relatively uncommon. Typically, a lessee will simply order new replacement equipment and have the lessor take away the old equipment. In other cases, the lease term is simply extended with the monthly payment kept the same for any new equipment. In effect, the lease never ends. The lessee will typically be working with the leasing company well in advance of when the lease term expires to work out the various options for bringing in a new technology package.
By working under a master lease agreement or by staggering the terms of multiple leases (sometimes referred to as “layered leases”), you can get the new equipment you need when you need it without ever incurring a large capital investment for purchasing equipment. In some cases, you might even upgrade all of your equipment with no change in your monthly cash outlay for technology.
A lease also eliminates the growing concern about how to dispose of old computers properly. The leasing company will take back your computers and handle disposal. On the other hand, it is vital that you have your data “wiped” or electronically “shredded” from hard drives before turning computers back to the lease company.
Tax Issues
Leases, especially those that bundle hardware, software and services, raise a number of tax issues. I want to highlight two key points about taxes.
First, there are some significant tax consequences arising out of the different methods of leasing. Consulting with your tax advisor before entering into a lease is highly recommended, especially since tax laws relevant to the leasing decision have changed recently. One reason to use a computer leasing company is the expertise it will probably have on tax issues and its experience and flexibility in structuring leases. As a general matter, you will want an “operating lease” rather than a “capital lease” and a fair market value end-of-lease purchase option rather than a $1 end-of-lease purchase option. Bundling software and services into a hardware lease may also have significant tax consequences.
Second, calculating the relative costs of buying vs. leasing accurately requires that you consider the impact of taxes and time value of money. Simply adding up the total of all lease payments and comparing it to the cash payment required will not give you accurate information upon which to make a decision. In addition, changes in Section 179 that raised the total amount of equipment that can be expensed in the first year of a business may lead to completely different financial conclusions for a start-up and an ongoing firm.
Evaluating Leasing Companies
As I suggested above, entering into a leasing arrangement will probably result in a long-term business relationship. In doing your due diligence on a leasing company, look closely at:

  • The length of time a leasing company has been in business and its reputation in the market.
  • The leasing company’s financial strength and credit-worthiness.
  • Does a firm keep its financial paper? A company that services its own leases is preferable to a lease broker.
  • The expertise of the leasing representative.
  • Are there hidden costs, such as closing costs, “documentation fees,” or other service charges?
  • The administrative abilities of the lessor, particularly its record of paying vendors on time. A leasing company with a bad record with vendors may make those vendors less willing to work with you.
  • Knowledge of the legal business. A leasing company with expertise and experience in the legal industry should be able to come up with more creative options and customize a leasing arrangement for you, with a greater sensitivity to lawyers’ concerns.

Key Terms in Leases
Once when leasing a car, I had a salesperson ask me if, as a lawyer, I wanted some time to read all the provisions carefully. I said, “Will we be able to change anything I don’t like?” Sheepishly, the salesperson said, “I really doubt it.” I suggested that, in that case, it probably wasn’t an effective use of my time to do a complete review of the lease agreement.
In some cases, you or your firm will have limited, if any, flexibility in negotiating a technology lease. In other cases, you may have enough leverage to get some concessions.
Here are a few provisions to pay attention to:

  • Duration of lease – is it appropriate for the leased equipment?
  • Total cost of lease and all additional charges
  • Cancellation options and penalties
  • Assignment provisions for both you and the lessor
  • Automatic renewal provisions
  • Permissible rate increases
  • Ability to exchange or update to more modern equipment
  • Service or maintenance charges or plans, especially mandatory plans
  • Contract language required for desired tax treatment

Leasing Tips

  • Consider the bundling option. Interestingly, a hardware vendor, a software vendor or a consultant may each have the ability to combine hardware, software and services into a single lease payment. Ask each of them what options are available.
  • A diversified approach makes the best sense. A combination of leases, purchases, durations and providers will often produce the best overall results.
  • If you are committed to certain providers, the convenience of dealing with one arrangement may outweigh other benefits of diversification for you. But be sure to revisit this issue from time to time.
  • Learn about leasing options from websites and other resources before you ask about them.
  • Proceeding as if you will make a purchase and arriving at a final price before announcing that you want to consider leasing may result in better pricing.
  • Leasing will work best for you if you use it as a weigh to upgrade and keep current your technology.
  • If you do not have a leasing mentality or cannot see technology as an ongoing monthly cost of doing business, much like a utility, reduce your stress and stay in your comfort zone by continuing to purchase equipment. However, remind yourself that you may give up competitive advantages to stick to your old ways.
  • Keep in mind the powerful impact leasing can have on your cash flow and consider whether leasing will enable you to free up money for needed other investments in people, marketing or other areas. What are the opportunity costs of using large amounts of cash for technology purchases? What else might you do with that money? Why not use leasing as a way to do both?
  • Make sure that you understand the lease arrangement and that the lease agreement actually reflects what your arrangement is.

Conclusion
Clients are putting pressure on firms to keep current with technology. Once a firm spends a significant amount of money on computers, there is a reluctance to make the same kind of cash outlay within a few years. As a result, firms have a tendency to hang on to outdated technology or to cut corners on training and support.
For existing firms, leasing offers a path to make those upgrades and maintain a good technology platform without making significant capital expenditures every few years. For new firms and solos, leasing offers a great way to reduce initial start-up costs, acquire enough technology to create a competitive advantage, and create a positive cash flow.
The advantages and disadvantages of leasing may result in firms reaching different conclusions for different technology at different times, so it is important to analyze the leasing option carefully each time and not make a permanent decision always to buy or always to lease. In many cases, a mixed approach to buying and leasing will make good sense. The path to avoid is the one that avoids any consideration of leasing at all. If you are starting a new firm, however, technology leasing, including bundled arrangements, may be one of the wisest decisions you make.
[Originally posted on DennisKennedy.Blog (http://www.dennskennedy.com/blog/)]
This post brought to you by Dennis Kennedy’s legal technology consulting services, featuring RSS and blogging consulting, technology audit, strategic planning and technology committee coaching packages especially for medium-sized law firms (15 – 100 lawyers) and corporate legal departments. More information on the “Second Pair of Eyes” packages for legal technology audits and strategic planning may be found here (PDF).

The Unique Legal Technology Needs of Medium-sized Law Firms

Wednesday, December 7th, 2005

As many of you know, I’ve spent the better part of my legal career at The Stolar Partnership, a medium-sized law firm of roughly 40 – 50 lawyers when I was there.
My legal tech career probably began on the morning when I got into my office early and found a large manila envelope on my chair. I opened it and found a set of keys, a pager and a memo from our then one-person IT department that began: “As you have probably guessed, this is my resignation letter.” It went on to say that that he gave me the memo because I was the only one in the who could understand the importance of and what to do with the info in the memo.
For better or worse, he was right and it made for an interesting day and next few months, to say the least.
So, I’ve always had a special understanding of the unique legal technology needs of medium-sized law firms. By medium-sized, I mean firms of roughly fifteen to maybe one hundred lawyers.
I’ve noticed, as have many others, that there are lots of great consultants and other resources for small firms and solos, and, of course, for large law firms.
However, there seems to be a gap when it comes to help specifically tailored for medium-sized law firms. As a local St. Louis sportscaster likes to say, they are kind of caught betwixt and between.
I’ve spent quite a bit of time talking with lawyers in medium-sized firms over the past few years. I have an affinity and an affection for this group – we have a lot in common.
Firms in this category have a difficult time evaluating legal technology options and face an overwhelming, sometimes paralyzing, number of choices. I often hear that these firms simply do not know what options they really have.
I’ve also found that these firms have two overriding concerns. First, they want to be sure that they are not wasting money they are spending or making truly bad decisions. Second, even with limited budgets, they want to identify a few technology projects that will be good projects that really help them. I absolutely agree that those are the big two concerns for firms of this size.
So, I’ve found myself thinking a lot about this group of firms and have decided that I want to make this category of firms my primary focus in my consulting. It’s the category of firm or corporate legal department I can understand well and probably help the most.
As a first step down that road, I’m introducing some new, I hope reasonably-priced, consulting packages that focus specifically on the two biggest concerns decision-makers in medium-sized firms have expressed to me over the years. I described the packages as “A Second Pair of Eyes” and here are some of the details:
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A Second Set of Eyes: Legal Technology Audit and Strategic Planning Packages from Dennis Kennedy
Too many law firms and corporate legal departments flush away a surprising amount of money on poor technology choices and implementations. Maybe you work at one of them. Poor buying decisions, wasteful and duplicative projects, failure to take advantage of volume licenses and many other factors result in the waste of dollars firms actually spend. Failing to plan or put together any kind of cohesive approach to technology spending in the future will result in missed opportunities, misspent funds and mistaken priorities.
No one likes the terms “audit” and “strategic plan” these days, but the fact is that, whatever you want to call these processes, failing to do them will waste time and money, make people unhappy, and leave your firm unprepared for client demands.
In most cases, law firms have good people at work on these projects, but they are stretched too thin and simply do not have the time to become familiar with everything in the world of legal technology.
In many cases, what is needed is not a full-blown, expensive top-to-bottom consulting project, but simply a “second set of eyes” to look at your situation and help you set priorities, redirect projects appropriately and make better decisions.
Dennis Kennedy offers three standard packages designed to give you that “second set of eyes” from one of the most highly-regarded authorities in legal technology today.
1. Legal Technology Audit Package. Dennis Kennedy takes an overview look at your existing technology and your current projects based on telephone interviews and documentation you provide. Using his experience and knowledge of the industry, he provides you with a report of what you are doing right and what you can do better, with a focus on identifying places where you are wasting money or spending money in unproductive ways. You get a report, with a set of action steps for you to consider as ways to save or better spend your technology dollars. Price: $2,500.
2. The No-nonsense Quick Strategic Technology Plan Package. Dennis Kennedy will review your current technology plans, discuss your strategies, ideas and wish lists, and do a high-level review of your current technology set-up based on telephone interviews and documentation you provide. He will then produce a report that recommends three to five strategic technology goals tailored to your firm and action steps for working toward those goals. Price: $3,500.
3. The “Second Set of Eyes” Combined Package. The “audit” and “strategic plan” pieces fit together like hand in glove. You can combine both phases into a single package. Price: $5,000.
I’ve put a flyer (PDF) on my website here.
If you’d like to talk in more detail about these packages or other medium-sized law firm issues, contact me.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
This post brought to you by Dennis Kennedy’s legal technology consulting services, featuring RSS and blogging consulting, technology audit, strategic planning and technology committee coaching packages especially for medium-sized law firms (15 – 100 lawyers) and corporate legal departments. More information on the “Second Pair of Eyes” packages for legal technology audits and strategic planning may be found here (PDF).