SimpleLegal (YC S13) Reduces Legal Bills With Machine Learning

In the days when law was more a "profession" than a business, blue-chip clients would pay the bills of blue-chip firms based on, e.g., a $50K invoice that said "For services rendered." In a typical case, no further explanation given and none requested. This probably was a vestige of the "old boy's network" by which top lawyers and top executives came from a similar elite pedigree and it was regarded as undignified to question professionals about the mysteries of how they worked their craft. (This goes back before my time but I have it on good authority from senior partners with whom I worked circa 1980 in prestige firms).

That represented billing at the elite level of law. In the mundane, everyday practice of law, the common practice in billing was indeed that of fixed-fee services. In pre-Silicon Valley days of Santa Clara County in the 1950s, for example, sole practitioners would bill for basic services based on a fee schedule put out by the local bar association (e.g., "Preparation of will - $400"). Those were the days when local bar associations held much more sway than they do today and, in order to practice, a local lawyer had to do such things as sign up to represent criminal defendants in murder cases as part of an obligatory process (these were the days before the Supreme Court rulings made the right to counsel in capital cases a much more involved process than it is was back then). In any case, it was the courts that caused time-based billing to be foisted on clients as a matter of routine when they struck down the local bar fee schedules as illegal price-fixing.

The pattern above is pretty evident: in all cases, lawyers as professionals were seen as part of a closed network by which they themselves set the rules that everyone else simply had to accept. In billing, that meant that lawyers billed as they deemed fit without much scrutiny and without much explanation.

The scale of law was also very different then: back in that day, a prestige law firm in San Francisco, for instance, might have 20 to 25 lawyers at the most. The work it did was sophisticated but a typical high-end practice might have included heavy doses of such things as personal injury, maritime practice, construction, and the like in addition to sophisticated commercial and contract work.

As litigation exploded in the 1960s and 1970s, as law came to fill social needs previously not considered within its province (e.g., non-discrimination laws), and as mechanisms were adopted to promote large-scale legal actions (e.g., class actions), law morphed from having been primarily a "profession" to being primarily a business. The McCutchen (now Bingham) firm that I worked for in the early 80s had about 250 lawyers then and was considered elite. In 1965, it has 20 lawyers, a level to which it had grown from its formation in the 1880s. Today, it has well over 1,000 lawyers and is part of a conglomerate firm with branches in many cities throughout the world. Along with this growth came the rise of hourly billing practices that were typically "aggressive." Demand was such that large companies sopped up the services and paid dearly for the privilege: high rates, team-based billing practices with multiple attorneys and paralegals typically staffing a matter while each billing every minute of all their interactions with one another in meetings, chats, intra-office communications, etc.

In the beginning, as this explosion in growth occurred, clients were reticent to question the resultant high billings. By the mid-1980s, however, the remnants of the old-style "profession" were rapidly fading and law was a big business. Firms such as Finley Kumble were suddenly formed out of nothing by defecting big-firm partners who saw large and fast profits as the primary goal of their business and the billing practices quickly became abusive (Finley became a poster child for this sort of thing and fell apart owing to client revulsion at such abuses).

Thereafter, large companies began to question billings much more closely. The rise of in-house lawyers was in part a reaction to the high cost of outside services but, in time, those lawyers were also used routinely to "manage" the outside firms by keeping their billings in line, among other things. After a while, as the go-go years of the 1980s and 1990s culminated eventually in the tech bubble of 2000, a funny pattern emerged by which a big-firm billing was almost in the nature of an "opening offer." It would routinely come in very high, the in-house people would demand it be reduced, and, after some back-and-forth, "adjustments" would be made and it would be paid.

The pattern lasted until the bust of 2008 and 2009, which bust sent the big firms reeling and has caused a further re-evaluation of billing practices. The reason for the further change was simply one of supply and demand. Pre-bust, no matter what the abuses, the law firms held ultimate sway because even the largest companies with the most sophisticated in-house staffs would be wary of switching firms easily or of wanting to alienate their main outside firms in any way. That changed with the bust. Suddenly, the large firms looked bloated, overstaffed, and inefficient. And clients, who came to hold the leverage, used it to demand billing concessions: lower rates, caps, fixed-fee arrangements, discounts, and the like. And the law firms had to adjust.

In the meantime, quite apart from the big firms, technology has changed law firm billing practices generally. Owing to the widespread availability of information today, clients are much more savvy about how legal billing works and are not hesitant to ask for arrangements that make sense for the client even while being fair to the lawyers providing the services. Thus, scrutiny of legal billing is taken as a given and we have indeed come around 180 degrees from where it all used to be.

What SimpleLegal is doing is thus very timely and interesting. Honest and fair billing should be the goal of both lawyers and clients and this seems like an excellent model for helping to promote this. I wish them well in their endeavors.

I've seen this work with other companies. For example, http://www.sourceconsulting.com/ which monitors FedEx and UPS bills for errors and refunds.

There's also a legal company in New York that courier companies use to fight all of their traffic tickets (which really add up). Whenever they lose the appeal, the legal company gets nothing, but if they win, the courier company pays something like half of the ticket price to the legal company. It really makes it a no-brainer to sign up.

Unless of course you agreed with your lawyers that any invoice would be subject to review by SimpleLegal although I would suspect there would be some opposition to this. Although of course doesn't take away from the value of the service in allowing a company to monitor legal expenditure and to gain greater insight into this (possibly with a view to obtaining leverage for future fee discussions).

On a final point, your privacy policy already assumes that you will use data to improve your service and to provide external reporting. This would seem to imply a degree of aggregation. Although as stated this would be on an anonymous basis, the very fact it happens may be off-putting to certain companies.

Also, there might be a business opportunity on the flip side. One of the things law firms worry about is collection rate: the percentage of bills that are paid. Industry-wide, the rate hovers in the mid 80% range. Could this technology be used to get clients and firms on the same page and boost collection rates (even if it resulted in discounts elsewhere)?

Really excited to see how things evolve for them.

Indeed, the larger problem faced by SL, and one that the legal industry as a whole is now facing, is the shift from per-hour/itemized billing to flat-fee for service arrangements which are becoming a significantly larger portion of the market across all fields (and which already dominate legal markets such as immigration, criminal, estate planning, and tax).

Partners typically edit bills substantially before sending them out to clients, and I know a partner in my current job spends hours doing this every week for our practice group; I don't think he has much love for the process, so a way of automating it would be amazing, I'm sure.

Implemented contact us form in PHP: 6 hours, $720 .. BZZZZZZT!!

To these guys at TC it seems that sexy is the priority. Glad to see that for pg and co. sexy = profitable too. That's what business is about, please remind crunchie folks.