January 25th, 2012 • Posted by George May • Permalink
In my previous post, I offered some background on the historical
tilting of the legal technology playing field toward litigation offerings. Though transactional practitioners have
certainly been under-served with technology solutions by comparison to litigators
over the years, we have seen a little more activity and innovation directed
toward the transactional side in the last decade or so. Product offerings aimed at transactional
practice at present fit broadly into several categories:
Knowledge Management
(KM) Systems
These offerings are focused on allowing the attorney to find
a reasonable precedent - some appropriate starting point for the work they are
doing. These products are typically internally
focused on ingesting and providing access to the organization's own work
product. Such systems still find favor
among organizations who value internal experience as a store of value that
should be shared as widely as possible.
But naturally, such systems don't provide the ability to find out what
is happening outside the organization's walls.
Research Services
Traditional computer-assisted legal research (CALR) has been
a part of transactional practice for quite some time. A number of information providers run
businesses built on ingesting public filings (such as those in the SEC's EDGAR
database) and providing broad access to search the entire collection. Most services have comprehensive content and
solid search tools with documents that are often lightly categorized. While these services have wide adoption, they
tend to have two problems. First, they
are typically priced in the same way as litigation research tools (i.e., more use
usually means more expense). This might
have worked well when clients universally accepted pass-through billing for
research expenses. This is certainly not
a reflection of today's cost-conscious reality.
Second, comprehensive search services place the onus on the attorney to
find the right documents among the millions available. Transactional attorneys rarely are afforded the
time to spend hours searching the volume of transactional content in these
services. Even if they choose to spend
the time (and the firm's money), clients are unlikely to pay for it.
Editorially-Driven
Services
This category of product uses experts (often attorneys no
longer in practice) to select, update and (sometimes) annotate example
documents, forms and other content to guide the transactional attorney to the
right approach for typical kinds of transactions. These services can be found both via internal
departments (staffed by practice support lawyers, KM professionals, or even
practice heads) as well as commercial services.
Editorially-driven services have great appeal to attorneys and firms who
wish to guide the less-experienced practitioner down the right path. But it is difficult to administer such a
service in a current, comprehensive and cost-effective manner. Language and standards are not static. The state-of-the-art can change. And every deal is different - perhaps
different enough not to follow a model.
Perhaps most importantly, keeping a staff of experts at the task can be
expensive.
Exemplify was created to fill the gaps left by these
solutions via an entirely new approach, one that is:
-
As comprehensive as a review of a full EDGAR
search service
-
As exacting as an expert's detailed review
-
As current and timely as the market allows
-
As easy to use as a word processor
We will be at LegalTech along with the many other vendors
and consumers of legal solutions, providing private demonstrations of our
technology and product. If you'd care to
follow our story and learn more about how Exemplify can transform transactional
law practice, please return to this space for further updates after the
LegalTech show. You can also reach us
via the contact information elsewhere on this site.
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January 23rd, 2012 • Posted by George May • Permalink
When you reach a certain age and have spent a considerable amount
of your professional life in a given industry, you often find yourself
reflecting on how things have changed.
During the 25 or so years I've been working in the legal technology
industry, breathtaking changes have swept through much of the practice of
law. Just a few examples:
-
Attorneys old enough to remember pushing paper
files around during discovery in the 1990s (or earlier) likely never would have
predicted the size and scope of today's electronic discovery market.
-
Those of us old enough to remember when the law
book publishing market was far larger than the electronic research market (yes
- I'm that old) are apt to shake our heads over the continual descent of
library spending on actual law books these days. Entire consultancies earn their living by
showing law firm librarians where to cut redundant or unneeded content, most
often in print.
-
Many of us find it highly interesting that a
profession with the same pricing method in place since Clarence Darrow - the
billable hour - now finds itself in the grip of the same sophisticated pricing
approaches as many other industries.
Pricing tied to value is now all the rage in legal.
But some things connected to the legal industry don't seem
to be changing, or at least to be changing all that quickly. One of those legal market truisms I'd like to
explore here remains largely as much the case today as ever, and that is: When it comes to innovative products and
services in the legal sector, litigators still get all the love.
The LegalTech New York show for 2012 is right around the
corner. Love it or hate it, it is the event in our industry for kicking
off the calendar year. If you provide
products and services to legal practitioners, LegalTech is still a must. I can recall quite clearly a LegalTech
several years ago, when I ran the legal software and solutions endeavors for
Thomson (now Thomson Reuters). We were
bringing a transactional KM product to the market known as West km for
Transactions (a clever name, no doubt), soon to be followed by a different
transactional solution called DealProof.
In preparing for our launch, I took the time to review the full product
listing compiled by the LegalTech team at ALM.
I wanted to know how many of the products being exhibited at the show
were designed for the needs of transactional attorneys.
By my unofficial count, well over 100 distinct products and
services were being marketed at the show.
Of these, the vast majority were either focused on litigation (including
e-discovery and online research) or back office functions (managed IT services,
ERP systems, and so on). Marketing
solutions represented another large category of offerings. And what about our friends in transactional
practice? I counted a total of six -
SIX! - products and services designed specifically for them. And that included what we were introducing
that year.
During my Thomson days, we would frequently refresh market
information about the revenue distribution among the largest law firms. While a clean split between litigation and
transactional activity can be hard to measure (some work - such as anti-trust -
could turn up in either column), the market tended to sort out to about 60/40
between litigation and transactional work.
The cyclical nature of deal work might cast that percentage higher or
lower, but no one would argue that transactional practice is not a significant
source of law firm revenue. Given the
importance of transactional law, why are the tools brought to market so seldom
focused on transactional practice as opposed to litigation?
Some of the explanation is historical. The precedential nature of U.S. law means
that collections such as case law continue to have value even as the content
ages. Likewise, the growth of the
e-discovery market is driven by the sheer immensity and explosive growth of the
world's electronically stored information. It is only natural that creators of legal
products would choose to focus their innovations on these areas.
At Exemplify, we feel that transactional law practice is
ready for a breakthrough innovation.
During the LegalTech show, our company will be providing an early look
at our technology and product to a select group of large law firms and
corporate legal departments. I expect
you will be hearing more about our solution as the year unfolds. If you'd care
to learn more, you may get in touch with us via the contact information
elsewhere on this site.
I myself have lost count of how many LegalTech shows I've
attended, but this one should be rather exciting for us. Throughout 2012, we
will be working to deliver a better set of tools for transactional attorneys. After all, transactional attorneys need love
(and advanced products) too.
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December 8th, 2011 • Posted by George May • Permalink
It is among the most human of feelings to look back on something we’ve said or written and wish we could have it back. Sometimes we learn later that our words were not understood as we intended them, leaving the recipients confused. Worse still, we may learn that our words caused actual harm, even if we didn’t intend that. In the professional world, who among us hasn’t written an email that we wish we could have worded more carefully, or never sent at all? As a parent, I find myself continually reminding my sons to choose their words carefully. The knowledge that words have meaning and power is among the most important lessons we can impart in life.
If the lesson about choosing one’s words carefully carries great weight with nearly everyone, it carries even more importance for attorneys crafting complex documents connected to major business transactions. There are few circumstances in the professional world where words matter more than in high-stakes law practice. A single misplaced phrase or missing clause can cost a client millions of dollars or lead to a lost business opportunity. There are many examples of cases litigated over documents that were unclear, poorly phrased or that failed to contemplate an important circumstance. In some cases, these events could not have been foreseen. But in most cases, the kinds of mistakes that trace back to drafting errors are avoidable. For those seeking to understand the impact a few words can make, the case of Glazer vs. Pasternak stands as a cautionary tale worth hearing.
As discussed at the link offered above, the facts of the case (as originally decided by the Delaware Court of Chancery) were as follows:
In September 1995, Zapata's board created a special committee to consider the possible acquisition of Houlihan's, a company controlled by Zapata's chairman, Malcolm Glazer. After months of negotiations, the parties entered into a Merger Agreement in June 1996, pursuant to which Houlihan's would merge into a newly-formed Zapata subsidiary and Houlihan's stockholders would receive Zapata stock in exchange for their Houlihan's stock.
The Merger Agreement provided for stockholder approval by a simple majority vote. A Zapata stockholder challenged the proposed merger alleging, among other things, that the transaction was governed by Article SEVENTH of the Zapata certificate of incorporation, which requires approval by 80 percent of the stockholders for specified transactions. The parties agree that the Houlihan's merger would have triggered the supermajority vote provision if Houlihan's were merging into Zapata, the parent company. The issue is whether Article SEVENTH also applies where the merger is with a Zapata subsidiary.
The [Delaware] Court of Chancery held that the supermajority provision applies to mergers with Zapata subsidiaries. Accordingly, the trial court enjoined the proposed Houlihan's merger. Less than a week after the injunction was entered, Zapata filed this appeal. At the same time, the Zapata special committee announced that it terminated the Houlihan's Merger Agreement.
You may learn more about the legal arguments by reading further at the link provided. However, our purpose here is not to fully research the court proceeding. Instead, we must ask a few interesting questions:
• Why was this dispute any sort of disagreement at all? How were the procedures for a merger left ambiguous in the first place?
• How could the dispute (and the resulting withdrawal of the proposed merger) have been avoided?
As it turns out, the crucial issue in this matter turns on just three little words – words that were missing from the defendant’s certificate of incorporation. This passage from the critical document highlights the issue:
...the affirmative vote or consent of the holders of 80% of all stock of this corporation entitled to vote in elections of directors, considered for the purposes of this Articles SEVENTH as one class, shall be required: (i) for a merger or consolidation [of this corporation] with or into any other corporation, or (ii) for any sale or lease of all or any substantial part of the assets of this corporation to any other corporation, person or other entity, or (iii) any sale or lease to this corporation or any subsidiary thereof of any assets ... in exchange for voting securities ... of this corporation or any subsidiary by any corporation, person or entity, if as of the record date for the determination of stockholders entitled to notice thereof and to vote thereon or consent thereto such other corporation, person or entity which is party to such a transaction is the beneficial owner, directly or indirectly, of 5% or more of the outstanding shares of stock of this corporation entitled to vote in elections of directors, considered for the purpose of this Article SEVENTH as one class. Such affirmative vote or consent shall be in addition to the vote or consent of the holders of the stock of this corporation otherwise required by law or any agreement between this corporation and any national securities exchange.
The intent of the person drafting the certificate of incorporation was likely to require approval of 80% of the shareholders for mergers with the publicly traded parent corporation, not with transactions within subsidiaries. However, as the above passage shows, the issue was left to chance due to ambiguous language. The Delaware Chancery Court decided, as it often does, to hold the defendant to the letter of their certificate of incorporation. This outcome could have been avoided with the insertion (shown in red above) of just three critical words – “of this corporation” – into the relevant portion of the paragraph above.
We can never be certain how the company who was sued in this case (or the law firm that may have worked for them) managed to omit these three crucial words. Perhaps they were never there. Perhaps a well-meaning attorney edited them out, thinking they were redundant or unnecessary. The question will remain unanswered. But what the lawyers drafting the certificate could have known, had the right technology existed, is that those three words almost always are there, in the standard version of the very same paragraph. The issue highlighted here – important instances where legal language differs from accepted conventions or market standards – will be with us as long as law is practiced, but visibility into those market standards need not remain a mystery.
We here at Exemplify are bringing our product to market to help protect our clients from the kinds of outcomes illustrated by Glazer vs. Pasternak. Fortunately, we live in a time where the right product and technology do exist to show attorneys the clear, prevailing market standards for language and terms in complex legal documents. That is exactly what Exemplify will bring to transactional legal practice.
If you would like to learn more, please get in touch with us via the contact information on this Web site. We would be pleased to show you how to avoid a fate similar to the one illustrated in this post. After all, words do matter.
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October 25th, 2011 • Posted by Robert Anderson • Permalink
When I graduated from law school, I went to work as an
associate at a major Wall Street firm in one of the leading corporate finance
and mergers and acquisitions practices.
The firm regularly ranks as an industry leader, earning that reputation
across countless major transactions. As
an associate, my job was primarily to produce first drafts of complex documents
that ranged from a dozen pages to several hundred pages. In the course of
thousands upon thousands of hours drafting documents, I found myself doing what
newer transactional associates did in every law firm in America -- drafting lengthy,
complex documents based on precedents, wading through long paragraphs I had
never seen before, and always striving to meet expectations -- market standards
that form the essential currency of deal documentation.
In many cases, I had a starting place for producing these
documents. I might have been pointed to a reasonable precedent, perhaps a
recent document drafted by someone at the firm.
If I were that fortunate, I would take that document and begin
de-customizing the precedent from the last transaction, and re-customizing the
precedent for my transaction. That was
the easy part of the job, and was the place where often the most junior
associates had to stop.
The reason is that deal documentation in top-tier firms is
not simply changing the names and dates in a precedent document. Instead, our
work always involved consulting, comparing, and synthesizing language from multiple
precedents. And it is here that the assignment became tricky. Certainly, there is no shortage of places to
search and find transactional documents, most notably the EDGAR database of the Securities and
Exchange Commission. Associates can look
at these collections, find suitable points of comparison to the current deal,
and prepare a document that would meet the standards for the transaction type,
the industry type, and the firm's own demand for perfection. The idea is that by leveraging the latent
wisdom in language that survives repetitive duplication in precedent after
precedent, lawyers are able to use the most effective language, secure the best
terms, and avoid important risks. This is exactly what partners would want the
associates to do-produce a perfect market standard document for the current
transaction-if only there were enough time.
Unfortunately, there never is enough time. When I was drafting, I always faced the
tension between getting the document perfect and getting it done fast. The drafting had to be perfect, and perfect
meant not deviating from market standards unless there was a good reason to do
so. But the drafting also had to be fast. Clients didn't want to wait for us to
exhaustively survey the market for each provision, and they didn't want to pay
for that either. Inevitably, I would
only have time to check a small number of other documents and move forward with
what I had learned. There was simply no
way to conduct a comprehensive review of the language and terms for every type
of deal I was working on. At the same
time, everyone knew that if litigation arose down the road, litigators would
have the leisure to scrutinize every word. This is the key risk that document drafting
presents, and one of the reasons that it has become so expensive and
inefficient.
This method of finding authoritative terms and language in
deal documents was used literally everywhere when I was practicing -- and it
still is. Today, I teach Contracts,
Corporations, and Mergers & Acquisitions law at Pepperdine University. I am in regular contact with practitioners in
many leading law firms. The methods in
use today for crafting the best deal documents haven't been altered or improved
since I was in law school. The most
significant technological innovations in transactional legal technology remain those
I used a decade ago in legal practice: EDGAR (established in the early 1990s),
word processing (prevalent in the 1980s), and legal black-lining technology
(1980s).
The transactional legal market is ideal for a technological
solution. Standardization is the currency in transactional legal practice, and for
good reason. There is wisdom in the persistent features that survive multiple instances
of duplication, over years of being tested in the marketplace and the courts. And
standardization in documents is exactly the type of thing that computer
technology is particularly adept at revealing.
But there is no technology driven toward discovering market
standards -- only associate hours. As a result, junior associates manually try to
determine the market standards for particular types of transactions, wasting
countless hours comparing deal documents and often turning in a product that
the senior associate or partner must completely redo.
The current process of transactional legal drafting is not
just inefficient and costly (as well as demoralizing to the junior associates
involved), but also carries considerable risk for the law firm and the
client. Miss a single critical clause,
and the client may find himself on the losing side of a lawsuit years down the
road. Miss just a few key words in a
lengthy document, and you may have cost the client millions of dollars or
placed the business at a competitive disadvantage. In transactional law, the stakes are always
high and perfection is the standard.
That standard is out of reach with the tools currently available.
I knew there had to be a better way of conducting
transactional legal work. And after
almost a decade of research and development, I can confidently say that now
there is. Please stay tuned to this
ongoing blog where over the coming months we will unveil the next generation of
transactional legal technology.
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October 25th, 2011 • Posted by George May • Permalink
In a number of current popular books,
as well as in the commentary of some leading columnists such as David
Brooks of the New York Times, we recently have seen an
interesting question posed: Why do some aspects of life and certain
industries seem to be evolving at such a rapid rate, while others
seem not to have changed for decades?
The recent passing of Steve
Jobs, founder and CEO of Apple Computer, has led to further
consideration of his remarkable career. Beyond the innovations Jobs
led with personal computers going back a generation, it has been even
more impressive to consider the incredible technological advancements
he helped to provide in just the last ten years in industries such as
digital music and video, cellular telephones and tablet computers.
When one considers that the iPod debuted in 2001, the iPhone in 2007,
and the iPad as recently as 2010, you can’t help but marvel how
many of these leaps forward have come so recently.
Yet, in other fields of human endeavor,
progress seems to have slowed or stopped altogether. Take a look
around your kitchen. The basic technologies you see – oven,
refrigerator, dishwasher – are much the same as they were 50 or
more years ago. The most recent major addition to the kitchen
landscape – the microwave oven – dates back to the 1970s for its
first wide appearance.
In medical science, we see innovation
accelerating in some respects and slowing in others. Many surgical
procedures are much less invasive and produce higher quality results
more consistently than they did just 20 years ago. But the pace of
innovation around new medicines seems to have slowed to a crawl in
the last 20 years. During the early and mid-20th century,
diseases that were the scourges of the planet were eradicated (at
least in most places) by new vaccines and medicines. And what about
more recently? Arguably, the most important medicine invented in
roughly the last 25 years has been the cholesterol-reducing medicine
Lipitor and others
in the atorvastatin family. This drug was first synthesized in a
laboratory in 1985. Lipitor has been around so long that its
inventors will lose the mandated 17-year patent protection (with the drug becoming available as a generic) later this year. Meanwhile, most of
the diseases and ailments that cause most human deaths and suffering
– cancer, Alzheimer’s, and many others – have not been the
target of major medical advances.
In the legal industry – where I’ve
spent over 25 years creating products and leading businesses – the
story is much the same. On the one hand, we’ve seen a great deal
of technology come into the practice of law. The electronic
discovery industry, all but unknown just over a decade ago, is now a
multi-billion dollar market with scores of technology companies vying
to create new business opportunities. As a result, law firms have
had to become much more technologically savvy to deal with
advancements in electronically stored information. Even today, the
pace of change in the e-discovery industry still seems to be
accelerating, along with all the attendant consolidation and
innovation one expects in a growth industry.
But just as in the other examples I’ve
shared, we see other corners of the legal industry little touched by
advancements in technology and methods. The advances in legal
technology that have revolutionized litigation practices have had
little impact on transactional legal practice, which is still carried
out almost exactly as it was a decade ago.
Every bit as much as on the litigation
side, transactional lawyers also have massive storehouses of
electronically stored information to consider, both in firms’
internal databases of work product (accessed through various
knowledge management products and approaches) and on the EDGAR
database of the Securities and Exchange Commission (and its
commercial counterparts). The KM methods are quite often the source
of a reasonable precedent as a place to start. But, inevitably, some
attempt must be made to validate the proposed language and terms with
the broader marketplace, usually by accessing one of the EDGAR search
services.
The limitations of this approach are
fairly obvious. All of the EDGAR search services, whether commercial
services or in the public domain, contain millions of documents.
Though they are offered with search technology and are (in some
places) lightly categorized, there is simply no way to find the
common, authoritative language and set of terms that fit the
situation you might be in. In the end, looking at a few examples and
attempting to analyze them with a redline comparison simply doesn’t
do justice to the problem. It’s even worse than looking for a
needle in the proverbial haystack. When looking for reasonable
precedents, a transactional attorney might feel that his or her
assignment is very much like the one drawn by the protagonists in the
movie Saving
Private Ryan. When the character Captain John Miller
(played so memorably by Tom Hanks) receives the order to find Private
Ryan amidst the thousands of Allied and enemy soldiers advancing
through occupied France, he compares it to “looking for a needle in
a stack of needles.”
The methods in use today for crafting
the best deal documents haven’t been significantly altered or
improved since I started in the industry, which is longer ago than
I’d like to admit. How is it possible – given the advances in
search technology and computational linguistics that we’ve seen in
just the last decade – that the leading law firms in the country
still ask transactional attorneys to prepare documents by finding and
comparing them one at a time?
It is the quest for something new and
different to solve this problem that is the driving force behind
Exemplify. For further thoughts on this topic, please read the
subsequent post from our founder, Robert Anderson. If you’d like
to see what Exemplify does for yourself, please get in touch with us
via the contact information elsewhere on this site. Experienced
partners at major U.S. law firms who have seen Exemplify have told us
that they think it will transform the way law is practiced in this
area.
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