North Carolina Bar Restricts the Sale of Self-Help Software
Under the guise of consumer protection, North Carolina has passed new legislation, at the direction of the North Carolina Bar, that imposes restrictions on distributing self-help legal software over the Internet. Rather than protecting consumers, this legislation is a frightened response by the North Carolina Bar to protect their lawyer's incomes from the impact of advances in Internet technology that provide new ways for people to solve their legal problems at low cost.
The restrictions are so severe that the result is to deprive North Carolina’s citizens of low cost solutions to solving many legal problems, inhibits innovation in developing legal solutions by an emerging self-help legal software industry, stifles competition from self-help legal software publishers, and will eliminate any possibility of private investment in self-help legal software development.
The new legislation can be found here: http://www.ncleg.net/Sessions/2015/Bills/House/PDF/H436v5.pdf
The U.S. Justice Department (DOJ) and the Federal Trade Commission (FTC) submitted a joint statement (.pdf) to the North Carolina urging lawmakers to consider the benefits of interactive legal forms. In its letter to the North Carolina legislature, DOJ and the FTC stressed that:
“The Division and FTC staff believe that “the practice of law” should mean activities for which specialized legal knowledge and training is demonstrably necessary to protect consumers and an attorney-client relationship is present. Overbroad scope-of-practice and unauthorized-practice-of-law policies can restrict competition between licensed attorneys and non-attorney providers of legal services, increasing the prices consumers must pay for legal services, and reducing consumers’ choices.”
The Agencies also stressed::
“Such interactive software products may raise legitimate consumer protection issues. The Agencies recommend that any consumer protections, such as requiring disclosures, be narrowly tailored to avoid unnecessarily inhibiting competition and new ways of delivering legal services that may benefit consumers.”
The North Carolina Legislature, supported by the North Carolina Bar have ignored these warnings. I am confident that at some point in the future a software publisher will sue North Carolina and the North Carolina bar for restraint of trade, and violation of the first amendment rights of software publishers. For now restraint and restriction prevail.
The North Carolina legislation results from the settlement of a dispute, between the North Carolina Bar and LegalZoom, over whether its services constitute the practice of law. The conditions of the settlement agreement with LegalZoom were incorporated into the North Carolina’s legislation.
The new framework exempts legal software publishers and web-based legal document preparation companies like LegalZoom, from the definition of the practice of law, provided certain requirements are satisfied.
Here is the text of the exemption:
“The practice of law, including the giving of legal advice, as defined by G.S. 84-2.1 does not include the operation of a Web site by a provider that offers consumers access to interactive software that generates a legal document based on the consumer's answers to questions presented by the software, provided that all of the following are satisfied…”
The problem with this analysis is there is a fundamental misunderstanding of the LegalZoom’s business model with products sold by self-help legal software publishers to the general public.
By a "self-help legal software publisher", we mean web-based legal software used directly by consumers to resolve a legal problem or a legal issue through automated legal document assembly applications, expert system applications, decision-tools, intelligent databases, smart calculators, and other software applications that manipulate legal sources and legal information to generate a legal solution for a user from facts provided by the user.
Web-based automated legal document software programs are now widely used on the Web and is a target of this legislation.
While the NC legislation is aimed at web-based document assembly software, the next challenge will attempt to regulate automated legal advice. Automated legal advice and other artificial intelligence applications are already becoming a reality, according to Michael Mills, co-founder of NeotaLogic.
Self-help legal software is very different than from legal document preparation services assisted by a non-lawyer directly to a consumer, whether or not aided by a legal software application.
LegalZoom is a legal document preparation provider, as distinguished from being a self-help legal software publisher.
At LegalZoom a “document scrivener” adds the element of a “peace of mind” review of the prepared document for mistakes and errors and therefore LegalZoom is a service, and not just a self-help legal software publisher. LegalZoom makes this distinction clear on its own Web Site.
Lumping together self-help legal software publishers in the same category as legal document providers is an error in legal analysis.
California already requires posting a bond and compliance with requirements by "Legal Document Assistants" serving the public directly in California..LegalZoom is now longer licensed in California under this licensing scheme, after 13 years of being licensed in California as a "Legal Document Assistant" entity. It has now moved its principal place of business to Austin, Texas, which has no comparable licensing scheme.
LegalZoom employs over 500 people to review and process documents. This high level service makes LegalZoom a legal document preparation company, not a self-help legal software publisher.
The Self-Help Legal Software Industry
The self-help legal software industry that serves consumers directly has been growing dramatically during the last decade. Entrepreneurs, non-profit groups, legal aid agencies, and courts are developing legal software applications to serve consumers directly as a alternative way of solving their legal problems at low cost.
Here is a short list of companies, among others, that now make available self-help, interactive legal forms and will now be required to be licensed under the NC statute: Nolo Press, RocketLawyer, Avvo; Staples, SmartLegalForms, Inc., U.S. Legal Forms, Inc., CompleteCase, Inc., Neota, Inc., Bridge, US , FormSwift, ShakeLaw, and LawDepot.
In addition, public and legal aid agencies provide interactive legal forms. Many non-profit organizations, state courts, and government agencies fall in the category of legal software publishers.
The North Carolina legislation also conflicts with the recommendations of the U.S. Legal Services Corporation's Report of the Summit on the Use of Technology to Expand Access to Justice. A major recommendation of the report is to expand the availability of web-based document assembly software.
Self-Help Legal Software as Protected Speech
Self-help legal software sold directly to consumers for their use is akin to a publication and arguably is protected speech under the First Amendment. The arguments for protecting self-help legal software from prior restraint are summarized in a pair of articles by Marc Lauritsen that appear here: Liberty, Justice, and Legal Automata, 88 Chi-Kent L. Rev. 917 (2013) and Are We Free to Code the Law? - August 2013 Communications of the Association for Computing Machinery.
Lauritsen argues that legal software applications, including automated legal documents, dynamic legal information tools, and expert system web advisors, are computer code and therefore “text” and entitled to First Amendment free speech protections. The “speech" contained in legal documents is not “commercial speech”, it is “speech”, like a song, a video game, a book, an interactive book, or a static legal form, and deserves First Amendment protection.
There is a difference between a “software publisher” which publishes and distributes legal self-help software applications and a Web Site that offers legal document preparation services which involve a person reviewing the document or legal form for errors and omissions.
It is arguable that software programs are immune from state bar and legislative regulation on constitutional grounds and require no exemption from the definition of the practice of law to be sold or distributed in the stream of commerce.
Besides the significant restrictions on consumer choice and increases in consumer costs that flow from an overly-broad definition of the practice of law, such restrictions are also likely to impede substantially the growth of e-commerce and self-help software-based solutions. The Internet is changing how many goods and services are delivered, and consumers benefit from the increased choices, convenience, and decreased costs that the Internet can deliver. Yet over-broad restrictions on the practice of law can impair the growth of e-commerce by (1) prohibiting or increasing the costs of electronic provision of forms or other legal self-help computer programs (2) restricting the ability of providers to experiment and develop new forms of Internet services touching on legal matters that could benefit consumers directly, (3) stopping the flow of investment capital into start-ups in this field.
So how restrictive is the North Carolina legislation? Sufficiently restrictive that if this legislation were replicated by state bars and their supporting legislatures nationwide, it would wipe out an emerging self-help legal software industry.
The legislation requires that: “The provider does not disclaim any warranties or liability and does not limit the recovery of damages or other remedies by the consumer.” Comment: I do not know of any software publisher that does not license its software without an “AS IS” warranty. This requirement would be a condition that would render void Internet Liability Insurance. No rational publisher would expose themselves to this unlimited liability.
The legislation requires that: "An attorney licensed to practice law in the State of North Carolina has reviewed each blank template offered to North Carolina consumers, including every potential part thereof that may appear in the completed document. The name and address of each reviewing attorney must be kept on file by the provider and provided to the consumer upon written request." Comment: This is a very cumbersome requirement that would increase dramatically the cost of development, particularly if software publishers had to comply in every state where they distribute. It is arguable that this requirement is “compelled speech.".
The legislation requires that: “The provider must communicate to the consumer that the forms or templates are not a substitute for the advice or services of an attorney.” Comment: This is another instance of compelled speech. Free speech includes the right not to say anything. The First Amendment includes interactive legal document software, and interactive legal advice tools are a substitute for the advice or services of an attorney.
The legislation requires that: “The provider does not require the consumer to agree to jurisdiction or venue in any state other than North Carolina for the resolution of disputes between the provider and the consumer." Comment: This is another burdensome requirement. If a software publisher seeks to publish a nationwide product, this requirement compels the publisher to defend itself in every jurisdiction.
The legislation authorizes any private attorney in the State of North Carolina to sue a provider or a person if there is an alleged violation of “unauthorized practice of law.” See: "§ 84-10.1. Private cause of action for the unauthorized practice of law. If any person knowingly violates any of the provisions of G.S. 84-4 through G.S. 84-6 or G.S. 84-9, fraudulently holds himself or herself out as a North Carolina certified paralegal by use of the designations set forth in G.S. 84-37(a), or knowingly aids and abets another person to commit the unauthorized practice of law, in addition to any other liability imposed pursuant to this Chapter or any other applicable law, any person who is damaged by the unlawful acts set out in this section shall be entitled to maintain a private cause of action to recover damages and reasonable attorneys' fees and other injunctive relief as ordered by court. No order or judgment under this section shall have any effect upon the ability of the North Carolina State Bar to take any action authorized by this Chapter." Comment: This is a license to North Carolina’s attorneys to harass self-help legal software publishers - ultimately driving them out of business.
The legislation also requires that: “(b) A Web site provider subject to this section shall register with the North Carolina State Bar prior to commencing operation in the State and shall renew its registration with the State Bar annually. The State Bar may not refuse registration. (c) Each Web site provider subject to this section shall pay an initial registration fee in an amount not to exceed one hundred dollars ($100.00) and an annual renewal fee in an amount not to exceed fifty dollars ($50.00)." Comment: This is a prior restraint. Book publishers must register in every state where they sell their books? What about legal software on CD/ROM sold in Staples or Office Depot?
Marc Lauritsen eloquently summarizes the argument for insulating self-help legal software publishers from prior restraint:
"Forbidding the distribution of self-help legal software is not only of dubious wisdom, it is offensive to First Amendment values. ...It is hard to make a principled case for suppressing freedom of expression about how the law works...Free expression, be definition, need not be authorized.
“Coded law is not something like “hate” speech at military funerals, that we must tolerate out of concern for higher values.
It is an affirmative good we embrace. There should no more be limits about what we can code and publish than what we can write about and publish. The state should not regulate knowledge distribution."
"Its understandable right to regulate professions should not extend to censoring what knowledge people can communicate.
It is in the enlightened interests of lawyers, and the best interest of society, to enable programmatic expression of legal knowledge. We should be free to write code, run code, and let others run our code. If concerned citizens, law students, and entrepreneurs want to create tools that help people access and interact with the legal system, let them do it.”
There is a sound argument for the proposition that the concept of “unauthorized practice of law” should be simply limited to policing individuals who claim or represent themselves as a lawyer but who are not licensed to practice law. The vagueness of the definition of “the unauthorized practice of law” in every state has the practical result of simply protecting the legal profession from innovation and competition. Extending a regulatory regime to self-help legal software publishers that offer legal solutions to consumers directly will be viewed by the public as another form of lawyer protectionist legislation. It damages the prospects for closing the "access to justice" gap in America. Regulating self-help legal software out of existence is a bad idea and in the fullness of time will harm the reputation of lawyers and the legal profession. Access to the legal system is too important a principle to let the legal profession regulate itself. It is time to take away the legal profession's right to self-regulation as it has abused this privilege to the detriment of the public interest.