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Rethinking the Legal Contract

Sep 18, 2013 | Updated Nov 18, 2013

If you're like most people, you probably think legal contracts might as well be written in a foreign language. They're long, complicated, and opaque. Unfortunately hiring a lawyer to explain them to you is expensive, as few lawyers charge less than $150 per hour.

Sensing an opportunity, technology companies have stepped in. Legalzoom was a pioneer in providing easy online access to legal documents. Shake, a new application, takes this a step further by allowing users to create their own legally binding, plain-English contracts in seconds on their iPhones. (Disclosure: I am a member of Shake's Board of Directors).

While I don't believe that technology will ever completely replace lawyers, I do believe the underlying factor driving these technologies is a hunger for simplicity and cost-effectiveness when it comes to legal matters - and the sense that the legal establishment has failed to deliver.

I think back on my own career. In my first assignment as a newly minted lawyer at a big law firm, my firm was representing a technology company that was acquiring another company. My job was to read each and every contract belonging to the other company to make sure it didn't present any roadblocks to our deal.

As I sat alone in a windowless room with a pot of coffee and a dozen boxes of documents, I could feel a knot forming in my stomach. The truth is, even with my legal training, I understood very little of what I was supposed to be reading. The contracts were so jargon-laden and convoluted -- all of them, page after page, box after box.

Fast forward a few years. Google had just hired me to help scale up their still nascent advertising business. At the time, many of Google's advertising agreements, drafted by outside lawyers, were written in the same impenetrable language that I had encountered in my law firm days. Not surprisingly, Google's would-be advertising customers were just as confused by the legalese as I had been in that windowless room. And they were reluctant to sign what they didn't understand, which made my job difficult.

After a year of trying to work with these old agreement templates, I decided to make it my personal mission to redraft all of them to make them short, simple, and free of legalese. My efforts paid off better than I could have hoped. Deals at Google got done much faster, and everyone was happier. And these new contracts were just as legally sound as the old ones, because contracts don't have to be complicated to be legally binding.

My legal simplification initiative worked at Google because many of our partners were entrepreneurs and dealmakers, often at relatively small companies. They didn't have the time, appetite, or in some cases the money to hire expensive lawyers just to decipher the jargon in those ponderous agreements. The most important thing was getting business done; the legalese was just a diversion.

In a way, what was true of Google's early advertising partners then is true of many small businesses today. The family-run dry cleaner, the solo accountant, the freelance wedding photographer - none can afford to pay lawyers just to decode the work of other lawyers. Especially when doing so would just slow things down. So they move forward with all kinds of deals without any legal help, saving the phone call to the lawyer for when something goes wrong.

This doesn't seem to bother the legal industry as a whole, since the vast majority of the $270 billion flowing into it comes not from small businesses but from large corporations. Yes, some lawyers are concerned about the fact that three out of five middle-class Americans cannot afford legal help, but those concerns tend to focus on a person's ability to get representation in court, not when doing business deals.

And yet, there is a trend underway that the legal industry would be remiss to ignore - and that small businesses and entrepreneurs might benefit from. The economy is undergoing a fundamental shift from a full-time to a part-time and freelance workforce. By 2020, 40% of the American workforce will consist of freelancers hired for individual jobs.

Freelancers -- and the companies that hire them - will be less likely to have the kind of sustained, continuous, long-term relationships with lawyers that larger companies do. Mirroring their own work life, they will seek to choose legal services a la carte, will expect more value for their money, and likely won't settle for complexity in documenting relatively small transactions, where speed and simplicity should reign supreme.

When I first began my career as a lawyer, puzzled by those mystifying contracts, I felt ignorant. Only later did I realize that the problem wasn't me, but instead the mindset that seems to equate legal complexity with legal legitimacy. Unfortunately, the intimidation and confusion I felt in those early days is experienced everyday by countless non-lawyers who struggle to understand the basics of contracts they're signing or asking someone else to sign. They have a right to a more user-friendly experience. If the traditional legal services industry doesn't rise to the challenge, others surely will.