How to Read a Book Contract – How Long Does It Last?

11 March 2013

Given the recent discussions the SWFA began about Hydra’s contract, including the fact that it lasts almost forever, here’s a reprise of a post PG wrote on the subject a couple of years ago:

One of the standard provisions in almost every type of business contract is one that is sometimes titled, “Term and Termination.”

The Term part says how long the contract will last. One year, three years, etc.

The Termination part provides for ways that one or both of the parties can end the contract before its term is complete. Termination can include provisions that allow a party to terminate if the other party violates a material provision of the contract or it may simply give one or both parties the option to end the contract after a notice of so many days.

In a typical business contract, these are ordinarily brief and very straightforward. Usually, there are no gotchas here.

When PG first started looking at publishing contracts, he was surprised at the absence of any short and sweet termination provisions and few had any set term. Often, the publisher could terminate the contract or simply let the book wither on the vine, but the idea that, if the book was published, an author could terminate a publishing contract after five or ten years was nowhere to be found.

A bit of internet research disclosed sample contracts or clauses or checklists on the websites of attorneys who regularly deal with publishing contracts that show the same thing – the author doesn’t get to terminate after a specific period of time. In fact, the author can never terminate unless the publisher goes bankrupt or allows the book to go out of print (lots of murkiness here).

Let’s remind everyone how long a copyright lasts in the United States. Generally speaking, a copyright lasts for the life of the author plus 70 years.

Passive Guy has dealt with many different types of contracts during his legal and business career, but never had one that lasted for 50 or 75 or 100 years or more. Real estate mortgages of 30 years were by far the longest contracts he saw.

PG would bet you could comb through the contracts files of most Fortune 500 companies without finding a 100 year contract. Why does a publisher need a 100 year contract for a book?

PG would also bet that if he spoke with an ancient publishing lawyer, that lawyer would tell him the tradition of life of the copyright terms for publishing contracts began before 1964, when the length of a copyright in the U.S. was 28 years. During that period, if anyone remembered to renew the copyright, it could be extended for another 28 years, otherwise it expired. 28 years is still a long time, but it’s not as weird as 100 years or longer.

100 years is not slavery, but it’s not right either. What the current publishing standard means is that a 21-year-old author who signs a book contract will have to live with that contract every day, every year, for the rest of her life. She may hate her publisher, but when she’s teetering about in her 90′s, she’ll still have that book contract strapped to her back.

The law provides statutes of limitations for nearly every sort of crime except murder. If I take a gun and rob a gas station when I’m 21, after 7 years or 10 years (statutes of limitations vary by state), I can’t be prosecuted for that crime even if I admit I’m the bad guy.

However, if I don’t commit a crime and instead sign a publishing contract, I’m never free of it again. There’s no statute of limitations on publishing contracts.

So, here’s Passive Guy’s modest proposal for upsetting the publishing apple cart – a maximum ten-year term for all publishing contracts.

If the publisher can’t cover its costs and make a reasonable profit within ten years, either the book or publisher are defective. The publisher and author can always come to an agreement to extend the publishing contract for longer if both parties really want to do so.

Oh, and ten years is probably more time than you would serve for armed robbery if it was your first offense.

PG would be remiss in his rabble-rousing if he ended his discussion with a frontal assault demanding a term for a publishing contract that was in the same universe as nearly every other class of business agreement.

PG has previously discussed a minimum wage for authors contract provision here and here.

It’s easy to focus on the dollar amount in such clauses and how they could guarantee a reliable stream of payments to an author. However, they also serve another important purpose. For 99.99% of books written, such a clause will cause a publishing contract to terminate well before the life of the author plus 70 years.

On the True Costs of Bargain Books, Or Guilting Readers Because Authors Signed Bad Contracts

10 June 2016

From The Digital Reader:

James Mayhew has taken up the cause of trying to guilt, harangue, or otherwise convince readers to overpay for books from legacy publishers.

About a month ago (I just now found it) Mayhew published a post where he argues that fans should not buy bargain price books because an author’s royalties are slashed as the price drops.

So how does it all work? Authors get paid royalties, which are a percentage of the book price which you may (or may not) earn from books sales, usually around 5-10% of the price, but very often less; most books are discounted in any case, and the royalty shrinks accordingly. In simple terms, you would expect to get between 50p and £1 for each hardback book sold (and less on a paperback). This is completely normal, and I have no complaints, although it’s often a shock to people.

What happens when books get discounted further? Subject to contractual terms, the royalty may shrink on cheaper books. So you end up getting a tiny % of an even smaller amount. We are talking pennies. Once upon a time there was a system called the Net Book Agreement, limiting the extent to which books could be discounted. But that was abandoned in favour of a “free market” years ago. The result? books can be reduced to next to nothing.

But increasingly, publishers broker cold, hard, cynical deals with these people and then print to order. The publisher is complicit in the arrangement and sells books at extremely low prices (less than 50p per book) to the discount catalogue (but not at a loss to themselves) who then sell them on at a very nice profit – usually £1 per book. Tens of thousands of copies. And the author? I get less than 4p a book, while the discount company makes millions every year. …

. . . .

Authors and publishers might see things differently, but what I see here is an author who is trying to guilt readers over the price they pay for books.

That is a pretty obnoxious behavior, but it gets worse when we look at it sideways. That’s when we realize that the real issue here is not the price of the books but the contract terms Mayhew agreed to. He’s trying to make readers responsible for his, and other authors’, bad business decisions.

Link to the rest at The Digital Reader

That’s just the strategy for attracting more book buyers – make them feel guilty for doing so when books are discounted.

PG suggests that when indie authors are talking to readers, in addition to thanking them for buying the author’s books, it might be a good idea to let the readers know that when they buy indie ebooks on Amazon, in many cases, most of the money goes directly to the author. That’s why Amazon is such a great friend to authors and readers.

Publishing Contract Red Flag: When a Publisher Claims Copyright on Edits

26 February 2019

From Writer Beware:

It’s not all that common, but I do see it from time to time in small press publishing contracts that I review: a publisher explicitly claiming ownership of the editing it provides, or making the claim implicitly by reverting rights only to the original manuscript submitted by the author.

Are there legal grounds for such a claim? One would think that by printing a copyright notice inside a published book, and registering copyright in the author’s name or encouraging the author to do so, publishers are acknowledging that there is not. It’s hard to know, though, because it doesn’t seem to have been tested in the courts. There’s not even much discussion of the issue. Where you do find people talking about it, it’s in the context of editors as independent contractors, such as how authors hiring freelancers should make sure they own the editor’s work product, or how freelance editors might use a claim of copyright interest as leverage in payment disputes.

In 2011, Romance Writers of America published a brief legal opinion on its website (still on the website, but unfortunately no longer accessible by the public), indicating that the claim would probably not prevail in court. But that’s the only legal discussion I’ve been able to find.

The legal ambiguity of a copyright claim on editing is good reason to treat it as a publishing contract red flag. But that’s not all.

It’s not standard industry practice. No reputable publisher that I know of, large or small, deprives the author of the right to re-publish the final edited version of their book, either in its contracts or upon rights reversion. One might argue that in pre-digital days, this wasn’t something publishers needed to consider–books, once reverted, were rarely re-published–whereas these days it’s common for authors to self-publish or otherwise bring their backlists back into circulation. But publishers haven’t been slow to lay claim to the new rights created by the digital revolution. If there were any advantage to preventing writers from re-publishing their fully-edited books, you can bet it would have become common practice. It hasn’t.

Link to the rest at Writer Beware and thanks to The Digital Reader for the tip.

PG says this is a carryover from olden days when publishers felt they could bully authors and authors would have to take it.

PG thinks most judges would look askance at an editor’s claim that he/she owned the copyright to the completed work, especially in a situation in which the author had provided an editor with a complete draft of the book and the editor made editorial corrections and suggestions.

Additionally, if a fee for the editor’s services was negotiated in advance and paid according to the agreement of the parties, PG thinks a broad license to use any part of the editor’s work that was provided per the agreement would be implied by the relationship.

You can also look to the custom of the trade, whether, prior to starting work, anyone had mentioned anything about the editor retaining a copyright interest in and to the work, etc.

Additionally, what, exactly, does the editor’s copyright include? A period that replaces a semi-colon in the original ms. and the capital letter that replaces the lower-case letter in the first word following the period?

If, according to US copyright law, the author owned a copyright to whatever the author sent to the editor, how does the editor overcome an argument that, if the editor’s work is potentially copyrightable, it is a derivative work based on the author’s copyrighted original work. Absent some sort of agreement with the author, how does the editor gain an ownership interest in a derivative work?

Here’s what part of what the US Copyright Office says about derivative works in its Circular 14:

A derivative work is a work based on or derived from one or more already existing works. Common derivative works include translations, musical arrangements, motion picture versions of literary material or plays, art reproductions, abridgments, and condensations of preexisting works. Another common type of derivative work is a “new edition” of a preexisting work in which the editorial revisions, annotations, elaborations, or other modifications represent, as a whole, an original work.

To be copyrightable, a derivative work must incorporate some or all of a preexisting “work” and add new original copyrightable authorship to that work. The derivative work right is often referred to as the adaptation right.

. . . .

Only the owner of copyright in a work has the right to prepare, or to authorize someone else to create, an adaptation of that work. The owner of a copyright is generally the author or someone who has obtained the exclusive rights from the author. In any case where a copyrighted work is used without the permission of the copyright owner, copyright protection will not extend to any part of the work in which such material has been used unlawfully. The unauthorized adaption of a work may constitute copyright infringement.

So, when did the author grant the editor permission to use the author’s copyrighted work to create a derivative work? If the editor used the author’s work without the author’s permission, none of the editor’s work is entitled to copyright protection.

What Ian Fleming Did to Make James Bond a Success (Besides Write Terrific Books)

26 August 2018

From Anne R. Allen:

It’s not just today’s authors who work hard. Consider Ian Fleming.

The Man With The Golden Typewriter: Ian Fleming’s James Bond Letters is a collection by Fleming’s nephew of the author’s letters to his publisher, editors, colleagues, other writers, fans, readers, and friends.

They were written in the 1950s when the British mail service operated at high efficiency. A letter mailed in the morning would be delivered the same day. The letters are organized chronologically and were written contemporaneous to the publication of the James Bond thrillers, beginning with Casino Royale.

Lively, witty, and extremely informative about the inner working of book publishing at the time, the letters reveal Fleming to be a man of charm, lively intellect and wide interests.

He was also a hard-working author concerned with the technical, editorial, and financial details of publishing.

. . . .

In fact, his publisher was—shall we say—barely lukewarm about Casino Royale. He had little interest in thrillers, “believing them to be short-run phenomena that rarely covered their costs. Nor did he think much of their authors, and suspected that Fleming was a dilettante. Remarkably, Casino Royale was the only Bond book Fleming’s publisher ever read.”

. . . .

Fleming was a disciplined writer. Every morning, for three hours, he sat at his desk and typed 2,000 words of a new Bond adventure during January and February. Those were the months he spent in his house, Goldeneye, located on the Caribbean island of Jamaica.

He shored up his discipline by “obstinately closing my mind to self-mockery” and wondering “what will my friends say?” He joked that as “a confirmed bachelor on the eve of marriage, I decided to take my mind off the dreadful prospect by writing a thriller.”

. . . .

Fleming also wrote blurbs, concerned himself with the details of covers and size of print orders, and suggested ads and promotions, Also, he drummed up reviews, contacted magazine editors about feature stories, and concerned himself with the size of print orders, advertising budgets as well as the ads themselves.

Nor did he overlook the details of his contracts—royalties, foreign editions, option, serial, movies, and tv. He worked closely with cover designers, making suggestions about images, and commenting on title fonts.

. . . .

The novelist Michael Arlen advised him to “write your second book before you see the reviews of the first. Casino Royale is good but the reviewers may damn it and take the heart out of you.” Heeding Arlen’s words, Fleming completed Live and Let Die before its predecessor had even been published.

Link to the rest at Anne R. Allen

Blockchain Comes to E-Books, DRM Included

18 August 2018

From Copyright and Technology:

Blockchain technology has reached e-books.

. . . .

B2C applications focus on the user experience, by using blockchain technology to help emulate consumer ownership of digital content. The idea is this: a user buys a digital content file. A record of the purchase is put on a blockchain, which establishes the user’s ownership of the file. The user gets a token — a small digital file — signifying ownership. The user can alienate (sell, lend, rent, or give away) the file to someone else. When that happens, a record of the new ownership is put on the blockchain, and the token moves from the user to the new owner.

The question of whether you own a digital file you’ve obtained legally has been a controversial one for a long time. If you own a copyrighted work, you get a set of rights under copyright law. But if you get a digital file that takes up space on your device (as opposed to a digital physical object such as a CD or DVD), the law says that you don’t get that bundle of rights; instead you get whatever rights the distributor decides to give you in a license agreement, which is a contract. Often those rights are narrower than the copyright rights bundle. For example, typical license agreements of this type forbid you from alienating the file — which you have the legal right to do for physical objects. The law also says that such restrictions in license agreements are enforceable, despite the fact that they curtail the rights in the copyright bundle.

But legal constraints on use are not the same as practical, technical constraints, which may be tighter or looser than the legal constraints. Broadly speaking, there are two current paradigms for this. In one, users are technically able to do anything they want with their files, including sending copies to their million best friends, posting them online for anyone to download, selling copies and keeping the revenue, and extracting samples to create derivative works — as long as they don’t get caught, because the license agreement with the retailer probably forbids those activities.

In the other paradigm, technical constraints make it difficult or impossible to alienate content, share it with others, create derivative works, and so on — regardless of whether the license agreement forbids or allows such activities. This is the case with movies and TV shows; it’s also the case with most e-books in the U.S. and some other countries.

. . . .

The basic concept behind today’s e-book/blockchain startups is to emulate ownership — as a practical, technical matter — more closely than existing digital content distribution systems do. The idea is to use two properties of blockchains that help facilitate digital ownership. First, blockchains are ownerless, so that a record of file ownership on a blockchain is not controlled by a central distributor such as Amazon or Apple. Second, blockchains are immutable, so that if a system puts an entry on a blockchain that you own an e-book, that entry is there to stay forever, even if the vendor whose technology you used to buy the e-book goes out of business. And if you sell the e-book to someone else, another entry goes onto the blockchain that also stays there, unaltered, in perpetuity.

In other words, blockchains enable transfers of ownership that are secure and not controllable by a third party after the fact. But there are other aspects to emulating ownership, such as not being able to send copies to your million best friends or keep your own copy after you’ve alienated it. For this, DRM is necessary. Files must be encrypted, and tokens are really glorified DRM license files that contain encryption keys and information about usage rules.

. . . .

Most e-books still have DRM, at least in the United States, UK, France, South Korea, and elsewhere. Most users expect it, even if some don’t like it. Furthermore, explicitly non-ownership models for e-books have been held at bay, mainly by major trade publishers that won’t license their titles to monthly-subscription services such as Scribd and Amazon Kindle Unlimited. Therefore, a B2C blockchain scheme could possibly work for e-book distribution.

. . . .

Sure enough, both of the startups I’m talking about here use DRM, even though neither of them likes to talk about it. One is Bookchain, from Montreal-based Scenarex, which the company expects to launch next month; the other is Publica, based in Gibraltar and Latvia, which is up and running. Publica calls its Token Key Protocol (TKP) a “successor” to DRM.

Both of these schemes are targeted towards independent authors who want to sell their books outside of the mainstream e-book platforms. Both use the Ethereum blockchain, which supports smart contracts. Smart contracts are constructs that enable rules to be encoded and enforced across all copies of a blockchain. In this case, smart contracts embody rules about e-book ownership. They ensure, for example, that when you sell your e-book to someone else, they get rights to the e-book and you don’t anymore. Or if you bought two copies of the e-book and you give one copy away, you only have one left for yourself.

Bookchain and Publica both enable resale and other forms of alienation. Bookchain allows sellers (authors or publishers) to place constraints on resale, such as minimum or maximum prices, or whether a portion of resale revenue goes to the original seller; whereas Publica doesn’t enable such constraints. Both make their money by taking commissions on all transactions (first sale or resale). Both use the standard EPUB format and have their own e-reader apps: Bookchain’s will be web browser based while Publica’s are mobile apps for iOS and Android.

. . . .

What does ownership mean, anyway? Two legal scholars, Jason Schultz of NYU and Aaron Perzanowski of Case Western Reserve, wrote an entire book about ownership in the digital age two years ago, in which they explain what ownership means in legal terms, lament the deterioration of digital ownership, and propose legal mechanisms to restore it. But in lay terms, ownership means that you get something that you can call your own, that belongs to no one else; that you can point to and keep and protect as your property; that you can alienate as you wish but then it’s not yours anymore. This means that being able to make a file freely available online for anyone to copy and use — while certainly desirable for consumers — isn’t ownership anymore; it’s something else. As a practical matter, it doesn’t coexist with the other attributes of ownership.

Link to the rest at Copyright and Technology

Did You Know That I Have a Book Coming Out?

29 July 2018

From McSweeney’s:

Did you know that I have a book coming out? If you’ve visited any of your social media channels even once in the past month, you should know. It is very important for the world to know that I have written a book that is actually getting published so I have posted pictures of the following: me writing my book; me editing my book; me pressing send on an email to my editor; a Boomerang of me opening a box of my finished books; a video of me in Barnes & Noble finding my book; a repost of every single reader who posted a picture of themselves reading my book; every review I’ve ever gotten (with negative bits artfully cropped out); and, of course, the obligatory publication day bonanza photo that I doctored with confetti. They really should create a dedicated “I wrote a book” emoji. Need to speak to someone in Silicon Valley about that.

. . . .

Did you know that I have a book coming out? You should know because you’ve been invited to at least five different readings and six different parties celebrating my accomplishments. Wait! You’re kidding, right? Are you absolutely sure that other people don’t throw parties for themselves just for doing their jobs? That’s so strange. Are you telling me that if you finished your accounting reports on time and did all the work for which you were contractually obligated you wouldn’t have a cocktail party to celebrate? Interesting. Anyway… If you aren’t tired after working a long day at your regular-person job, it would be just the best if you’d come out and listen to me read an eight-minute passage from my book and eat sweaty cheese to toast my triumph. I wouldn’t normally ask anyone to drive to the Poughkeepsie Public Library all the way from Manhattan, but it’s really embarrassing when only five people show up so I NEED YOU THERE. I would do this for you, assuming you were a good enough writer to publish a book.

. . . .

Did you know I have a book coming out? It’s all I can talk about. Not since the birth of my children has something this momentous happened to me. Whoops, I meant to you. Because you really care. You love hearing me talk about the publishing business. You would talk about your industry, but it’s not as interesting as mine. I’m a “creative” so I can’t be bothered to remember to ask you about your life. While you are plugging away at your ho-hum career and doing laundry, I am “brainstorming.” I am “in the zone.” I am “outlining.” These are very important tasks, and I do sincerely apologize if it has made me a less than stellar friend lately. I promise after my book comes out and the massive excitement surrounding my accomplishment dies down, I’ll be more attentive. Assuming I don’t get a movie deal. Then we’re just done.

Link to the rest at McSweeney’s and thanks to Simon for the tip.

Ukraine’s Open-Air Bookselling Marketplaces Appear Headed for Closure

25 July 2018

From Publishing Perspectives:

One of Ukraine’s oldest open-air bookselling sites, Knizhka—located in Odessa’s marketplace—soon may be closed by local authorities, as confirmed to Publishing Perspectives by Sergei Dubenko, a deputy head of the department of trade in Odessa’s regional government offices.

The decision to close the market, Dubenko says, has been made because of urban-planning regulations violated by the Knizhka management. This, despite a contract for operating the venture in the busy locale until 2025.

In speaking to Publishing Perspectives about the expected closure, publishing players say that losing the market location may negatively affect the Ukrainian book trade because Knizhka has come to function as a symbol of reading and book culture in the country and a hub for sales of print books in the region.

In recent years, Knizhka has become a popular attraction for international tourists in Odessa. Shoppers have come to depend on the location for a specialization in rare books, and it has functioned as a reliable local source for textbooks, reference books, small-circulation illustrated catalogs and expensive gift editions of various titles.

. . . .

According to them, the loss of open-air book stall markets could mean the end of these location’s generally lower pricing that can be found in traditional bookstores.

. . . .

Nikolay Ivanov, the owner of a book stall in Kiev’s Petrovka book market, tells Publishing Perspectives that prices for books at these popular markets usually fall in the range of 40 to 60 Ukrainian hryvnia per book (US$1.50 to $2.25)–generally an affordable sum for the majority of local citizens.

. . . .

The used-book trade is especially important in Ukraine, where the demand has substantially increased in recent years mainly because of a sharp drop in local consumers’ purchasing power.  Since 2014, many Ukrainians have seen a new book as a discretionary item, even a luxury buy.

Link to the rest at Publishing Perspectives

AI reveals potential Amazon, Facebook GDPR problems to regulators

5 July 2018

From c/net:

AI [artificial intelligence] software reportedly uncovered suspected GDPR breaches by Alphabet, Amazon and Facebook.

The software — created by EU Institute researchers and a consumer group — looked at the privacy policies of 14 major technology businesses in June, the month after the EU’s new data privacy laws went into effect, according to Bloomberg.

Researchers named the software “Claudette” — short for automated clause detecter — and Alphabet (Google’s parent company), Amazon and Facebook were among the companies whose policies were under the AI microscope.

It found that a third of the clauses within the policies were “potentially problematic” or contained “insufficient information,” while a further 11 percent of the policies’ sentences used unclear language, the academics noted.

The software also noted that some policies failed to identify third parties that the company could share data with.

. . . .

Despite the software’s findings, researchers admitted that the results of the automated scan “are not 100 percent accurate” since the software has only viewed a small number of policies.

Google insisted that its policy is compliant and highlighted that the updated version doesn’t expand or make any changes to how it collects or processes users’ information.

. . . .

The EU has been enforcing the General Data Protection Regulation since May 25 and the law requires the companies adopt greater openness about data they have on EU residents, as well as with whom they share the data.

Link to the rest at c/net

PG suspects that AI might not be the best solution for reviewing 14 terms of use or similar documents today (he suspects it took more time and effort to create the artificial intelligence application than simply having lawyers or paralegals simply review the 14 documents would have required).

However, over the longer term, he thinks it quite likely that AI apps will become common tools for creating and reviewing legal documents.

From the MIT Technology Review:

Meticulous research, deep study of case law, and intricate argument-building—lawyers have used similar methods to ply their trade for hundreds of years. But they’d better watch out, because artificial intelligence is moving in on the field.

As of 2016, there were over 1,300,000 licensed lawyers and 200,000 paralegals in the U.S. Consultancy group McKinsey estimates that 22 percent of a lawyer’s job and 35 percent of a law clerk’s job can be automated, which means that while humanity won’t be completely overtaken, major businesses and career adjustments aren’t far off (see “Is Technology About to Decimate White-Collar Work?”). In some cases, they’re already here.

“If I was the parent of a law student, I would be concerned a bit,” says Todd Solomon, a partner at the law firm McDermott Will & Emery, based in Chicago. “There are fewer opportunities for young lawyers to get trained, and that’s the case outside of AI already. But if you add AI onto that, there are ways that is advancement, and there are ways it is hurting us as well.”

. . . .

So far, AI-powered document discovery tools have had the biggest impact on the field. By training on millions of existing documents, case files, and legal briefs, a machine-learning algorithm can learn to flag the appropriate sources a lawyer needs to craft a case, often more successfully than humans. For example, JPMorgan announced earlier this year that it is using software called Contract Intelligence, or COIN, which can in seconds perform document review tasks that took legal aides 360,000 hours.

These programs are, simply put, changing the way legal research is carried out. Workers used to have to trudge through stacks of dusty law books and case files to find relevant information.

. . . .

People fresh out of law school won’t be spared the impact of automation either. Document-based grunt work is typically a key training ground for first-year associate lawyers, and AI-based products are already stepping in. CaseMine, a legal technology company based in India, builds on document discovery software with what it calls its “virtual associate,” CaseIQ. The system takes an uploaded brief and suggests changes to make it more authoritative, while providing additional documents that can strengthen a lawyer’s arguments.

“I think it will help make [entry-level lawyers] better lawyers faster. Make them more prolific,” says CaseMine’s founder, Aniruddha Yadav. “If they are handling a couple cases at a time, they will learn the law faster.”

. . . .

Other legal tech startups with AI at their core have been gaining steam as well. Kira Systems, which makes a contract review platform, counts four of the top 10 American law firms, as well as several international firms, as clients. Meanwhile, investors plowed $96 million into Zapproved, a startup that makes a cloud-based electronic discovery tool. Overall, it’s been a banner year for new legal tech companies, with funding up 43 percent in the first three quarters of 2017 compared with the same time last year, according to a report by the research firm CB Insights.

. . . .

There are, however, still obstacles to further adoption of AI in the legal profession. Chief among them is a lack of accessible data to use in training the software. Take the contract analysis company Legal Robot. In order to train its program, a team of developers built their own database of terms and conditions by collecting examples from major websites. But that wasn’t enough—the company also had to strike deals with law firms to gain access to their private repositories. In total, they compiled over five million contracts.

Link to the rest at the MIT Technology Review

PG notes that the MIT article is not the only one about the legal profession which is primarily based upon the methods of practice followed by large American law firms. He doesn’t blame the authors of the article or the firms profiled therein because most of the large sales opportunities for these technical products or services will be in major law firms.

However, only a small percentage of practicing attorneys work for major law firms in the US. About 85% of American attorneys work in firms of 50 lawyers or fewer and about half of all American attorneys are sole practitioners. The legal “market” is really fragmented into business organizations that may have less in common than non-experts first assume.

In PG’s experience, the most technically-savvy lawyers are either in very small firms (many with a single attorney) or as small groups in very large firms (fewer than 5 lawyers in a firm of 500 attorneys, for example).

Tech companies and venture capital firms typically misjudge the true size of the legal market for advanced tech products. The average gross revenue (not profit) per lawyer (not including paralegal, secretary, other support staff, etc.) for the 100 largest law firms in the United States was somewhat less than $1 million in 2017 and about $850K in 2016.

Additionally, the management structure of many major firms is not well-suited for supporting the acquisition of major technology products via a capital spending budget. A typical industrial firm will calculate profits after including all costs, including salaries and bonuses.

Generally speaking, a law firm’s “profits” don’t include all salaries and bonuses the firm routinely pays year in and year out. These law firm “profits” are divided among the long-term partners or major shareholders of law firms and distributed each year rather than retained or accumulated to fund long-term growth.

It is not unusual for the controlling partners/shareholders to take relatively small salaries or draws against distributions based on equity compared to their end-of-year distributions. Using money to acquire new technology products or services typically means that each of the firm’s big shots takes home less money at the end of the year.

The bottom line is that, as a group, major law firms are not big-time purchasers of new technology products and services because of the immediate hit to the partners’ income. For example, it took many years for the original computer-assisted legal research services, Lexis and Westlaw, which had a clear and compelling value proposition for lawyers, to achieve any sort of respectable penetration of and associated revenue from these firms.

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