Innovation in the Legal Sector

Innovation is a big deal.

It’s been a big deal ever since customers rewarded differentiation and punished companies that failed to maintain their creative edge.

I never fully understood the role of innovation until I spent time as a post-graduate research fellow at the Kellogg School of Management’s Center for Research in Technology and Innovation (CRTI). I spent time at the CTRI (three years) after completing my law degree at Northwestern Law School.

In law school I never heard much about innovation and was never exposed to the subject in courses, or in any of my assigned readings. In hindsight, I now realize this was, and still is, a major failing of traditional legal education. Much has changed, however, since I graduated. More and more law schools emphasize entrepreneurship and clinical practice. Some law programs have fully and bravely embraced innovation as a major component of their curricula.

The role of innovation in the legal sector has yet to be fully analyzed, so in this blog post I’ll try to classify the different types of innovation occurring in this industry. Before I do that, however, I have to address: what is innovation?

Although it might seem easy to identify and define innovation, it’s surprisingly difficult. According to economist Joseph Schumpeter, widely regarded as the most important writer on the topic, innovation is a process initiated from “new combinations” initiated by entrepreneurs who unleash the gales of creative destruction within the economy. As a matter of degree, some innovations are incremental and others radical, as the important work by Harvard Prof. Clayton Christensen demonstrates. Studies show that the vast majority of innovation that captures value in the marketplace is incremental, although radical innovations get the majority of headlines, particularly when they displace existing businesses and become disruptive. As pointed out by Schumpeter and others, innovation is not the same as invention, since the vast majority of inventions (e.g. patents) are not commercialized and are thus worthless. Innovation has to possess some commercial validation and success.

These are core definitional aspects, but what captured my interest were the organizational factors behind innovation success and failure. Through my readings and conversations with CRTI faculty members and fellows I came across important organizational perspectives. For example, during most of the industrial era firms employed an internally-focused view of innovation. This closed R&D perspective often yielded a hermeneutic culture that led those within the firm to view outside innovations with skepticism, or outright disdain. This approach (which still exists among some firms) yields the infamous “not-invented-here syndrome” which is a bias against external innovations. This closed perspective proved dangerous and untenable as we shifted into the Knowledge Economy. In this context, licensing innovations externally from startups, universities and independent inventors proved to be a successful innovation model. The research of Prof. Henry Chesbrough yielded important insights into the practice of open innovation, which relies on knowledge transfers.

For me, one of the greatest insights on innovation came from CRTI faculty member Prof. Mohan Sahwney, a globally recognized innovation thought leader. In his 2006 MIT Sloan Management Review article “The 12 Different Ways for Companies to Innovate” he and his co-authors laid out a framework called the “Innovation Radar” that helps companies look at innovation from multiple perspectives along four major dimensions:

Offerings (What)

Customers (Who)

Process (How)

Presence (Where)

As the article points out, product-centered companies often myopically emphasize offering-related innovations and neglect the other three major categories. Successful innovators such as Home Depot innovated along the lines of Customers as it targeted a new DIY home repair customer segment. Dell was able to capture value by innovating along the Process dimension by creating new manufacturing methods and a direct-to-consumer sales model. Redbox innovated along the Presence dimension since it introduced the concept of DVD rentals at an entirely new location (supermarkets). The holistic “business innovation” perspective offered by the Innovation Radar offers a comprehensive tool to diagnose where innovation occurs and how it leads to value capture and differentiation. The article magnificently discusses these four major aspects of innovation and introduces eight other dimensions that build from the four major categories and which altogether comprise the “Innovation Radar”:

Innovation Radar

Source: Sawhney, Wolcott & Arroniz (2006)

Richard Susskind, Ray Worthy Campbell and Michael Katz and others have all written about, and in some cases helped pioneer, legal services innovation. The legal services industry is facing rapid transformation and innovation. In fact, legal hackathons are becoming increasingly popular and offer a platform for engineers and lawyers to brainstorm and develop new ways to simplify the legal system.

Here is a brief attempt to identify some (not nearly all) of the innovations in the industry introduced since I graduated from law school nearly ten years ago, and that apply to the four major Innovation Radar categories:

Offerings (What):

  • One of the key elements of legal practice is the ability to conduct comprehensive legal research. Casetext and FastCase are two recent innovators that use a crowdsourcing method for legal research
  • The art and science of effective legal practice often hinges on giving accurate predictions about the merits of a case. Lex Machina and IBM’s Watson supercomputer offer big data predictive analytics services to lawyers.
  • Previously, only attorneys could dispense legal advice under state bar rules. The state of Washington has pioneered a new category of Limited License Legal Technician, a non-lawyer who can provide legal advice in limited areas of practice.

Customers (Who):

  • Lower income individuals and small businesses were traditionally priced out of legal services, but the innovative delivery methods offered by companies like LegalShield offer a prepaid plan to market low-cost services to these customers.
  • LegalZoom also services lower income individuals and small businesses and offers monthly rate plans and standardized forms online.

Process (How):

  • RocketLawyer is a pioneer in crowdsourcing legal advice among various attorneys through its website.
  • The Avvo website is a question and answer (Q&A) website that also crowd sources legal advice from attorneys.
  • Many innovative companies have perfected techniques for managing the e-discovery process during litigation and have developed new technologies to manage this complex legal process.

Presence (Where):

  • Wal-Mart has started to offer fast and affordable legal services at some of its locations.
  • Several of the companies identified here, such as FastCase offer apps that are available for use on mobile devices

The period of rapid innovation and transformation in the legal services industry is here. It’s both interesting and exciting to watch it unfold, and to see innovations occur among all the dimensions of the legal services business system.

Terroir and the curious path to geographic indication. 

This week I was honored and pleased to participate in the “Sub-regional workshop on geographical indications/ origin-linked products in Kingston, Jamaica. The event was coordinated by various governmental and international trade organizations including: WIPO, CEDA, EU-Caricom, IDB and JIPO.

A geographic indicator (GI) is a specific product name that has trademark-like protection and exclusivity as long as the product characteristics, or reputation is due to its place of origin. This idea of place has great importance and is referred to as “terroir” in Europe. A clear and scientific connection between product and place of origin and its connection to culture, tradition, heritage and processes are all linked to this interesting concept in international trade and IP law.

This legal issue has great commercial relevance since the market for GIs is estimated at more than $50 billion. Some of the most popular GIs include Champagne, Port (the oldest GI), Roquefort, Tequila, and Darjeeling.

The aim of the workshop was to build capacities in the Caribbean for the registration of GIs in the area, connect stakeholders and raise awareness.

Registering a GI is a three step process:

1. Form a producer group/ association, e.g. Co-op farmers from Belize were present to discuss efforts to develop a GI for cocoa from the Toledo region (terroir) in that country.

2. Develop a scientific product specification with verified protocols and standards. Elements may include: production methods, livestock regimes, plant varieties, traditional practices. The terroir must be described in detail. Boundaries and unique territorial aspects should be included, e.g some coffee must be grown at certain elevations and with certain soil conditions. The link between product and terroir must be scientifically established to establish uniqueness and source origin.

3.  Control production to guarantee customers of origin and authenticity.

Once these are all established a producer group may reap the benefits of a GI system and enjoy market exclusivity and higher margins for their unique products. Consumers can enjoy consuming the product knowing that the product is sustainably sourced from a legitimate producer group with strong historical and cultural connections to the terroir.

What is legal bullying?

My latest research project involves the topic of legal bullying, which I define in the corporate context as one firm exploiting their resource position to threaten a smaller party with a weak or non-existent legal claim, benefitting from the high transaction costs characterized by our very expensive, lengthy and uncertain litigation system. 

I pull several examples from the intellectual property realm (trademark bullies, patent/copyright trolls and efficient infringers), employment (wage theft, and worker misclassification involving independent contractor status and oppressive non-competes in low wage industries), and business regulation (using the regulatory system to impose uncertainty on another’s business). From a strategic standpoint, these tactics often work. From an ethical and fairness perspective, not at all. 

I recently presented this research at a symposium on proactive law at the Ross School of Business at the U. Of Michigan sponsored by the Business Law area at that school. The greatest interest was devoted to the second half of the article related to various examples that show how smaller parties have used social media and legal crowdsourcing to fight back against legal bullying. One discussant equated it to guerrilla marketing. Another saw parallels between this work and research related to private politics, or how private parties engage in advocacy to enact social and legal changes in business. What I have found is that the use of social media to fight legal bullying is getting more sophisticated as parties build coalitions with activists and tie-in the mainstream media to shame legal bullies.

In the end, my recommendation to large companies is to stop and wait before engaging in a knee jerk reaction to file claim against a much smaller opponent. The best course of action is to consult the matter with in-house attorneys to determine if the threat is real (external counsel may have different motivations and incentives), and to review the matter with internal corporate social responsibility officers and marketing personnel to gauge any negative fallout that might arise. In today’s transparent and interconnected world, an internal risk assessment should always be made before pursuing a weak claim against a smaller opponent. 

Legal Crowdsourcing Research Update

I just posted a revised version of my article on legal crowdsourcing on SSRN here :

This article (forthcoming in the American Business Law Journal) discusses the emergence of legal crowdsourcing, the various forms it can take, and its implications for the legal profession. Overall, I think this model has great promise to promote greater access to the legal system, improve the quality of legal advice and the rate of legal innovation. Entrepreneurs are already starting to use this technique to fend of larger competitors who use the legal system to bully smaller enterprises. The legal profession is starting to embrace this model and I think we’ve reached a turning point in the profession, technology and society to the point where we’ll see legal legal crowdsourcing become a mainstream practice. Take a look at the paper and let me know your thoughts. 

Product design gets no legal respect

I just re-read Kurt Eichenwald’s wonderfully researched and written Vanity Fair article The Great Smartphone War. It’s getting harder to find such high quality journalism that is both meticulously researched and enjoyable to read. Eichenwald’s account, like all great works of journalism, puts you in the time and place of the described happenings, in this case the all-out legal and strategic battle between Samsung and Apple. The article goes into marvelous detail about the legal aspects of the case, but what motivated me to blog about it were two things: 1. The cunning nature of Samsung’s bare-knuckled and wildly successful legal strategy; 2. How the U.S. legal system upholds such ruthless legal maneuvrings, much to the detriment of pioneering designers and innovators.

As the article points out, Samsung mastered a pattern of strategic legal maneuvering that consists of: “when caught red-handed [infringing patents], countersue, claiming Samsung actually owned the patent or another one that the plaintiff company had used. Then, as litigation dragged on, snap up a greater share of the market and settle when Samsung imports were to be barred.” As I point out in my recent MIT Sloan Management Review article, this amounts to a higher-order legal strategy that few companies are able to execute with as much success.

The article also points out how Apple’s designers spent nearly two years toiling in secret, at great expense and risk, iterating to achieve a pioneering design. So much effort went into the design of the device’s single button that 50 iterations were made for that single design aspect of the iPhone. According to the article, when one of the Apple designers saw Samsung’s competing offering (the Galaxy S), he could not help but exclaim: “We’ve been ripped off.”

The article points out many great details of the case, and understandably it does not dwell on the legal issues of product design and trademark infringement. In the end, Samsung was ordered to pay nearly a billion dollars in damages, but that may have been part of its legal strategy calculus as it grew market share during litigation. The infringement award would be a fairly trivial amount taking into account all that was to be gained.

As someone who researches and writes in the area of trademarks and product design, it amazes me how little product design gets respected in the courts. So much effort can go into the design and marketing process and the property rights that are obtained often do little to vindicate the designers and risk takers. The appropriate remedy to deter such strategic legal maneuvering at the expense of pioneering designers is to recognize that irreparable harm will arise from the infringement, and that court ordered injunctions to prevent copying need to be the legal standard for pioneering design, such as shape trademarks. Otherwise, strategic copycat followers will always consider the path of least resistance and will consider engaging in strategic infringement.

A Treasure Trove of Business Law Research

My retired FSU colleague, office neighbor and erstwhile lunch companion Professor Emeritus Vinny Stauber was starting to clean out his office upon retirement several months ago. I had been in his office many times and always noticed the large compendium of American Business Law Journal (ABLJ) volumes stacked neatly on his shelves. Some issues went as far back as 1969. Being the total research geek that I am, I gazed upon them with admiration and asked him if he had plans to keep them. Noting my interest, he kindly offered to grant them to me. I gladly accepted the offer. The reason why is because many of these older ABLJ issues are not digitized and can only be referenced and accessed in print. Having published three articles in this journal and served as a staff editor I have an affinity for the journal’s mission, which is to publish leading research articles for those of us who teach legal studies courses in business schools. Over the years, the ABLJ has been able to, through its able editorial leadership, reviewers and authors, establish itself as a one of top double-blind, peer-reviewed business law journals. Today it is widely respected among practitioners, academics and policy makers.

On Vinny’s last day I took the box full of ABLJ issues, unpacked them and stacked them on my shelves in order, and noticed that Vinny’s collection dated back to Volume 7, Issue 1 Spring 1969. As I perused some of article titles I was inspired to think about how the journal and its authors have steadfastly advanced our knowledge of business law over the years. As educators and researchers, we owe a lot to our predecessors who helped advance, shape and position our academic field.

Today, as I peruse Volume 7 Issue 1, I noticed that the research articles back then were mainly devoted to exposing the readership about current and evolving legal issues. For example, Ohio State University Professor Frank F. Gibson’s article “Strict Liability in Tort: Recovery for Non-Accidental losses” discusses strict product liability as a new theory of liability. It blows my mind to think that strict product liability was a new theory of liability, but such was the case in 1969. These articles, in a pre-Internet/Google era, had the important function of communicating the latest legal developments to the educators in our field tasked with teaching these developments to future business professionals.

I now display my greatly expanded collection of ABLJ volumes prominently in my office with great joy and pride. I will continue to read through these old issues, and when something of interest and relevance stands out, I’ll make sure to add a post and comment on this blog.

ABLJ IssuesABLJ Cover

Apple’s Victory is One for Pioneering Designers

As reported by The Wall Street Journal, Apple won its long-anticipated jury trial against Samsung on Thursday and was awarded $1.05 billion in damages by a jury. I think it is highly unlikely that the decision will be overturned on appeal, so the case is likely to establish an important precedent, as I anticipated in an earlier post I wrote in 2011. My prediction then, however, was that Apple would win through a private settlement instead of a jury verdict.

I predicted a private settlement because of the high stakes involved and the risks open to both companies if the issue ultimately was taken to a jury. Apple’s risk was that the jury would invalidate some or all of the patents it had asserted, a defensive maneuver that Samsung adopted during litigation. Samsung’s risk was that it would be found to have infringed Apple’s patents by copying user interfaces and other design aspects of Apple’s products. In the end, and to the surprise of many, both companies rolled the die and Apple came out on top.

The $1.05 billion verdict is a big coup, not just for Apple, but for product designers in general. For a long time, product design was perceived in industry and in legal policy-making circles as an intellectual property and strategic backwater. That has changed, however, due to consumers’ increasing aesthetic sophistication and a crowded global marketplace.

Design is starting to play an essential role in product differentiation and branding. An empirical study I conducted with two marketing scholars in 2009, published in The Journal of Marketing, found a positive association between trademark ownership and financial performance. This link between the two suggests that companies which pay attention to the legal aspects of branding through trademark registration reap greater rewards.

Elsewhere, I have written about the rare capability within firms that generates product shape trademarks. Product shape and packaging trademarks, often referred to as “trade dress,” were among the arrows in Apple’s legal quiver in the Samsung trial. I believe the Apple-Samsung case signals that product design and trademarks will be increasingly applied during new product development and asserted during litigation among companies across industries.

I make a career of teaching legal studies to business students. In my lectures, I invariably cover the subject of intellectual property management and strategy. Had Samsung won at trial against Apple, I would have cynically advocated what I perceived as Samsung’s business and intellectual property strategy. That is, I would have advocated in favor of free-riding from an industry leader to quickly gain a foothold and increase market share. Had Samsung won, this strategy would be effective, since the risks of infringement and damages would have been minimal. Once the fast follower and design imitator establishes their foothold, they can then compete against the innovator based on a cost advantage. From a business perspective, this clearly would have been an effective tactic.

Given Apple’s victory, however, Samsung’s strategy is no longer risk free or optimal. Instead, a better strategy is to be aware of competitor’s intellectual property rights and embrace innovation. This will require investing in design capabilities to distinguish products, which is how Apple secured its leadership position.

A copycat strategy may still be adopted by firms that want to quickly enter a technology market, such as mobile devices. After the Apple-Samsung case, however, that strategy became significantly riskier, much to to the benefit of pioneering innovators everywhere.

Bookman’s Alley

Borges would approve. Stack upon stack of used books. A labyrinth tucked inside an alley. You enter and see a Tiffany lamp cast shadows on the dark wooden stacks. An older gentleman peers over his book.  Ancient maps, esoteric histories, musty Persian rugs and philosophical tracts. A vintage chair invites you to sit.

Those are the fragments of my recollection of Bookman’s Alley bookstore in Evanston, Illinois.

During my Northwestern days, I would occasionally stroll into to that singular bookstore.  One day, I walked in and picked up a copy of History of the Yale Law School: The Tercentenary Lectures  Little did I know that this obscure book (as randomly obtained as can be obtained by any stochastic process) would re-shape my entire outlook on the law as a subject rich in realism and experience.

I was sad to learn that Bookman’s Alley, as reported by Chicago Today, is scheduled to close in July.