Contract Drafting and the Limits of “Free”

Publication of Chris Anderson’s book Free: The Future of a Radical Price has prompted a lot of online discussion about the extent to which a thriving business can be built on giving stuff away for free.

At My Shingle, Carolyn Elefant has offered some thoughts on “Biglaw Free and the Solo.” Here’s the part that grabbed my attention:

Lawyers need to recognize that we are fast reaching a point where the kinds of forms that companies like LegalZoom offer—such as contracts, leases, incorporations and wills—may be available online to all for free. Moreover, the forms will have been prepared by, and made available directly from prominent law firm, thus vitiating the prevailing “you get what you pay for” criticisms that many lawyers level at LegalZoom. Indeed, this is exactly the danger that Susskind predicts for solos and small firms in The End of Lawyers? referenced here: the influx of low cost (even Susskind didn’t think free) alternative methods of sourcing by larger firms or alternative providers will drive costs down to the point that some solo and small firms won’t be able to compete.

I approach this issue from the perspective of a vendor rather than a law firm. I do plenty for free—this blog, my articles, the occasional speaking engagement for a trade group. Beyond that, I don’t have the luxury of doing “free.” And why should I? Someone recently inquired whether I’d be interested in making MSCD available online for free. My answer was a polite but categorical “No.”

Companies have long given away stuff for free as a means of developing business. But accidents of technological history have allowed “free” to break loose from its shackles, and currently it roams the land, wreaking havock on those industries unlucky enough to cross its path, most notably the music industry.

But I’m not worried that “free” will undercut the value of my expertise or render redundant my notions regarding how to handle the contract process efficiently. To understand why, let’s consider what prompted Carolyn’s post, the recent release by the law firm Orrick of its online “Start-Up Tool Kit.”

The two principal components of Orrick’s offering are a “term sheet creator” and a forms library. Orricks’s term sheet creator is comparable to Wilson Sonsini’s term sheet generator, although it allows users to create term sheets for founders, for bridge financing, and for preferred-stock financing rather than just for venture capital financing. (I haven’t kicked the tires of Orrick’s term sheet creator, so I have no views as to how rigorous it is substantively, how comprehensive it is, or how easy it is to use.)

Like Wilson Sonini’s offering, Orrick’s term sheet creator seems an exercise in juridicious use of “free.” The idea is that by allowing potential customers to map out for free the basic terms of a deal, you might make it more likely that they’ll retain you to handle the far more costly work required to close the deal.

Orrick’s “start-up forms library” is a different matter. It consists of pdfs of documents relating to the following topics:

  • formation of a Delaware corporation
  • purchase of founders’ stock
  • indemnification of directors and officers
  • hiring employees and retaining consultants
  • confidentiality of technology
  • equity compensation

As such, the forms library is far less compelling than the term sheet creator. One of the pdfs offered is a form of employment agreement. If I wanted to draft an employment agreement for the chief executive of a startup, copying Orrick’s pdf form would be an unappealing prospect, for the following reasons:

  • I’d have to convert the pdf to a Word document, and that would likely require some reformatting. For example, I’d want automatic enumeration of sections and subsections, and also I wouldn’t want spacing between paragraphs to be achieved by paragraph marks—the functional equivalent of hitting the “Enter” key to create space.
  • The Orrick form contains optional text, in the form of bracketed language, but bracketed language is a cumbersome way of providing for customization.
  • It’s safe to assume that the optional text that the Orrick form does contain represents only a small fraction of the customization that a drafter might find useful.
  • The Orrick form doesn’t provide any guidance.
  • The Orrick form contains the language of mainstream contract drafting, and regular readers will know that that’s not a compliment. To cite just one problem of many, the treatment of categories of contract language is undistinguished, with both will and shall being used to articulate obligations and shall being used for other purposes too.

So to sum up, Orrick’s free forms certainly don’t get around the “you get what you pay for” problem. A halfway-rigorous contract-drafting solution requires a commitment of significant resources, and it would be inconceivable that any law firm in a position to make that commitment would then give the fruits of it away for free. By contrast, it costs next to nothing for Orrick to give away what is, at least from the standpoint of clarity and ease of use, mediocre.

The traditional contract process is in dire need of disruption, but I don’t see it coming from “free.”

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.