Fisher Phillips’ Tech Co Purchase Points to Buy v. Build Dilemma

Fisher Phillips’ recent purchase of a legal technology startup was an unusual move in a space where law firms are more likely to build their own capabilities and spin them off, or purchase third-party services in vendor platforms.

The roughly 500-attorney, Atlanta-based firm announced last week that it acquired the startup Blue Pencil Box, which offers tools to help companies track the changing regulatory and enforcement landscape for non-compete agreements. The company will become part of “fpSolutions,” the firm’s hub for technology tools to help with compliance.

Jonathan Crook, Blue Pencil Box’s founder, is becoming a partner in Fisher Phillips’ employee defection and trade secrets practice as part of the deal, as well as oversee his company’s offering within fpSolutions, he said.

Crook declined to discuss the terms of the acquisition.

Need for Speed

Across the industry, many law firms are thinking about how to build or integrate technology to meet clients’ demands for more efficient work. Big Law is poised to be hard-hit by disruption from artificial intelligence, a study published last week said.

And building tech departments can be costlier for firms, said Lourdes Fuentes, founder of Karta Legal, a practice management and legal operations consultancy.

While a firm choosing to “buy, not build” a tech product isn’t that common, it’s likely to happen more often as firms look to bolster their technology offerings, said Fuentes, a lawyer who has worked as an attorney and e-discovery specialist at Big Law firms such as Duane Morris and Baker & Hostetler.

“Lawyers are figuring out that there are ways to help clients by providing them actionable information or actionable tools or resources that are not necessarily billing by the hour,” Crook said. “I think we’re all realizing that there are different avenues out there for providing outstanding client service that is not necessarily dependent on the billable hour.”

Onboarding Legal Technology

Law firms have used multiple models to onboard legal technology, said Dan Linna, director of law and technology initiatives at Northwestern Pritzker School of Law and McCormick School of Engineering.

When looking to bulk up their legal tech presence, firms are facing “key decisions of ‘make versus buy,’” he said.

One key consideration for firms contemplating a legal tech purchase is the many state laws requiring lawyer ownership of law firms. The lack of enough large states with these loosened rules that would allow firms to buy non-lawyer-owned tech companies “is one of the things that gets in the way” of more firms like Fisher Phillips buying their own legal tech companies, Linna said.

Even if direct law firm purchase of legal tech companies has proven rare, a number of the largest US and British firms have augmented their tech expertise through a range of methods in recent years.

They have hired software coders and other tech specialists to design their own products. They’ve built “accelerators” and “incubators” that work exclusively with legal tech startups as they form new products, such as Allen & Overy’s Fuse project. And they’ve set up their own venture capital operations to invest in legal tech, like Dentons did with its NextLaw program.

Law firm consultant Ralph Baxter said he also was unfamiliar with many examples of law firms directly purchasing legal tech companies. But to the degree it might reflect a trend that helps law firms evolve, he said it’s a positive development.

Law firm evolution will “involve greater use of technology, and one way to do that is to buy tech that’s already been developed,” he said.

The New Non-Compete Landscape

Blue Pencil Box targets the uncertain and shifting landscape of non-competes. Federal agencies are cracking down on their use, and states are tightening laws around the agreements—creating “a patchwork of state laws,” Crook said.

Crook, whose background is in employment law, said he’s seeing a significant increase in client demand, but “not for restrictive covenants generically.”

“Clients want the right restrictive covenants in the right place, and to truly focus on using them in appropriate circumstances,” he said. “I think everyone’s realized now that the one-size-fits-all approach is gone.”

In place of non-competes, many companies will turn to trade secrets litigation to enforce protections of their intellectual property. But, “there’s a whole host of proprietary information that is confidential that may or may not garner a trade secret protection under the law,” Crook said. “Having these robust but appropriate non-disclosure agreements is a critical way to protect unfair competition from using that type of information.”

Companies are also looking at invention and intellectual property assignment agreements that ensure companies own the valuable IP created by employees while they work there, he said.

Blue Pencil Box tracks five contract provisions that are often bundled, Crook said: Non-compete, customer non-solicitation, employee non-solicitation, non-disclosure, and IP assignment.