In a move that could reshape how law firms engage with legal tech vendors, the State Bar of Texas has proposed new ethical guidelines that would significantly limit revenue-sharing arrangements between lawyers and technology companies. See Professional Ethics Committee for the State Bar of Texas, Opinion No. _ (PO 2024-4).
The proposed ethics opinion, released for public comment until January 7, 2025, tackles two crucial questions at the intersection of legal practice and technology: Can lawyers pay tech vendors based on revenue percentages, and can lawyers co-own companies that provide legal support services?
The answer to the first question is a clear “no.” The proposed opinion takes a firm stance against revenue-sharing arrangements between law firms and nonlawyer-owned companies providing support services. This interpretation stems from Rule 5.04(a) of the Texas Disciplinary Rules of Professional Conduct, which prohibits lawyers from sharing legal fees with nonlawyers. The committee’s reasoning? Such arrangements could encourage inappropriate client solicitation and potentially enable unauthorized law practice.
However, the door isn’t completely closed on lawyer-tech partnerships. The proposed opinion offers a silver lining by confirming that lawyers may hold equity stakes in nonlawyer-owned businesses – with important caveats. The key requirement is that these companies must not engage in the practice of law, and lawyers must carefully navigate potential conflicts of interest.
For lawyers considering investments in legal tech or support service companies, the ethics committee offers a word of caution. Lawyers must be particularly vigilant when their investment involves services related to legal practice, such as eDiscovery or financial planning. The proposed opinion specifically highlights the need to comply with conflict of interest rules and provides examples from previous opinions dealing with lawyer investments in related services like courtroom graphics and debt management companies.
This proposed opinion reflects the growing tension between traditional legal ethics rules and the evolving landscape of legal technology. As law firms increasingly rely on external vendors for crucial support services, finding compliant ways to structure these relationships becomes paramount.
Lawyers and legal tech companies have until January 7, 2025, to submit comments on the proposed opinion. Given the potential impact on legal innovation and service delivery models, this development warrants close attention from both the legal and tech communities.
