You are probably familiar with the concept of open source software (Linux, for example, or WordPress, the software I use for this blog). Could the concepts behind and the advantages of open source software apply to law? From a client’s perspective, open source transaction documents could be a big cost saver. I recently came across an interesting set of documents that are, arguably, a form of open source law. 

Open source software offers several potential benefits:

  • A large community works to solve a common problem
  • The work is completely transparent, so you can understand the basis for all the code
  • Because the community constantly works on the code, problems are found and corrected quickly
  • You can extend the basic functionality and contribute your extensions back to the community
  • It seems to me that these benefits could apply equally to the law itself, or at least to aspects of it, particularly transaction documents. Why should every lawyer and firm have its own “boilerplate” language. I’m not minimizing the need for customized documents. But where a lawyer is not trying to achieve anything beyond creating a standard right, obligation, or protection, why not use a standardized approach?

    I first started thinking about this concept after reading a proposal by Marc Lauritsen of Capstone Practice Systems. Marc proposed an open source approach for legal applications software.

    I recently came across what may be a good example of open source law: The National Venture Capital Association has created a set of model documents for venture capital financing. NVCA says the aim of the documents is to “reflect industry norms; be fair, biased toward neither the VC nor the entrepreneur, consistent with industry norms; present a range of ‘typically seen’ options (again, consistent with industry norms); and include explanatory commentary where necessary or helpful.”

    Regular readers of my blog know that I am not in the habit of long quotes, but I think the rational stated on the web site is worth reproducing here:

    Annually, our industry closes several thousand financing rounds, each consuming considerable time and effort on the part of investors, management teams and attorneys. A conservative estimate is that our industry spends some $200 million in direct legal fees annually to close private financing rounds. In an all-too-typical situation, the attorneys start with documents from a recent financing, iterate back and forth to get the documents to conform to their joint perspective on appropriate language (reflecting the specifics of the deal and general industry best practices), and all parties review many black-lined revisions of the documents, hoping to avoid missing important issues as the documents ooze to their final form. In other words, our industry on a daily basis goes through an expensive and inefficient process of “re-inventing the flat tire.”

    It is our hope that the availability of an industry-embraced set of model documents which can be used as a starting point in venture capital financings will

  • reduce the time and cost of closing financings
  • provide all parties with the most current set of best industry practices
  • enable all principals to focus on the high-level issues and trade-offs
  • reduce the time-consuming and bleary-eyed review of hundreds of pages of documents
  • prevent slip-ups from creeping into the final closing documents
  • eliminate legal traps for the unwary (e.g., unenforceable or unworkable provisions)
  • These are all great reasons to think more about the idea of open source law. The same rationale applies to a range of transaction documents. What is particularly interesting is that many of the law firms that participated in this project are AmLaw 100 firms.

    From a client’s perspective, the economics of this approach seems compelling. Again, I stress that customization is required. But if clients could start with well-established and well-understood documents about which there was general agreement, it would lower costs and allow lawyers to focus on crafting those clauses and paragraphs that really do require careful customization.