The Center for Nonprofit Creation (CNC) has brought suit against Legalzoom for breach of contract. Apparently, CNC entered a business relationship with Legalzoom in 2004 under which CNC developed questionnaires that Legalzoom used to help its customers establish non-profit organizations. Legalzoom clients would complete the questionnaires which CNC used to prepare tax-exempt status applications. Under the arrangement, Legalzoom was to pay CNC a fixed $350 fee for each application completed.
According to the suit, Legalzoom continued to use CNC’s proprietary information after Legalzoom stopped sending questionnaires to CNC. CNC had apparently received approximately $1.6 million in fees prior to Legalzoom’s alleged breach of contract.
In addition to CNC’s lawsuit against Legalzoom, questions remain whether in any number of states Legalzoom is in violation of the rule against the unauthorized practice of law. See, e.g., LegalZoom Continues Unauthorized Practice of Law; also compare eLawyering and the Unauthorized Practice of Law.
From personal experience, our firm has seen a number of individuals having first used Legalzoom. The result has been potential risk to their intellectual property and at times increased costs to correct issues that could have been avoided had an experienced intellectual property attorney been engaged from the start. The risks of using Legalzoom are particularly heightened when it involves patents and trademarks. Complex fact dependent issues involving priority, disclosure, offers for sale, use, and strict time deadlines are not easily addressed via canned online legal help.
Oddly, there has been a dearth of investigations by State Bars and Attorneys General. This is not for lack of merit, but rather there does not seem to be enough political pressure to start a meaningful investigation. Hopefully, having the legal spotlight on Legalzoom will bring more public awareness to the issue and encourage authorities to take a closer look.
Subsequent Note: Interestingly, despite LegalZoom being a self-proclaimed “self-help” legal document service, it appears to be increasing is attorney support for clients, possibly in an effort to increase consumer confidence by counter its reputation among some for doing customers a disservice by allowing them to dabble in legalities alone. For a comparison of LegalZoom’s services to those of an online trademark registration service using trademark attorneys, see: http://www.trademarkaccess.com/legalzoom/.