What Legal Tech Needs To Learn From The Theranos Debacle

You've gotten the media's attention, but is your technology actually ready for prime time?

Along with the high praise, these companies must be vetted for their flaws.

A recent SEC press release announcing fraud charges against Elizabeth Holmes and her company, Theranos, which promised a new technology to make blood tests cheap and painless, warned that:

“Innovators who seek to revolutionize and disrupt an industry must tell investors the truth about what their technology can do today, not just what they hope it might do someday.”

This same quote could just as readily apply to the claims made by some of today’s legal technology companies — which frequently offer opaque descriptions of how their technology actually works and what it can currently do.

Before I rip into the legal tech industry, let’s first take a step back and examine the Theranos charges for those who haven’t been following.  Back in 2004, Elizabeth Holmes — then an undergrad at Stanford who had already invented a drug-delivery patch — dropped out of school to pursue her next big idea: a non-invasive blood test that could be performed outside of a lab, thus making it less expensive and more convenient for consumers.  Along with a high school classmate, she founded Theranos. By 2010, Theranos was already pursuing contracts with national pharmacies (eventually snagging a well-publicized partnership with Walgreens) and Holmes was hailed as the next Steve Jobs.

This Cinderella story suffered from just one tiny oversight:  Theranos’s technology wasn’t ready for prime time.

But rather than come clean, Theranos kept the fairy tale going long after the clock struck midnight. According to the SEC complaint, Theranos employed third-parties to run its purportedly innovative blood tests using conventional technology, while continuing to represent to investors that it ran the tests in-house. (Complaint ¶49). Theranos also told investors that it had multiple contracts with the military and that its testing devices had been employed on the battlefield and in medevac helicopters when the Department of Defense had only used it once in a study. (Complaint ¶68). In late 2015, a Wall Street Journal report exposed many of Theranos’s false claims and in turn set in motion investigations by other regulators, including the SEC.

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So how does something like this happen with sophisticated investors and wide media coverage of technology companies? Easy. Everyone loves a disruptor. So when anyone questions a disruptor’s claims, companies stuff those criticisms off as baseless claims by incumbents trying to protect their turf and the media and other commenters buy it up because really, who wants to be known as a curmudgeon or a Luddite?

If the Theranos saga sounds familiar, it should because we’ve seen it play out in the legal tech arena.  Any lawyer who questions or constructively criticizes a “disruptive company” is derided as a Luddite and ostracized from further conversation.  The echo chamber likewise extends to the legal trade press.  The media picks up on every company press release boasting of strategic partnerships and integrations and AI and blockchain. Yet few reporters ask whether that strategic partnership will actually improve the service provided today, or if it is just another PR tool to enhance the company’s stature.  Nor do they inquire whether the dozens of companies who now tout use of AI have actually developed “smart” technology, or have just repackaged and rebranded more conventional tools.  The media is also quick to pick up on the launch of innovative law firms, but nowhere to be found when those companies go south.

So many lawyers and technologists — myself included — desperately want legal technology to succeed. But those of us who use and write about legal tech do a disservice when we promote only the promise but fail to vet the flaws — a shortcoming that my fellow columnist Bob Ambrogi pointed out almost two years ago. As the SEC press release on the Theranos saga makes clear, companies should not, and indeed, will not get a pass merely because they are “the subject of exuberant media attention.” Legal tech companies should heed this warning as well.


Carolyn ElefantCarolyn Elefant has been blogging about solo and small firm practice at MyShingle.comsince 2002 and operated her firm, the Law Offices of Carolyn Elefant PLLC, even longer than that. She’s also authored a bunch of books on topics like starting a law practicesocial media, and 21st century lawyer representation agreements (affiliate links). If you’re really that interested in learning more about Carolyn, just Google her. The Internet never lies, right? You can contact Carolyn by email at elefant@myshingle.comor follow her on Twitter at @carolynelefant.

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