Online Legal Services Company LegalZoom Sues Rival RocketLawyer For Misleading Advertising, Trademark Infringement And More

This is going to get ugly. Online legal services company LegalZoom is suing rival Rocket Lawyer, according to a release issued by the LA-based LegalZoom today. The charges are false and misleading advertising, trademark infringement and unfair competition. The suit was filed in the United States District Court for the Central District of California.

Of course, lawsuits among competitors are not rare. LegalZoom offers documents and subscription services to make it easier for individuals and businesses to accomplish basic legal tasks. Rocket Lawyer also provides legal documents to consumers and small businesses, and offers these documents for free.

LegalZoom alleges that Rocket Lawyer’s advertising is false and misleading, mainly over the latter company’s free offerings. We have not actually seen the complaint yet, but here’s what LegalZoom says in the release.

The lawsuit follows numerous unsuccessful attempts by LegalZoom over the past year to convince Rocket Lawyer to cease the practices which led to the filing of the complaint. Those attempts included providing Rocket Lawyer with a copy of Federal Trade Commission guidelines that impose clear limitations on use of the word “free” in advertising and marketing materials. Rocket Lawyer’s advertising includes the false claims that Rocket Lawyer provides “free incorporation,” “free legal review,” and “free help from local attorneys” despite the fact that access to these “free” services can require paying filing fees or buying a paid membership plan.

Both companies seem to be growing as the online legal services market heats up. As of last year, 20 million people used Rocket Lawyer. In August 2011, the company, which has raised around $40 million in funding, said it was growing revenue by $10 million each year.

In May, LegalZoom filed for a $120 million IPO but has yet to debut on the public markets. In its initial S-1, the company revealed it had 2 million customers in the past 10 years. Revenue grew to $156 million in 2011, up from $121 million in 2010 and $103 million in 2009. And LegalZoom is profitable, with $12.1 million in net income.

LegalZoom claims that these practices aren’t fair, and the company is actually seeking “millions of dollars in damages” and “has pledged to donate any monetary recovery in excess of its attorneys’ fees and costs to non-profit organizations that provide legal services to the underserved.”

So from the release, it seems that the lawsuit isn’t about the money, but more about damaging Rocket Lawyer as a company. As we mentioned above, we haven’t seen the lawsuit so we’re unsure of the merit of the suit. We’ve reached out to Rocket Lawyer for comment, and will update if and when we hear back.

UPDATE: RocketLawyer issued this comment on the complaint:

We are confident that Rocket Lawyer is fully compliant with all laws pertinent to our business, and we look forward to continuing to bring affordable legal services to the consumers and small businesses that depend on us.

It is unfortunate that LegalZoom is attempting to use our great legal system to protect their profits while restricting access to the free legal help that everyone deserves.