Professionals in the legal tech sector know it is no longer in its infancy; things are booming. Despite Covid-19’s impact on the economy, the second quarter of 2020 saw $178 million in investment in legal tech companies, beating last year’s Q2 total of $122 million.
Another strong indicator of growth is consolidation, such as the ThomsonReuters acquisition of HighQ last summer. Strong venture capital (VC) and mergers mean that legal tech tools will become even more advanced and will continue to automate time-consuming legal tasks.
These elements are ushering in a new time for legal AI software, coined Legal AI 2.0. This era is removing the obstacles of both the inflated expectation that legal tech will solve all problems, and the cynicism of early days that legal tech overpromises and doesn’t deliver.
But what do the solutions in this newly matured market look like, and who are they for?
The First Wave of Legal AI
The first products developed in the legal tech space were tailored for law firms, given that’s where the high-volume, expensive legal work was taking place. However, the market is no longer chasing law firms that have been slow to adopt and is instead shifting to law firm clients—the ones who control the nearly $450 billion of annual spend that goes into law firms’ pockets. This is where we’ll see accelerating disruption.
Today, you’ll find tools such as eDiscovery products and contract review solutions used in internal legal departments for litigation matters because they enable more efficient due diligence, as well as daily contract reviews to increase productivity and accuracy.
Legal AI 2.0 doesn’t come without controversy, however. As we continue to see the shift away from law firms to corporate and consumer-focused products, this change has brought about legal battles such as the case between lawyers in Hamburg, Germany, and Wolters Kluwer, the parent company of a German contract platform that sold legal documents to the public without a lawyer engaged in the process.
The Hamburg Bar Association claimed that offering contract generation is a legal service, for which Wolters Kluwer has no license and that Wolters Kluwer engaged in unfair competition. In a preliminary oral hearing, the Cologne court said consumers would understand that the generated contract is not the result of actual human advice and not expect individual advice. In the words of the court, the contract platform is “a mere advancement of existing contract templates and a useful digital tool.”
Slowly, but surely, legal technology is becoming more widely available for everyone’s use.
Where Legal AI 2.0 Stands Today
Currently, Legal AI 2.0 has seen the most promise in two categories: contract review and billing prediction. The legal contract review process has already seen major development in tech’s ability to compare and review extensive generic documents. However, until recently these tools required inherent legal knowledge that the everyday consumer simply does not have.
Contract review tools are developing toward niche markets that allow for more automated complex clause review, better compare functionalities and contract review templates that are made for use by audiences such as SMB (small and medium-sized business) owners.
That’s certainly not to say that legal AI is divorcing its original audience of lawyers. Billing management is another huge area of growth for Legal AI 2.0 as lawyers now have access to the data needed to set predictive, value-based fixed pricing rather than the traditional billable hour. Corporate lawyers are now taking up this technology to manage fees from outside counsel and create predictability for their own budgets.
From a technology perspective, we’re seeing more movement toward sparse data learning. This means that instead of uploading hundreds of legal contracts for the AI to begin to learn corporate standards and expectations, AI starts learning the first time you upload a contract.
In addition, AI is becoming more transparent, allowing work done by legal AI tools to be explainable should organizations need to make legally defensible statements to courts and regulators.
The Future of Legal Tech Adoption
While no one has a crystal ball, Legal 3.0 looks like it will be defined by legal chat bots that have unique user context and take dynamic actions on your behalf (i.e., the ability to link things back to an older contract, conversations you’ve previously had, etc.).
Gartner predicts that by 2023, virtual legal assistants (VLAs) will field 25% of internal requests to legal departments at large enterprises, increasing operational capacity for in-house corporate teams. Of course there will be certain tasks that these AI-powered chat bots can’t complete. When VLAs can’t answer, they’ll route questions to human lawyers.
In many ways, the disruption of the legal industry has similarities to the disruption of the entertainment industry. On-demand entertainment faced comparable skepticism; studios only thought of the money they would lose if they bet on the wrong horse. Additionally, the underlying technology was still being developed.
However, technology never goes backwards, it only improves. The rise of Netflix, the decline of cable television and monumental investment that Disney has put into Disney+ show that disruption will happen whether you support it or not.
As the legal industry further invests in Legal AI 2.0 and beyond, there are two routes that law firms can take: lean back on regulation that will eventually be changed or embrace the future and start adopting.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Nick Whitehouse is the CEO and co-founder of McCarthyFinch, an AI contract management service. Prior to McCarthyFinch, he was the chief digital officer at MinterEllisonRuddWatts, leading its digital strategy to see it become recognized as the most innovative law firm in New Zealand.