The State of LawTech

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The State of LawTech

What is the current state of LawTech? LawtechUK, will this year, pilot a government-backed LawTech R&D programme – the Lawtech Sandbox – to help accelerate the digital transformation of the UK’s legal sector. What could this mean for businesses and organizations?

The law, as an industry has been somewhat slow to adopt new technologies. This is about to change with the creation of a UK LawTech research and development (R&D) environment – the Lawtech Sandbox.

LawtechUK is a government-backed initiative delivered through a collaboration between Tech Nation, the Lawtech Delivery Panel and the Ministry of Justice. The hope is that access to legal services and, how legal firms manage their processes, can be radically improved.

The LawTech Sandbox is inspired by the FCA’s Regulatory Sandbox, set up in 2016 to support innovative UK financial services firms delivering in the interests of consumers, and widely attributed as playing a vital role in the growth of the FinTech sector.

Also, the LawTech Sandbox will bring together technologists, the legal and business community, and public bodies, to support more innovative legal technology coming to market. The Sandbox will be delivered in collaboration with the Solicitors Regulatory Authority, Legal Services Board, Information Commissioner’s Office and the Ministry of Justice.

Also, LawtechUK has announced an SME Dispute Resolution Platform to explore building a technology-enabled online platform offering SMEs an alternative, elective method to resolve late payments and address the £11.6bn paid in litigation fees and the £50 billion in late payments arising each year.

LawTech Online Hub and Training Centre will also be built as an online hub with free digital courses on legal technology and open access data on the LawTech sector and, LawTech toolkits to issue guidance responding to areas of legal uncertainty or challenge around new technologies, including on any matters arising in the LawTech Sandbox.

Christopher Grant, LawTech Director, Barclays Ventures, comments: “The legal industry has struggled with the adoption of technology and, has been somewhat resistant to change. Recent events have brought about a shift, firms are having to try new approaches and think about how to do things differently, but there are still hurdles to overcome. The introduction of the LawTech Sandbox is a huge leap over one of these hurdles; along with new levels of collaboration across the ecosystem this gives an opportunity to turbo-charge the industry and bring about real change.”

With Dr Anna Donovan, Faculty of Laws, University College London and LawTech Delivery Panel member also stated: “Knowledge, supported by an innovation mindset, is fundamental to the transformation of the sector. Now, more than ever, it is vital that the legal services market has access to reliable and multi-disciplinary education and training. The LawTech Online Hub and Training Centre meet this need by offering a single point of authoritative information, providing substantive, as well as skills and aptitudes-based training that can be accessed remotely and for free by the whole LawTech community.”

Chris Gorst, Director of Challenges at Nesta Challenges speaking to Silicon UK also commented: “The general consensus is that the legal services sector was initially reticent about adopting new technology. There were suspicions, as in most industries adopting automation processes, that the technology would be used to replace human expertise. In an industry still based overwhelmingly on billing by the hour that may have seemed particularly unattractive.

Chris Gorst, Director of Challenges at Nesta Challenges.
Chris Gorst, Director of Challenges at Nesta Challenges.

Gorst concluded: “In commercial law, corporate clients that have been through their own digital transformations are increasingly asking how their legal advisors could be more efficient. So, we see LawTech being used increasingly to take repetitive or long-winded jobs off the plates of legal professionals, allowing them to spend more time on the tasks that benefit most from their expertise. I think the rapid uptake and investment we have seen, particularly in the corporate end of the sector in the last three or four years, has shown the sector is fast making up for lost ground. I believe the next step is a technological shift at the consumer and SME end of the sector.”

Change is undoubtedly coming to the legal industry as a whole. Often seen as the last holdout for technological change, the arrival of the Sandbox initiative will give new impetus to radically alter how the industry not only uses technology but also how its overall attitude must change.

The tech of law

In their report comparing the use of legal technology in the UK and other jurisdictions, The Law Society concluded:

Investment in UK LawTech is likely to increase. Global investments in LawTech currently stand at $926 million. While the UK LawTech market is still at an embryonic stage, the value of an investment in the sector shows encouraging levels of backing by venture capital firms, angel and seed investors. The level of investment in fledgeling LawTech companies is likely to grow in the coming years, as law firms seek to harness LawTech to increase efficiency, reduce costs or provide a broader scope of services.

The most established LawTech products in the UK are target eDiscovery and legal research. Contract management is ripe for an explosion in terms of legal services market interest (primarily B2B and in-house) and as an attractive investment. We will see these individual LawTech product types merge as start-ups work together to offer blended solutions, further pushing what tech can achieve in the legal services sector.

It is a mistake to believe that the legal profession is complete technology Luddites. The reality is various technologies have been adopted. The most conspicuous are mobile digital devices and legal support technologies such as iAnnotate and TrialPad.

Other technologies will also have a profound impact on the legal profession: According to Deloitte, “The blockchain, a data innovation that amounts to a self-verifying record of transactions between parties that requires no intermediaries and no institutional record keeper,” their report concluded.

“Blockchain is best known as the technology underlying cryptocurrencies like Bitcoin but, is also relevant to any industry that relies on verified transactions between parties such as financial services, real estate, pharmaceuticals and food production. The adoption of Blockchain is likely to create a vast new area of legal practice, including data protection, dispute resolution, jurisdictional issues, and the regulatory implications of an intrinsically unregulated technology.”

Advanced technologies like the Blockchain may be coming to the legal profession, but this would be a huge step to take. Initially, it’s more that process management and document intelligence will see technology change how these aspects of the legal profession operate. Expect to see similar expansion in LawTech as we already see in FinTech.

Legal futures

A level of automation is also expected to influence how legal firms are organized shortly. Research from Deloitte indicates 114,000 legal jobs are likely to be automated in the next 20 years, most of them junior jobs, with many more at high risk of elimination through technology.

Legal firms can look to other industries and sectors to see how technology and digitization have transformed not only their processes but also how the structure of these enterprises has changed. Legal firms traditionally use a pyramid structure. If these companies adopted more technology, it is expected that this structure would change with legal firms also expanding their employment base to include more technologist with specific skillsets in, for instance, data analysis and AI.

Guy Phillips, Vice President of International Business at NetDocuments told Silicon UK: “One of the main challenges that have faced LawTech was the legal sectors initial reluctance to adopt cloud solutions. Although over the last 2-3 years, firms have begun to acknowledge the true proficiencies of cloud solutions, many are still reliant upon on-premise technology. However, as a result of the current COVID-19 situation, we will likely see growing numbers of firms embracing cloud as they look to boost security and employee agility.”

“User adoption is another important consideration when it comes to LawTech, as many employees at legal firms are ingrained into a certain way of working,” Phillips concluded. “LawTech requires more than just an aesthetically pleasing interface. To ensure adoption, tools must truly integrate into the day-to-day life of employees and work natively from within applications they are familiar using.”

Chris Gorst also commented: “Until now, the vast majority of LawTech investment has been in the corporate end of the market. It’s speculative, but one of the outcomes of lockdown and may well be a greater embrace by more parts of the legal sector to adopt technology to enhance their business. There are already murmurings from the City that big law firms are reassessing the need for large, expensive offices when they have seen no drop in productivity with the business working from home. This may well be an opportunity for new LawTech tools and solutions in the years ahead to facilitate the ‘new normal’.”

Clearly, one aspect of the legal profession ripe for change is how data is collected, managed and then analyzed. Speaking to Silicon UK,  Stephanie Vaughan, Global Legal AI Practice Director, at iManage RAVN explained:

“Technology can transform the workings of the legal profession, even on a day-to-day basis, not just for specific projects. Knowledge management is a case in point. Often, ‘knowledge’ in law firms and corporate legal departments resides in someone’s head or is locked away in a document or email. Consequently, it isn’t unusual for lawyers to be re-inventing the wheel on legal matters or spending a significant amount of time trying to identify if the ‘wheel’ already exists.

Stephanie Vaughan, Global Legal AI Practice Director, at iManage RAVN.
Stephanie Vaughan, Global Legal AI Practice Director, at iManage RAVN.

“By structuring unstructured data contained in the firm’s knowledge assets (e.g. contracts, legal opinions, templates, etc.) applying technologies such as AI and machine learning and connecting the structured data to the firm’s systems, legal organizations can unlock their knowledge to deliver a superior client service easily and quickly. It’s similar to a data-driven approach that is widely being embraced in other industries. From a technology standpoint, knowledge management presents the most transformational potential to the legal profession.”

From processes to data and how the legal profession interfaces with partners and their end customers could all revolutionized by the technologies in development today. Perhaps some of the most innovative changes, applications and services will come from the burgeoning LawTech sector, which continues to expand with new start-ups. What is certain is that the law’s use of technology won’t be recognizable in just a few years.

Silicon in Focus

Paul Knight is a partner at Mills & Reeve specializing in technology and commercial law, including data protection. He advises on commercial contracts, software licensing, e-commerce and GDPR compliance, among other things.

Paul Knight is a partner at Mills & Reeve.
Paul Knight is a partner at Mills & Reeve.

Are the proposals around the LawTech Sandbox the gamechanger they appear to be?

“The concept behind the LawTech Sandbox is very good. Our experience indicates that involving clients, lawyers, and tech developers in designing innovative tech solutions to particular challenges relating to legal services lead to a more usable, more intuitive solution.

“The LawTech Sandbox should facilitate that element of co-creation. It should, therefore, move LawTech forwards more quickly than simple investment into LawTech startups and scale-ups would do. But I’m not sure I’d describe the proposals as a “gamechanger” at this stage, because the success of the LawTech Sandbox will depend mainly upon the quality of engagement from the network of stakeholders expected to support it. A pandemic that forces remote working upon the profession is a gamechanger.

“If there is a good standard of engagement with the LawTech Sandbox, I can see it improving adoption rates for new technologies that have been developed and tested in the Sandbox because law firms and other stakeholders will have greater confidence in the technology that is then presented to them.”

How far is the legal industry behind the technology curve?

“Different sections of the legal industry are at different points of the curve. There are already online platforms that some law firms use to test and evaluate new legal technologies, and then purchase those they want to proceed with (eg Reynen Court).

“Several large firms have established their own LawTech incubators. But not all law firms have embraced, nor necessarily have the budget to embrace new technologies. And let’s not forget, this is an industry where there are still rules requiring some organizations to affix a seal to a document to enter into certain types of arrangements and, for that to be witnessed in person by others. The COVID-19 lockdown has emphasized the limitations of those type of antiquated requirements and, highlighted the scope for greater use of technology across the legal industry.”

What are the critical aspects of the legal professional it’s hoped the technology could transform?

“In terms of the way the legal profession operates, technology has already enabled various legal practice areas to advise and support their clients working from home in pretty much precisely the same way that they would from an office. Use of virtual desktop infrastructure (VDI) allows the legal profession to have the same desktop experience wherever people log in from. Lots of legal work can be done using electronic filing only these days, removing the need for paper files to be maintained.

“Zoom, Teams, FaceTime, Skype etc. make it easy to look into the whites of someone’s eyes when discussing or negotiating points. So that’s all good. And we talked to our clients recently about how they see, and want, legal services changing over the next five years to 2025.

“Clients generally felt the provision of legal services would remain very much a human business in five years, with clients looking for a “business relationship”, and a partnership, not a purely transactional relationship. Clients still want “trusted advisers” they can pick up the phone to for a well-informed steer on how to approach a particular issue. But technology has an important part to play in improving the client experience, and that is expected to be in the context of making access to information easier; enabling self-service for standard work; and, reducing the cost of engaging lawyers.

“Technology can help speed up routine tasks, making the role of the lawyer less about the process and more about advising. Technology and data analytics can help parties predict outcomes and quantify their chances of success when disputes arise – that could transform litigation and dispute resolution. And it is definitely hoped technology can transform the way deeds, contracts and other documents are executed, so we no longer have to worry about the affixing of a seal!”

In your view, what are the challenges facing LawTech to deliver tangible benefits to the law industry as a whole?

“The main challenge faced is a cultural one. Lawyers are, in general, conservative, risk-averse, and trained to spot flaws. So the profession is often reluctant to try something new where there is a risk of it failing, and when flaws are identified, it is all too easy for the technology to be criticized and shelved.

“Another challenge to benefitting the law industry as a whole is the breadth of the sector. At one end of the spectrum, the legal sector has firms turning over more than £1,000,000,000, working exclusively with blue-chip companies. At the other end of the spectrum, there are high-street solicitors’ practices with a turnover of say, £150,000, whose clients are often individuals looking for support with conveyancing, family matters or criminal matters. Given the variety of services provided within the law industry and the variety of clients, it may be difficult for any single technology solution to deliver tangible benefits to the law industry as a whole.”

FinTech is characterized by new start-up businesses that challenge the incumbents in the financial sector. Will LawTech follow a similar pattern with new businesses innovating to deliver real ground-breaking services and applications?

“This has been anticipated in the legal sector for a while, but the likes of Riverview Law (acquired by EY), which have sought to pioneer the use of technology to automate processes within legal services, have not yet had the disruptive impact that many predicted. Instead, the large law firms have identified the need for innovation and technology developments, and are investing in LawTech themselves.

“Ultimately, the results of LawTech innovation will depend on what the clients want. I suspect that developments in LawTech might mean some people never consult a lawyer in the future, even when they have disputes, move house, get divorced, make a will and so on. There will probably come a time when people are happy to use technology applications exclusively to assist them with most, if not all, of those things. However, where clients prioritize relationships and expertise when it comes to seeking legal advice, then it will be harder for LawTech start-up businesses to challenge the established law firms in the relevant sectors.”

How do the Blockchain and distributed ledger technologies impact on the development of LawTech?

“Blockchain and distributed ledger technologies allow data to be shared swiftly and securely between parties without the need for an intermediary, such as a lawyer. The technology could eliminate many of the manual steps typically needed to execute contracts; it could help protect copyright in new works; it could assist supply chain auditing, and so on.

“The temptation, therefore, to see the Blockchain as the future of LawTech. It may be. But to the extent that the Blockchain is intended to be used to store any personal data, I think further clarification on how it can be reconciled with the GDPR’s key principle of storage limitation and the right to be forgotten is needed before it will be embraced widely in the legal sector.”

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