Thomson Reuters recently issued research that reveals a 484% five-year increase in global patent filings for new legal services technology. This signals: (1) the distinction between legal ‘practice’-- differentiated legal expertise and skills— and ‘the business of law’—the means by which legal services are effectively delivered; (2) the integral role of technology in legal delivery; (3) the wane of ‘brute force,’ labor intensive methods and ascendancy of tech and process-enabled models that leverage and reduce ‘practice’ and expand automation and the role of lower-cost resources; (4) legal digitization--tech that creates connectivity between consumer and provider, real-time communication, automation, cost and risk reduction, and enhanced customer experience/satisfaction; and (5) customer demand for alternatives to the traditional ‘practice model’ of legal delivery in a digital age.
If there is lingering doubt of technology’s impact on legal delivery, here is additional evidence.
Follow the Money
The smart money—and lots of it—is investing in legal technology companies. During the past half-decade, more than three-quarters of a billion dollars has been pumped into U.S.-based ‘legal tech,’ and there’s no sign of a let-up. More legal tech financing deals —67—were closed last year than ever before with a record 27 in the final quarter. Artificial intelligence (AI) and its application to legal delivery has picked up considerably during the past year. Investors, entrepreneurs, technologists, providers, and legal consumers see the global industry’s growing appetite for digital solutions.
Technology, of course, is a means to an end in streamlining legal delivery; it is not an end unto itself. To be effective, technology must not only achieve ends that produce benefits to user and ultimate consumer, but it must also be user-friendly. That requires an understanding of practice issues (what’s important); business of law (operations designed to deliver services optimally); technology (how best to build it); and users (how to make tech user-friendly to provider/consumer and compatability with existing tools). Translation: tech solutions require an interdisciplinary effort that involves all key stakeholders in legal delivery, not just techies.
Technological applications—in contract management, e-discovery, and other high-volume areas– are standardizing, automating, and ‘productizing’ what were once labor-intensive tasks performed by lawyers at law firms. Institutional money is betting that legal services—like so many other industries—will be transformed by tech-enabled, process driven, client centric providers. This process is well underway. Consider the recent ALM Intelligence Report that revealed 73% of ‘legal’ work is now performed in-house and an additional 2% by service providers. That means law firms have only a 25% market share. Contrast this with 20 years ago when law firms were the dominant provider of legal services and handled matters start-to-finish.
Technology is impacting the legal industry in many ways: narrowing ‘practice’ and expanding ‘business of law’ (legal operations); creating new business models; accelerating the ‘corporatization’ of legal delivery (corporate models replacing the law firm partnership as the dominant structure); infusing capital; replacing stasis with innovation; producing a new buy/sell dynamic; and rebooting customer expectations of how, from whom, and at what price legal services are bought and sold. This provides context for the diminished importance of regulation in the legal industry, particularly in our domestic market.
The Marginalization of Legal Self-Regulation
The United States is the world’s largest legal market and the most active—but by no means the sole-- legal technology center. One would imagine that the regulations governing the legal industry here would have been revisited—as they have been in several other advanced economies—to reflect technology, new models, and client demand. Not so. Three times since the turn of the new Millennium, the American Bar Association and State Bars have declined to adopt some version of legal re-regulation that eases the current prohibitions of ‘non-lawyer’ investment, ownership, and management of law firms. This is in contrast to the UK, Australia, and other legal markets that have sanctioned ‘alternative business structures’ designed to kick-start competition and innovation. It’s hard to rationalize the 3X thumbs down of regulatory reform in the U.S. where most of our population—including small businesses-- cannot afford representation due to its sky-high cost--the ‘access to justice crisis,’ and corporate clients are migrating work from law firms, the incumbent provider source.
From a regulatory perspective, the U.S. legal industry is a tale of two markets. Corporate providers are effecting de facto re-regulation. They have become corporate law’s largest providers, ‘insourcing’ work from law firms and/or outsourcing it to service providers. There are many key differences between firms and corporate legal departments and providers. While both operate under the same regulatory scheme, the distinctions reflect the regulatory scheme’s failure to distinguish between legal ‘practice’ and the ‘business of delivering legal services.’ In-house departments and service providers have circumnavigated anachronistic legal self-regulation that is principally designed to insulate lawyers from competition.
Corporate consumers-turned-providers and elite legal service companies rely more heavily on technology and process than most firms. They emphasize efficient delivery—not simply self-proclaimed superior ‘practice’-- claimed by firms. Some key differentiators between corporate and service providers and firms include: structure (corporate vs. partnership); incentives (equity vs.cash distribution); performance standards (output vs. input); reliance on technology and process (significant vs.marginal); price (fixed/reduced vs. hourly/elevated); and customer-centricity (aligned vs. misaligned). In sum, greater emphasis upon technology and process among corporate departments and service providers is a key reason why market share has shifted to them and away from firms.
The retail market segment is entirely different. Regulators have waged an unsuccessful war of attrition against well-funded tech and process enabled retail market service providers like LegalZoom, Rocket Lawyer, and AVVO. State Bars have alleged ‘unauthorized practice of law’ against them repeatedly to drive them out of the marketplace and to preserve lawyer market domination. These efforts have failed. Regulators fail to distinguish legal ‘practice’ from legal delivery nor care much for the high customer satisfaction ratings and millions of new market entrants the new service providers have. Nor do they evidence concern for the alarming unmet need for legal services—even when many of those services can be handled with minimal or low ‘lawyer touch.’ The 'one size fits all' regulations are out of touch with advancements in the marketplace accelerated by technology designed for a better customer experience, greater efficiency, and reduced cost of legal services.
Technology’s impact on the legal industry is by no means limited to the U.S. Consider that China was a close runner-up to the U.S. in the Thomson Reuters report on legal tech patents. China is fast becoming a force in the global legal marketplace. It has a huge portfolio of outbound legal work, principally in the U.S. and UK, and it is actively working on tech solutions—including artificial intelligence—to monitor, streamline, and manage it. A brief overview of recent Chinese legal tech developments can be found in Artificial Lawyer, a leading legal tech blog.
Interest, investment, and adoption of legal tech is a global phenomenon. It has many manifestations-- start-ups, incubators, innovation zones, tech centers, conferences, investors, journals, blogs, and social media sites. Cities from Toronto to Beijing, Berlin to Jerusalem, and Paris to San Paulo are home to legal tech hubs. And that’s not to mention technology developed in other industries applied to legal delivery. A good example is ‘ROSS,’ the AI machine powered by IBM’s Watson that is now 'at work' in corporate legal departments and law firms--one of several AI solutions adapted to the legal vertical.
The global interest in legal technology confirms its impact on the transformation of the legal buy/sell dynamic. IT will bring millions of new legal consumers into the market, easing access, reducing cost, and creating a range of options for legal consumers. It’s only a matter of time before there is a digital global marketplace—an Amazon for legal services.
Many lawyers understandably focus on technology’s impact on their profession and ability to earn a livelihood. A 2016 study by Deloitte predicted that approximately 114,000 legal jobs will be automated within the next two decades. This is not ‘future shock;’ nearly 31,000 legal jobs have already been eliminated by technology. But the staggering job loss Deloitte predicts must be offset by new jobs that will be created as law morphs from a labor-intensive delivery system controlled by lawyers to a tech and process driven one delivered from corporate structures by an interdisciplinary team of professional and paraprofessionals. Fewer lawyers will engage in pure ‘practice’ and many more will leverage practice skills and a suite of new ‘delivery’ skillsets to perform as-yet unidentified legal delivery functions.
Legal technology will benefit consumers by affording greater visibility and access to a wide range of legal services and providers. It will produce competition, quality metrics not presently available, reduce cost, enhance transparency and alignment of consumer with provider, introduce predictive tools and compress the lengthy resolution process. Most importantly, technology will remove the cloak of mystery lawyers have long worn while delivering their services. That will allow customers to make more informed decisions when they need 'practice' assistance and which lawyer is best suited to provide it.
You'll find more articles from Mark A. Cohen:
In the Thought Leader Section @ LegalBusinessWorld
On his contributor page @ Forbes
And his website @ LegalMosaic
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