The NewLaw Wave: Who’s Staying Afloat & Who’s Drowning
Synopsis: The future of NewLaw is hinged on the ALSP (Alternative Legal Service Providers) market homogenizing to provide a variety of legal services, ranging in expertise - but often standardized in efficiency, transparency and reduced costs.
In the future – and actually in the near one - the only factor that will differentiate ALSPs are their use of Artificial Intelligence (AI) - but even now, we're seeing tech and law merge in a cyborg-esque fashion.
Traditional law has paved a trail of stagnation, but now that AI and ALSPs have broken into the industry, suddenly nothing is certain. My research on the NewLaw industry unraveled the two biggest sectors of Alternative Legal Service Providers; LPOs and Alternative Staffing Providers.
Together, the two sectors cater perfectly to the legal market; one arm focuses on completing menial legal labour with cost effective outsourcing, and the other arm focuses on insourcing experienced legal talent for projects that necessitate expertise in a certain area. Soon though, these two arms will become one fully functioning limb, homogenizing the industry to achieve versatility and supersede the benefits of turning to a traditional law firm.
It seems masochistic to abide by TradLaw standards when law firms and in-house counsels finally have the option to automate tasks or outsource/insource various legal work. We are seeing the tide of the legal-sphere turn, and I’ve made certain predictions as to who will stay afloat, and who won’t.
Firstly, my research asserted what NewLaw really was; a divergence from traditional legal operations. NewLaw is every law firm, startup, company, or in house counsel that is challenging the status quo of billable hours, overheads, and unmanageable workloads. A trend repeating itself throughout the category of NewLaw was the burgeoning field of Alternative Legal Service Providers (ALSPs). Thomson Reuters defines an ALSP as a legal entity that provides services traditionally done by law firms (i.e. Litigation and Investigation Support, Legal Research, Document Review, eDiscovery and Regulatory Risk and Compliance). ALSPs do not pretend to be law firms, instead they are legal service businesses that take a facet of a law firm’s work and complete it with efficiency, flexibility, expertise and often at a lower cost too.
To Transform Your Law Firm’s TradLaw Infrastructure Just Apply Pressure
Reading up on ALSPs, you start to realize that law businesses, or law companies, have a fundamentally different DNA than law firms, one that is directly linked to its compatibility with the digital and modern age. Various ALSPs now use automated systems to assist with document review, such as Special Counsel and Elevate’s Cael.
It’s also important to note that ALSPs are resource driven, committed to optimizing legal operations by finding the right person for the job. This is precisely why recruitment/staffing is such an important quality of an ALSP, because it plays a large role in ensuring the efficiency of whatever legal service the ALSP offers.
Mark Cohen lists a few distinctions between a law firm and a law company, the most prominent ones being: a closer alignment with the financial and enterprise objectives of the consumer, a corporate structure that takes a client-centric view over profit per partner, a continuous quest to use technology and process to automate tasks and gather ‘big data’ for benchmarking, compressed delivery time and reduced cost.
It might be this difference in genetic makeup that has enticed the legal industry to ALSPs; an ALSP’s ability to make matters more efficient and cost effective are hugely attractive to overworked lawyers and firms looking to have competitive prices.
Large US law firms with 175 lawyers or more were surveyed in 2016 and 2018. The study revealed that a staggering 52% of large US law firms use ALSPs for litigation and investigation support, as opposed to a 2016 statistic which only reported 33% (Reuters). Not only are ALSPs transforming the legal industry, they are becoming the industry standard. Two years ago in 2016, small firms, with 29 lawyers or less, were included in the same survey.
The small firms were asked if their clients were increasingly pressuring them to use ALSPs, and in 2016 the survey reported crickets chirping, with 0% of small firms reporting mounting pressures (Reuters). Just two years later in 2016, 24% of small law firms reported they were facing increasing pressure from corporate clients. And it’s not just the little guys facing heat from their clients, it’s the BigLaw firms too; 39% of large law firms report they have been facing mounting pressures from clients to use ALSPs (Reuters).
Unnecessary Pigeon-Holes That Are Hiding Blurred Industry Lines
Right now, the scope of the ALSP market is fractured, but the lines are slowly blurring. The 2018 Reutrers study included a chart of the different factions; Big Four, Captive LPOs, Independent LPOs, Managed Services, and Contracting/Staffing Services.
There was a small asterisk beneath the chart that said, “*Halebury was acquired by Elevate in January 2019”. Elevate was categorized as a Managed Services company, while Halebury was an Alternative Staffing company.
Here’s the new reality though; in a few years, these various categories will disappear, leaving a homogenized ALSP market. The Thomson Reuters report defined Managed Services Providers as contracting for in-house legal teams, but it already seems unrealistic to pigeon-hole companies like Elevate or UnitedLex in Managed Services.
Apart from contracting solutions, Elevate offers marketing and business development services, HR support, finance and accounting services--and that’s just for law firms. Following in Elevate’s footsteps, UK based staffing ALSP Lawyers on Demand acquired Lexvoco on April 30th, 2019, effectively ballooning their company’s population growth by at least 100 employees and 10 offices and merging their staffing company with a managed services provider. Lexvoco, founded in 2014 by Anthony Wright, had a focus on providing alternative legal services to in house counsels in the Australasian market with the use of legal technology and innovative legal operations.
If we back track even further, we see that Axiom, arguably Elevate’s largest competitor (aside from the Big Four), acquired Toronto based law firm Cognition LLP in January, 2016 (BusinessWire). And so, Axiom Cognition was born, a General Counsel business that serves corporate clients with in-house legal departments, seemingly setting a trend in the ALSP market that, as we now know, LOD picked up on. One competitor, aside from Elevate, stood out to me. They were a shape shifter, fitting each new mold created for them by the gig economy. To reveal them, I need to launch into a small anecdote.
On the 2019 Reuters report, I noticed the absence of Pangea3--warning, new acronym ahead--one of the world’s leading Independent LPO companies (Legal Process Outsourcing). According to Reuters, an Independent LPO provides legal work on behalf of corporate legal departments and law firms, often via project based matters.
I soon discovered that Pangea3 was acquired by Thomson Reuters in 2010, the publisher of the report I had just been scouring for information. Sure enough, after reading the list of competitors over again in the report, I found Thomson Reuters listed under Managed Services.
It didn’t take very long to stumble over another jarring headline; ‘EY acquires Thomson Reuters Pangea 3 Legal Services’. In a client/competitor update email, I said the following, “Like watching a big fish eat a little fish, then having a shark come in and eat them both in one fell swoop”.
In CLOC’s State of the Industry report in 2017, participants were asked what ALSP or Managed Services Providers they used, and 1.9% responded with Pangea3. The only other Big Four company mentioned was PwC, with 1.3%. EY was nowhere to be found on the list in 2017, and now, suddenly, they had one hell of a chunk of the industry pie.
Legal Shapeshifting & Industry Fortune Telling
EY has a history of legal shapeshifting, morphing from an accounting firm to an ALSP with their alternative business structure license, granted to them in 2014 by the Solicitors Regulation Authority in the UK.
In 2018, EY acquired Riverview Law, an innovative UK based ALSP, marking the start to their journey into the field of Alternative Legal Service Providers. In an article detailing EY’s acquisition of Pangea3, I read something that put the Big Four’s presence in the industry into perspective, “Calling EY an accounting firm is like calling Amazon a bookseller.” (Ambrogi).
And yet, the legal-shapeshifting had a story of hope to it, despite their obvious growing monopoly on the ALSP market. Cohen, the author of an article regarding why EY’s acquisition of Riverview was so monumental, posited that “the ‘legal profession’ is becoming subsumed by the legal industry”. Meaning law firms are no longer the only entity to perform ‘legal work’, now legal consumers have the agency to make the call regarding what legal work they want done by which legal service provider; they could very well turn to a traditional BigLaw firm, but they could also utilize an ALSP--like EY, Elevate or Axiom.
More to the point, the staffing/recruiting ALSPs like LawFlex or Lawyers on Demand (LOD) could soon merge with other managed service companies or LPOs, in order to deliver a wider variety of services with a wider variety of expertise. Staffing companies are vital to the industry as they provide a smart way to insource expert services, cut overhead fees and allow the company/firm to focus on other projects--however there’s no reason why staffing companies couldn’t merge with LPOs to provide a different set of services, less focused on providing expertise, and more focused on providing efficient resources to complete menial legal jobs for a fraction of the cost.
As I look at the future of the legal industry with my trained third eye, my prediction is that these ALSP hybrids of LPOs and Alternative Staffing companies will become so common, that they eventually become the industry standard for ALSP infrastructure; contrasted only by what technology/AI they use.
In a future that has the ALSP market coalescing, the one thing that will set these NewLaw companies apart is their link to legal-tech. As mentioned before, Elevate is a goliath in the industry, as proven in CLOC’s 2017 report in which Elevate Services was mentioned by 9% of respondents.
But it’s hard to keep up with the burgeoning ALSP market--the information in the report was already inaccurate. Sumati, the only service provider whose sole focus was contract management, was taking up 1.9% of the ALSP pie according to CLOC’s report, and in 2018 Elevate acquired the company. Elevate was now ahold of 11% of the industry, enough to position them as having a monopoly over the alternative legal services market, especially considering nearly 2 out of 3 survey respondents (64.7%) did not have an alternative service provider (CLOC).
The acquisition of Sumati adds proprietary software for contract review and analysis to Elevate’s repository of legal-technology, which was also expanded by Elevate’s acquisition of the legal AI tech and consulting firm LexPredict in November of 2018. It’s hard to say which market is growing faster; ALSPs or Legal Tech.
Companies like LegalUp and LawGeex are pioneering legal tech, having automated the customization of legal documents and document review. Law necessitates accuracy and precision, so the use of AI would aid in making sure these two attributes are fulfilled constantly. But can a computer truly replace a lawyer, even for menial legal tasks? The question hasn’t just been asked by me, but countless professionals in the industry.
AIs Become Reverse Polyglots & Overcome Language Barrier
Consultancy firm Mckinsey estimated that 22% of a lawyer’s job can be automated, while 35% of a paralegal’s job can be automated (LawGeex). In fact, there was a 2018 LawGeex study conducted in which 20 US lawyers, with decades of legal experience, were asked to spot legal issues in five standard NDAs.
The review of simple contracts remains an integral part of a lawyer’s job, but the possibility of automation could relieve a significant amount of burden, both time wise and financially--seeing as paying a computer is cheaper than paying a person.
To raise the stakes even further, the decision to test the AI in comparison to its human counterparts by having it review an NDA of all documents was strategic, as an NDA protects a company’s trade secrets and proprietary information, making accuracy all the more imperative in the document’s review. The lawyers competed against a LawGeex AI system which had been in the development process for 3 years prior, trained on thousands of different contracts.
Ultimately, the LawGeex AI received an average score of 94% accuracy rate, above the lawyers who had achieved an average rate of 85%.
What’s almost even more interesting are the conditions under which the AI was tested against; the deduction of points not only applied if the AI or lawyer missed an exemption that pertained to the contract, but were also penalized if they mistakenly identified an exemption where it was not relevant to the contract.
The AI had to overcome the barrier of legalese, as no existing computational language model could process legalese coherently. Natural Language Processing (NLP), or Sentiment Analysis simply could not work on legal jargon, especially considering the high standard of accuracy required. To achieve their AI’s impressive accuracy, LawGeex created Proprietary Legal Language Processing (LLP) and Legal Language Understanding (LLU)--systems that would allow the AI to decipher complex legalese.
LawGeex wasn’t the only one to teach its AI the complex language of Legalese, in fact, LegalUp cultivated an NLP called Latent Semantic Analysis (LSA). LSA proved to be useful in cases of Due Diligence, when a lawyer is expected to scan possible red flags in a transaction. Though LSA does have a blind spot, a limitation of not being able to see the usage of the word in a wider context, not just context inferable from surrounding words or phrases.
Special Counsel provides an array of AI options, including the likes of Predictive coding / Technology Assisted Review (TAR), Content Clustering, Deduplication, and DepoAnalytics. AIs across the NewLaw industry are deciphering legalese through a variety of their own language processing systems, like LLP, LLU, LSA, and TAR. I think of it like a polyglot in reverse; understanding one language using 5 different parts of your brain.
Stagnation vs. Innovation / BigLaw vs. NewLaw
After delving into the legal-sphere, I determined that the antithesis to NewLaw was in fact BigLaw. NewLaw is teeming innovation, seeing companies like Ravel offer free access to computer assisted legal research, or Judicata offer research and analytics tools, turning unstructured case law into structured data.
Where NewLaw is embracing the flexible hours made available by the gig economy, seeing the emergence of companies like LawFlex, BigLaw is remaining stagnant, stuck in the void of billable hours and remaining lawyer-centric in providing legal services.
BigLaw firms have a fundamentally different DNA, Rebecca Lim describes the structure of BigLaw as having a “high-overhead pyramid with a core number of partners supported by a larger cohort of associates and lawyers, all charging clients at hourly rates. The more hours spent on a matter, the greater the charge”.
NewLaw differs from BigLaw in its ability to provide its clients with the agency to choose which services they think they need, rather than paying for a lawyer’s full set of services over a case’s lifespan (Lim, 2016).
But here’s the thing, technology is not something you can run from forever, especially not when it makes so much logistical sense to use it for efficiency and accuracy purposes--and what would a lawyer be without logic?
NewLaw provides space for different species of legal companies, even legal-tech/biglaw hybrids like Atrium; a company that operates under two separate entities, Atrium LTS, the software services provider that handles all business processes for the firm, and builds software to improve the firm’s operations, and Atrium LLP, the tech-enabled law firm. NewLaw also has the added benefit of not being particular to a specific demographic, catering both to consumers and businesses. While companies like Axiom are certainly useful to businesses, a plethora of B to C ALSPs exist, including the likes of LegalZoom and RocketLawyer, companies that handle filing trademarks, copyright protections, wills, etc, all for a flat rate fee (LegalZoom’s is $300 a year).
Companies like Atrium have already received 75 million in funding, so it’s safe to say people are at least hopeful about the merger of tech with traditional BigLaw structures. But that begs a different question, are Big Law firms ready themselves for such a change?
There’s nothing wrong with BigLaw or TraditionalLaw entities, but is there anything new or innovative about them? Are they still benefiting clients or even bothering to keep up with the ebb and flow of the wave of NewLaw that’s hit the legal industry? It’s important to note that BigLaw is no longer synonymous with TradLaw as some BigLaw firms have made the change to NewLaw, some out of peer pressure and others out of a genuine willingness to innovate.
In my first sea-life analogy, I had perceived the little fish to be an LPO, and the shark a Big Four firm. However, having now seen the monumental shift that the legal industry is making towards innovative legal solutions, it seems to me that the little fish will soon be BigLaw. Whether it will be swallowed by a larger entity is all up to how it reacts to the impending wave of NewLaw.
About the Author
Shany Raitsin lives in Toronto, Canada.
She is Marketing Director at LawFlex - a leading Alternative Legal Staffing company that offers efficient legal outsourcing for companies and law firms, and brings flexible positions to freelance lawyers.
Shany is in charge of researching the legal industry and extrapolating information/predictions about the future of law. She can be contacted via email.