Over the past few years, the market for ‘legal technology’ has increased exponentially. This is the term given to various programmes and tools which serve to streamline the legal profession and allow lawyers to work more efficiently. It effectively serves to dramatically increase productivity whilst placating clients’ demands for solutions rooted in tech. Typically, these innovations are pioneered by various startups ranging from Ravel Law, which uses data analytics to predict the outcome of cases based on the judge’s previous decisions, to Farewill, which enables clients to create and alter their wills more effectively. That being said, as legal technology becomes ever more essential, many firms are taking their legal technology in-house.
At a rough estimate, the sector is currently worth 14 billion USD which is relatively small when we consider the legal services market as a whole – worth about 849 billion USD.[1] However, there is reason to believe that demand is expanding rapidly whilst new and innovative forms of legal tech are appearing every year. There is a general consensus that the industry as a whole has been slow to adapt to change whilst demand has increased. One phenomenon that has been noticed over the past few decades is the escalation in governmental efforts to regulate commerce using litigation. In the wake of the Financial Crisis this trend has only intensified. There have been myriad long-term consequences but the relevant outcome here is that demand for legal services has widened.
That being said, in contradiction with the laws of the market, law firms have failed to adequately boost productivity meaning that fees have increased. Subsequently, the ‘justice gap’ has appeared, a term used to describe the individuals and firms who can no longer access legal services due to this price adjustment. Admittedly, this term is traditionally applied to individuals who cannot afford to hire a legal representative. However, it is just as applicable to firms who are now eschewing legal services due to unrealistic fees. The prospects of driving down these prices and gaining an edge on competition, combined with the newfound propensity for remote working usher in by the pandemic, has necessitated the adoption of legal tech by top law firms.
Another development which must surely encourage law firms to adopt legal tech is the gradual increase in competition that has emerged since the 2007 Legal Services Act, England and Wales.[2] This enabled firms with ‘alternative business structures’ to start practicing law. Although there was an initial delay, many competitors emerged as a result of this and have started to challenge the status quo. Among the key competitors are the ‘Big Four’ professional services firms who have established their own legal divisions, even recruiting their own trainees. Legal Tech is hugely relevant here as the Big Four have, for the most part, been far more proactive in adopting these new tools. Perhaps this is due to the comparatively large number of resources at their disposal. In 2020, Kirkland & Ellis was the firm with the highest revenue – roughly 5 billion USD – whilst the highest-ranking UK firm was Clifford Chance with 2.34 billion USD.[3] It goes without saying, this is a lot of money. However, the largest ‘Big Four’ firm (Deloitte) boasted a revenue of 48 billion USD in 2020, closely followed by PwC with 43 billion USD.[4] Naturally, they can divert more funds towards legal tech. Furthermore, the diversity of services they provide could be conducive to the adoption of new ideas and practices. Either way, traditional law firms must move quickly to integrate legal tech into their practices or risk being left behind.
Despite this inescapable conclusion, it is apparent that law firms had previously been dragging their feet. In 2021, a survey ran by LITIG a leading collective of legal tech experts revealed just how unfamiliar city lawyers were with their clients’ need for legal tech. Overall, there were 1,491 respondents. There were 864 fee earners, of which 31% were partners. There were also 627 professional services workers, of which 40% were managers or directors.[5] Supposedly, only 28% of respondents claimed to understand how clients were making use of technological tools. Meanwhile, a mere 34% believed their firms to have a culture of continual innovation.[6] The survey also exposed some cavernous knowledge gaps; only 50% of partners were aware of the legal tech tools within their own firms. More worryingly, for some categories of legal tech it was only 4%.[7] This survey exposes one factor that limits the uptake of legal tech, the inertia of those in charge. Legal tech represents an opportunity for firms to get ahead in a competitive market but, on an individual level, senior employees may be comfortable enough without these unfamiliar tools and programmes.
Evidently, in spite of these issues, firms are now more willing to invest significant amounts into legal tech. It is predicted that investment from in-house legal departments on legal tech will triple before 2025, making up 12% of in-house budgets.[8] Law firms are also starting to see the bigger picture regarding the potential benefits of legal tech in the long run. Thompson Reuters’ latest ‘Business leaders Report’ revealed that legal tech investment was the No. 1 strategy to improve performance, with 92% of law firm executives claiming that the uses of legal tech go beyond cutting costs.[9]
It is worth noting that firms are not blindly throwing money at legal tech firms in the hope of gaining an advantage, they are looking at how they can make advancements of their own, even altering their training system to incorporate the legal tech. As a case study, it is worth looking at Silver Circle firm Macfarlane’s recent introduction of a ‘lawtech graduate scheme.’ This is a two-year-long programme designed to equip graduates with the necessary skills to become a “fully-fledged lawtech professional.”[10] In a move that is unprecedented for traditional UK law firms, this scheme will train graduates to incorporate, adapt and even develop ‘Lawtech’ to streamline tasks and deliver technological solutions both to clients and colleagues. It remains to be seen how successful the venture will be but by introducing this programme, which runs alongside a traditional training contract, Macfarlanes is demonstrating the instrumental role Lawtech will play in the future of the firm.
The increased uptake of legal tech by law firms has been mirrored by extreme growth in the legal tech industry, with new startups appearing at an unprecedented rate and existing ones solidifying their position. It is an incredibly promising sign that the first legal tech IPOs occurred in 2021, with LegalZoom.com Inc, Intapp Inc and CS Disco Inc going public during the summer. Two companies – Clio and Everlaw Inc – reached valuations of over 1 billion USD, becoming ‘unicorns.’[11] Meanwhile, as more and more money is poured into these startups, the resultant technology becomes evermore useful. Perhaps one of the most simplistic applications of legal tech is the use of speech recognition. Given the importance of recording certain conversations, many law firms have incorporated increasingly advanced AI-infused voice recognition software to record conversations in writing. This is preferable to human secretaries who are both expensive and fallible. On the more complex end of the spectrum, there have been significant advancements in the aforementioned data-driven case prediction tools. Companies such as Solomonic and Lex Machina are developing analytical software which combines long-term trends and historic judgements to predict the outcome of litigation. There is, of course, an issue here in that jobs are at stake but this is not an issue exclusive to the legal industry and, ultimately, profits come first.
The final key indicator that legal tech is gradually permeating the industry is the changes that are being proposed to the education of future lawyers. As noted earlier, many firms have incorporated legal tech into their training contracts – the two years of work experience required to become a solicitor following the completion of the Legal Practice Course (LPC). This can either take the form of general induction to legal tech throughout the two years or a seat dedicated to legal technology. A ‘seat’ is just a section of a trainee’s training contract, normally corresponding to a practice area. Whilst this is a significant development, some are calling for legal tech to be integrated into legal education at an earlier stage.
Smith points out a relevant issue in that graduates, to an increasing extent, are joining an industry that requires a working knowledge of basic legal tech and consequently feeling out of place having not been introduced to it during their undergraduate and postgraduate courses.[12] Jackson echoes this sentiment, citing the failure to acknowledge legal tech within the context of education as another example of “academia playing catch up to the industry.”[13] Interestingly, this strikes at the heart of the debate as to whether or not legal education should be vocational or theoretical, with many criticising the current state of legal education on the basis that it does not prepare students for actual legal work. This is a tangential question, however, as the relevant point here is that legal tech is becoming increasingly integrated into the industry to the degree that academics are encouraging its involvement in education. According to Ryan, US law schools have already begun this process, with a significant proportion of law schools offering legal tech modules whilst only 8% of UK institutions have done so.[14] It remains to be seen whether the use of legal tech will be taught in universities and law schools. Seemingly, legal education is gradually shifting to become more vocational and, as shown above, legal tech will certainly be part of the job in future.
To conclude, it is clear that legal tech is “no longer fintech’s awkward younger sibling.”[15] The limiting factor for the continued adoption of legal tech appears, for the first time, to be the reluctance of law firms to adapt to change as opposed to limitations found within the legal tech industry itself. With that in mind, the high levels of competition within the legal industry will ensure that those who are first to innovate and adapt will gain an edge. Furthermore, the billions of dollars being poured into legal tech will ensure that these innovative law firms will always find ways to drive up productivity using legal tech. Overall, this legal tech boom could simply increase profit margins, or it could fundamentally alter the profession itself by automating mundane tasks and allowing lawyers to concentrate on specific tasks that require a human touch. Either way, this is certainly a space to watch.
References:
[1]Brochner, N. M., Forbes, 2021, ‘What To Expect From Legal Tech This Year’, Available at: https://www.forbes.com/sites/forbestechcouncil/2021/01/29/what-to-expect-from-legal-tech-this-year/?sh=46a012ad26ad
[2]Broown, D., LexisNexis, ‘The future of legal technology in law firms’, Available at: https://www.lexisnexis.co.uk/blog/future-of-law/the-future-of-legal-technology-in-law-firms
[3]Seth, S., Investopedia, ‘Top 10 Largest Law Firms in the World’, Available at: https://www.investopedia.com/articles/personal-finance/010715/worlds-top-10-law-firms.asp
[4]Statista, 2022, ‘Revenue of the Big Four accounting/audit firms worldwide in 2020’, Available at: https://www.statista.com/statistics/250479/big-four-accounting-firms-global-revenue/
[5]Craske, J., Lawyer Monthly, 2021, ‘Getting Under The Skin Of Legal Tech At Law Firms’, Available at: https://www.lawyer-monthly.com/2021/11/getting-under-the-skin-of-legal-tech-at-law-firms/
[6] Ibid.
[7] Ibid.
[8]Gartner, 2021, ‘Gartner Predicts Legal Technology Budgets Will Increase Threefold by 2025’, Available at: https://www.gartner.com/en/newsroom/press-releases/2020-02-10-gartner-predicts-legal-technology-budgets-will-increase-threefold-by-2025
[9]Thompson Reuters, 2021, ‘2021 Law Firm Business Leaders Report’, Available at: https://legal.thomsonreuters.com/en/insights/reports/2021-law-firm-business-leaders/form
[10]Macfarlanes, 2022, ‘Lawtech graduate scheme’, Available at: https://www.macfarlanes.com/join-us/early-legal-careers/lawtech-graduate-scheme/
[11]Merken, S., Reuters, 2021, ‘Legal tech buzzed throughout 2021 with IPOs, new unicorns’, Available at: https://www.reuters.com/legal/transactional/legal-tech-buzzed-throughout-2021-with-ipos-new-unicorns-2021-12-29/
[12]Smith, M., ‘Integrating technology in contemporary legal education’, The Student Lawyer, 2019, pp. 209-221.
[13]Jackson, D., ‘Human-centered legal tech: integrating design in legal education’, The Law Teacher, Vol.50 (2016), pp. 82-97.
[14]Ryan, F., ‘Rage against the machine? Incorporating legal tech into legal education’, The Law Teacher, Vol.55 (2021), pp. 392-404.
[15]Brochner, N. M., Forbes, 2021, ‘What To Expect From Legal Tech This Year’, Available at: https://www.forbes.com/sites/forbestechcouncil/2021/01/29/what-to-expect-from-legal-tech-this-year/?sh=46a012ad26ad
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