Last month, I concluded my second article on the Metaverse with a statement that law firms are currently enjoying high demand for services and premium rates. But in the long run, legal professionals will need to address some strategic issues if they want to adopt more technology.
This month, I’d like to explore a structural issue that may limit the adoption of certain technologies in law firms: specifically, the independence of lawyers or the requirement that a law firm be owned by lawyers.
Billions of venture capital dollars are pouring into legal technology, warranting some excitement about the prospects of how technology will advance the practice of law. Last year, Clio raised $110 million and was one of many legal tech companies to raise over $100 million.
However, the independence of lawyers poses a challenge to the adoption of legal technologies. A law firm cannot accept investment (i.e. ownership) from venture capital in the same way as a legal technology company because the independence of lawyers does not allow it. Law firms will be able to take advantage of technological advancements that any business can take advantage of (e.g. Microsoft Teams, CRM systems to manage clients, etc.), but cannot benefit from direct investments to create systems that could take over the basic service of providing legal advice. And since legal tech companies aren’t lawyers, they can’t build systems that provide legal advice (except for the experiments underway in Arizona and Utah).
In theory, if a software company were owned by billionaire lawyers, investments of hundreds of millions of dollars in legal technology might be possible, but the law firms themselves would not have the same advantage. Bans on lawyer independence prevent law firms from developing apps at the scale and investment level of other industries that can accept venture capital investments, all because those apps could be considered as the practice of law.
With all of this in mind, let’s take a look at how we can expect legal technology to evolve in the coming years.
Repeatable work continues to move internally to the legal department
Legal departments are under increasing pressure to be more productive, and as technological innovation advances, legal departments are more likely to embrace technology in order to internalize certain tasks. Higher volume or highly repeatable transactional tasks, such as negotiating and reviewing contracts, are good candidates for this. There are also other tasks such as eDiscovery that operate on a company’s data, such as documents, emails and chat sessions, so it makes sense for companies to have at least the first steps. of the process.
Bearing in mind the lasting effects of the pandemic, I think we can also expect law firms to continue to get back to this work of increasing legal services staff, given the shortage of talent and staffing challenges that legal departments will continue to face.
Law firms continue to provide high-value, bespoke legal services
With a long-term trend for higher volume or highly repeatable work to be moved in-house, what does that leave law firms?
High value custom work will continue to provide substantial benefits to partners. The legal departments will also continue to use trusted firms for highly specialized and less common work for the legal department. Examples include mergers and acquisitions, semi-annual labor negotiations, and other events. In these situations, a law firm associated with a practice dedicated full-time to these “horizontal” legal services will have a much better knowledge of the market than a legal department dealing with an issue for the first time.
It’s these “horizontal” legal services that could lend themselves to automation and codification in software – and these are the areas where venture capital could help solve at scale with larger investments than a company individual trying to self-finance and build a solution for their farm only. Think of a Turbo Tax-like product that makes legal decisions or provides advice. Think of a bot that operates on behalf of a lawyer. Is it more efficient for individual law firms to create solutions like this for their own use? Or is it more efficient for a few well-funded legal technology firms with lawyers to build these kinds of solutions?
Law firms’ fragmented investments won’t be able to scale to build apps that can deliver legal advice
A law firm could certainly develop applications with its own IT department, leveraging AI to encode legal logic and a law firm’s “secret sauce” into its systems.
But partnership structures (like a law firm) that focus on annual partner profits are billable hour based and therefore not amenable to large capital investments, and every law firm in the world ‘AMLAW 200 goes it alone to build its own. further dilutes the effectiveness of investments in applications that can benefit all law firms.
So what should the American Bar Association and law firms do?
In August 2020, Arizona approved non-lawyer ownership or investment in law firms, and in May last year, LawGeex, an AI software company, was granted a license to practice law in Utah, which has made changes similar to those in Arizona. It remains to be seen how effective LawGeex or other non-lawyer organizations will be in advancing technology adoption and advancing legal services. These experiences of ownership by non-lawyers need to be watched closely.
To be fair, Australia and the UK have already liberalized independence rules, and we haven’t seen any seismic changes yet. The ALSPs continue to progress and play a role. And there could be interim approaches where the software encodes the law and spots the issues, but a lawyer reviews the outcome and has the final say in legal advice.
There is more to learn here and any changes can be incremental. This is why the teachings of Arizona and Utah will be interesting to observe.
The independence of lawyers is an important issue which has serious implications for the legal sector and society in general. There will be potential upsides and downsides to any move to make changes to the current ABA rules regarding attorney independence. Consideration of how access to capital and adoption of technology should be part of the discussion.
Ken Crutchfield is vice president and general manager of legal markets at Wolters Kluwer Legal & Regulatory US, a leading provider of legal information, business intelligence, regulatory and workflow solutions. Ken has over three decades of experience as a leader in IT and software solutions across industries. He can be reached at [email protected].