Are we there yet? The State of Legal Tech 2017

It feels as though we are on the cusp of a legal technology revolution. Traditional law firms are investing heavily in new technology and productization. Successful serial entrepreneurs are building legal technology products. New technologies like AI and Blockchain, are emerging and happen to be incredibly applicable to the legal industry. Combined, those factors signal that we are about to see major innovations in one of the world’s oldest professions.

We are reminded, however, of those involved in the legal innovation or legal technology community who have been expressing this sentiment for years. So what is different about right now? Have we actually reached a tipping point? As a product design studio working heavily in the legal industry, we will be monitoring new innovations in the space and contributing to some of them. Here is a glimpse at the current state of legal tech in Q4’17.

NOTE: we will expound upon each of these topics in future articles and continue to track and share new innovations in the legal industry as they develop.

Part 1: The Classics

The legal technology industry, for years, was largely defined by e-discovery and document automation. Those markets have become incredibly saturated and could undergo a consolidation in coming years. If you are building an e-discovery product or a new document automation tool, it should be incredibly niche or novel.

A counter argument to my stance that the E-Discovery market is saturated could be made, since there is quite a bit of fragmentation. However, the largest incumbent is a product called Relativity. They’ve managed to build a Salesforce-like platform on which developers can craft and sell their own tools. So if you do spot a gap in the e-discovery market, you may be best served building it on top of the Relativity platform.

As a law student, I was exposed to a document automation tool called HotDocs. For a long time, HotDocs ruled the space. But Contract Express (acquired by Thomson Reuters) seems to be gaining ground. Many of our clients have turned to Contract Express over HotDocs based on its more intuitive UX for coding new documents and building out questionnaires that drive document assembly. Similar to the way in which the Founder’s Workbench white-labeled HotDocs, Cooley’s GO platform leverages Contract Express as the engine behind the docs generated on the platform.

New entrants will have difficulty unseating these companies in doc automation/doc assembly, but companies like Contract Standards have differentiated themselves in the space by focusing more on contract analytics as a means of crafting clause based templates. This is an area that should be explored further, especially with potential application of the growing capabilities of artificial intelligence and machine learning.

Part 2: Trending

The legal industry, especially the big firm model, has experienced a power shift in recent years with law firms moving from price makers to price takers. The emergence of legal operations roles in corporations has changed the way in which companies hire their law firms. They are more focused on pricing and transparency, forcing firms to lower their rates or provide fixed bids at unprofitable levels and provide more diligent (costly) project management.

Some law firms have begun to productize their services (or at least think about it), as a way to deliver work more profitably. This is not entirely new. The Founder’s Workbench (mentioned in the above section) developed by Goodwin Proctor, has been around for years and provides startup founders with a series of resources around incorporation, growth activities and financing. Other firms have followed suit. Orrick made seed docs available for early stage financing, and Cooley (also mentioned in the above section) has done so more recently. But these products are viewed more as lead generation than actual legal services. With changing demands of their clients, firms will have to rethink the ways in which they deliver services, both the business models and modes of delivery. And they better move fast.

A company out of San Francisco, Atrium LTS, has just launched a platformthat provides legal services through a fixed cost, affordable model. Citing his experience working with law firms as a “power user,” Justin Kan (former founder of Twitch.tv. and prolific angel investor) is aiming to massively disrupt the legal industry with the new Atrium platform. They are currently startup and venture capital focused, but could expand outside of those practice areas if they are able to successfully prove this model.

We could see Atrium pave the way for new entrants. Rather than selling products to law firms, like many of the current legal tech startups do, we could instead see companies adopt the original LegalZoom model — stepping around law firms, delivering their products straight to clients. If the future of legal services is the platform model, it will be interesting to see whether the big winners are startups (as has been the case in other industries) or if it will be existing firms through massive organizational change.

Part 3: What we’re excited about

Only the two hottest topics in tech right now: AI and Blockchain. And their application to the legal industry, of course. Both have been popularized to the point of becoming buzzwords. Legal tech companies have tried to ride the buzzword wave to gain mindshare. But there are a few companies in both spaces that are worth some attention.

Artificial Intelligence

In the AI realm, Ross Intelligence out of Toronto has a product aimed at making attorneys superhuman through the power of AI. They’ve built an easy to use, artificially intelligent legal research tool that can comb through unlimited case law to find the most relevant data. They have found tremendous success with big firms, claiming clients like: Latham and Watkins, Bryan Cave, and Baker Hostetler.

Another application of AI in the legal industry that we’re particularly hopeful about is chatbots. (We wrote about this recently). The ability to create a human like dialogue to provide legal advice is astounding. There have been examples of chatbots in legal in the Justice-as-a-Service area, but we’re hopeful that the applications for chatbots will grow dramatically in the coming years. (Like this Equifax chatbot). Law firms have so much institutional knowledge. Chatbots are a scalable way to monetize that knowledge.

Blockchain

The most prominent use of Blockchain technology in legal is smart contracts. Smart contracts have the ability to dramatically change the way contracts are constructed, automatically triggering performance based on certain events, without any human intervention. As the world becomes more digital, smart contracts may become the only way to govern transactions. This is an area that deserves the attention of legal professionals. (Note: great video on blockchain and smart contracts with Nick Szasbo)

There is also a company that sees Blockchain technology in the legal space going far beyond just smart contracts, but as the technology engine for all legal activity. A “universal, blockchain-based identities for legal information — matters, documents, clients, contracts, etc.” Integraledger is working on what could become the under belly of the legal system. We will be tracking this company, and others applying blockchain technology in the legal space.

A call to arms

If you are a designer, engineer or general product maker, you should be interested in this space. There are unique problems that need solving. Problems that could have significant impacts on the systems that govern our society.

If you are an entrepreneur, you should be interested in this space. TAM is almost incalculable. But as a reference, total spend on legal services by corporations alone is in the $400B range per year (some reports are closer to $600B).

We are hopeful that the legal industry will propel forward with the use of new technologies and we plan to be a part of that movement. If you’re interested in building new products in the legal space, give us a shout! We are always looking for new collaborators.