Friday, March 20, 2020

The Changing Legal Technology Landscape

We have been witnessing a dramatic, largely digitally-driven business transformation, affecting many industries over the last decade. The term most often used to describe this phenomenon is “digital transformation,” even though non-digital business structural changes most often accompany it. 

Digitization and datafication are key elements in this kind of transformation. We have seen the impact of this phenomenon most clearly in the retail industry, where giants of yesteryear like Sears and Borders have fallen to more digitally agile contenders like Amazon, who have changed the retail landscape fundamentally. The impact of digital transformation on the legal profession and function has been less dramatic, but after spending a week at LegalWeek20 in NYC in February, it is clear that change is coming to the enterprise-focused legal profession as well.

The emerging changes in the Legal Industry can be characterized along the following five dimensions:
  • The changing relationship between Corporate General Counsel and outside counsel
  • The changing legal services model
  • The growing impact of the data deluge
  • The evolving legal technology landscape
  • The increasing importance of data security and privacy

The growing tension and disconnect between corporate general counsel and outside law firms

Experts suggest that the disruptive changes in the legal industry began after the 2008 downturn when companies started demanding more from their outside counsel. Today’s law firms find themselves under greater pressure from clients who demand value, efficiency, and transparency in a way that was uncommon ten years ago. The past decade has seen General Counsels (GCs), demanding more for less, but it has also seen a growing awareness that return on investment (ROI) is more important than just the cost.

The shift that began a decade ago, also began the gradual death of the traditional approach to legal billing, the venerated billable hour. Previously, outside counsel time was literally equivalent to money. Lawyers had little incentive to be more efficient and saw no reason to spend non-billable time exploring and deploying new technologies to make themselves more efficient. This traditional approach is changing now, as firms can no longer rely solely on their legal expertise; today, they must increasingly focus on how they deliver that expertise, which calls for increased use of technology and benefits early adopters of disruptive technologies. Legal services have been a buyers’ market for the past decade and corporate law departments now like to see clearly defined value and efficiency.

All this is happening against a backdrop of changing buyer behaviors accelerated by rapid globalization across the whole professional services market. The corporate legal department has historically often been viewed as “deal killers,” but the modern legal department is now often a much more engaged internal business partner in emerging corporate initiatives. Modern legal departments have increasingly shifted their approach to manage the specific changes created by digitalization — today, corporate legal counsel engages with more stakeholders, interacts with more speed and iteration, and are accustomed to the increased technical and collaborative nature of digital work, in addition to handling new information-related risks. The increasingly technologically aware workforce is upping its expectations in terms of the use of technology and effective, rapid communication between service providers and clients.

Technology is changing the general counsel’s role, and law firms need to react to remain competitive. The time has come to embrace emerging technologies that provide clients with efficient solutions to manage and service their current and future needs. Client expectations are changing, technology is having an increasing impact, and new, low-cost legal service competitors are emerging to take a slice of the market. What was already a buyer’s market is becoming more so, with increasingly powerful in-house legal departments stoking up the market for alternative legal service providers (ALSPs).

Some GCs and consultants have even developed tests to measure their outside law firms on how efficiently they perform with commonly used productivity tools and measure competence with widely used technology. These tests reward efficiency, which goes against the yardstick that old-style lawyers have traditionally used to value their work: time. Firms whose working cultures do not evolve to service current market needs efficiently, are likely an endangered species. Law firms need to deliver better quality service, and they need to do it cheaper and faster, which demands more automation and competence with technology. Clients are now much less tolerant of old-style lawyers who resist or refuse to use technology that enables expedited and efficient work production.

In his book “The End of Lawyers?” author and legal tech expert Richard Susskind writes: “It is not easy to convince a group of millionaires [Old Partners at Law Firms]... that their business model [the billable hour] is wrong.”

Law departments are now at what Judith Flournoy, CIO at international law firm Kelley Drye & Warren terms “an inflection point,” where they are likely to have to accelerate their uptake of technological innovations to stay competitive. Competence with analytics, collaboration and office productivity software is increasingly a base requirement for the client today.

The changing legal services market

As the needs of GCs change, we see corporate law departments are in-sourcing more legal work, using more tools and technology that reduces the need for outside counsel, and are using more boutique law firms and quasi legal-service providers (Alternate Legal Service Providers - ALSP).

The traditional structure of partners effectively running the business, with some carefully supervised and limited support services, is outdated today. The General Counsel today can not only shift to another law firm, but could also work with small specialist boutique law firms, and global accounting firms who are increasing their involvement with legal services. The smaller firms tend to be much more innovative, specialized, tech-savvy, and run leaner practices enabled by technology; and thus are often more competitive than large firms. The growing importance and practice of technology-enabled collaboration allow these new service providers to deliver much more integrated, efficient services resulting in deeper client relationships.

The 2017 Litera Report on the State of the Legal Market states: “The potential impact of the Big Four accounting firms on the future market for law firm services cannot be overstated [for firms in jurisdictions where alternative business structures are permitted]. As the ALSP market evolves, the Big Four are likely to play an ever-expanding role.” The Alternative Legal Service Providers market revenue grew from $8.4 billion in 2015 to about $10.7 billion in 2017 and continues to grow rapidly.

ALSPs perform many of the tasks traditionally done by law firms, with the top five tasks identified in a Thomson Reuters survey as:
  • Litigation and Investigation Support
  • Legal Research
  • Document Review
  • eDiscovery, and
  • Regulatory Risk and Compliance
Ron Friedmann, a partner at Fireman & Company, a legal industry-focused management consulting firm, believes firms need to leverage an ecosystem of players. He says many of the future lawyers will not be lawyers at all. According to Friedmann, “In ten to fifteen years, law firms will be a much smaller share of the total legal market.”

 The ongoing data explosion

The volume and complexity of data have always been a part of the landscape in the legal industry. What is changing is the deluge of data is coming at ever-increasing speeds, increasing variety, and formats, and is also increasingly global and multilingual. The impact of this data explosion is significant, and most legal teams will admit this increase in content is a major challenge facing the legal profession today.

In eDiscovery settings, this also means that the information triage process is more challenging and requires much more automation to handle data volume and variety and increase the capability to deal with much more multilingual data.

The modern enterprise is now much more rapidly and naturally global, and thus the modern legal department and outside counsel need to be able to process content and information-flows in multiple languages regularly. The variety and volumes of multilingual content that legal professionals need to process and monitor can include any of the following:
  • International contract negotiations and disputes
  • Patent-infringement litigation
  • Human Resource communications in global enterprises
  • Customer communications
  • GDPR compliance-related monitoring and analysis
  • Cross-border regulatory compliance monitoring
  • FCPA compliance monitoring
The volumes of multilingual content can vary greatly, from very large volumes that might involve terabytes of documents in litigation related eDiscovery, to specialized monitoring of customer communications to ensure regulatory compliance, to smaller volumes of sensitive communications with global employees. Multilingual issues are especially present in cross-border partnerships and business dealings, which are now increasingly common across many industries. Being able to process and analyze large volumes of multilingual data is becoming an increasingly more important requirement.

 The emerging legal technology landscape

Law firms can help general counsel drive efficiencies in business decisions by working together to determine what technology is most beneficial. Firms need to start adopting a collaborative teamwork approach not only with general counsel but also by cooperating with alternative service providers and the Big Four as collaborative partners. The general counsel is also looking for outside counsel to adopt a more client-centric model.

As automation penetrates more deeply into legal practice, we see that the role of technology grows in scope and breadth. Tools can range from a variety of analytics and collaboration tools to structured document management tools, end-to-end litigation, and eDiscovery platforms. More recently, comprehensive information governance tools are emerging to handle the increasing datafication of the modern enterprise, and manage the growing compliance risks involved in conducting business with an increasing digital footprint.

Rather than simply upgrading existing technologies, the true transformation only comes when law firms adopt a robust IT strategy that overhauls their services completely. Automation also only makes sense if it delivers on providing high-quality work more efficiently and delivers predictable value to the client.

“After all, if you’re paying for a service and one supplier, says, ‘that will take two weeks, and we’ll charge you by the hour,’ and another says, ‘that will take us two days, and we’ll charge a fixed fee’—which would you choose?”

Legaltech, notes Richard Tromans, founder of Tromans Consulting, is a “very wide spectrum.” At one end, there is document assembly and robotic process automation, taking the grind out of standard, repetitive work while reducing the time taken to perform tasks, saving costs, removing errors, and improving compliance. This kind of automation falls into the category of optimization. At the other end is natural language processing, artificial intelligence, and virtual assistants, which offer the possibility of really revolutionizing the future of legal services — and opens the door to the prospect of robot lawyers.”

As the volumes of data climb, tools that help lawyers to extract relevance and identify core patterns that become increasingly important. The legal technology community needs to move beyond making vague claims of being AI-based, to showing clearly how machine learning and data-driven algorithms can assist in delivering higher value to an expanding variety of legal tasks and processes.

The increasing importance of data security and privacy

Data security involves both preventing malicious attacks and limiting accidental data loss. However, the distributed nature of technology, enhanced by cloud services, creates vulnerability with employees increasingly working from remote locations, making it harder to secure data.

As DLA Piper partner—and former US Department of Justice cybercrime coordinator—Ed McAndrew observed, “The best evidence is now held in mobile devices and the apps, social networks, and cloud services we utilize with those devices. Any investigator or litigator who ignores that evidence may be committing malpractice in many instances.”

Recent surveys by Gartner suggest that legal leaders have to start investing in digital skills and capabilities, reflecting the evolving role of the legal department as a strategic business partner. “How legal departments build capabilities to govern risk within digital initiatives matters more than the legal advice they provide” says Christina Hertzler, Practice Vice President, Gartner.

Striking a reasonable balance between security and convenience is a challenge faced by all law firms. As organizations change the way they operate, generate revenue, and create value for their customers, new compliance risks are emerging — presenting a challenge to compliance oversight, which must identify, assess, and mitigate risks like those tied to fundamentally new technologies (e.g., artificial intelligence) and processes.

GDPR, CCPA, and other privacy protection regulations will present special challenges for the modern enterprise. Thus, while digital transformation initiatives require active data harvesting to enable better personalization, this data acquisition effort also needs to respect the privacy rights of consumers and customers who may or may not be aware of the extent of the data collection activities. Debbie Reynolds noted the information governance requirements of these regulations at LegalWeek recently. “The new reality is that navigating the data privacy rights of individuals everywhere will be an operational necessity for businesses to thrive in the digital age,” she said.

Legal professionals will need to play a larger role in managing these new risks, which can be devastating and cost millions in reparations and negative consequences. Increasingly these threats originate in foreign countries and sometimes even with support from foreign governments.

Apart from the compliance risks that clients face, law firms themselves are sought-after targets as repositories of privileged data. Law firms are a top target among hackers because of the extensive high-value client information they possess. Hackers understand that law firms are a “one-stop-shop” for sensitive and proprietary corporate information, merger & acquisitions related data, and emerging intellectual property information.

Lawyers are failing on cybersecurity, according to the American Bar Association Legal Technology Resource Center’s ABA TechReport 2019. “The lack of effort on security has become a major cause for concern in the profession.

As more rapidly flowing multilingual data becomes the norm in global enterprises, new data security risks emerge as employees start using public machine translation to translate privileged business content. The risk is high because publicly available tools are essentially frictionless and require little “buy-in” from users who don’t understand the data leakage implications as they pass privileged content through these systems. The rapid rate of increase in globalization has resulted in a substantial and ever-growing volume of multilingual information that needs to be translated instantly as a matter of ongoing business practice. Multilingual data will become much more pervasive over the coming future as the forces of globalization march onwards.

However, this situation evolves, it seems clear that robust machine translation solutions will be needed for any enterprise or law firm with global ambitions.