Over the past year, I have been drawn back to a poem that I first heard when I was very young, namely that of Leisure, by the Welsh poet W.H. Davies. A short piece, it ends with:
A poor life this if, full of care, We have no time to stand and stare.
Taking a step back from the frantic, full-on day-to-day demands of the legal industry is incredibly hard to do. But it can be the most rewarding, and fulfilling. Since I started to try and put this into practice, I have thought about the people I have met in the industry and tried to discover whether they have the same philosophy or if they are totally engrossed in the business of law. Some of the latter individuals are fascinating, passionately engaged in the subject, clearly dedicated to what they do. But I find the conversations often colder, and harder to maintain. They are not as interesting, simply because they often lack that fundamental skill – emotional intelligence.
Having empathy with your clients and your colleagues, trying to understand what makes them tick (and what doesn’t), has always been important, but it is too often forgotten. But it is what brings the best out of people, and is also one of the fundamental drivers of good leadership. The key to this is something that lawyers are, in my experience, often not so good at. As I say to my six-year-old constantly: you were born with two ears and one mouth for a reason – you need to listen twice as much as you speak.
This brings me back to my first point, taking time to ‘stand and stare’ and, in particular, understanding the value of sitting back and hearing someone else speak. I have tried to attend more conferences and events in the past 12 months, to try and soak up what is being said, and to exchange views with others in the industry. And before I get into this, I have seen a growing trend towards dismissing conferences, especially ones that are involved in tech and the dreaded i-word, as not ‘breaking out of the echo chamber’. There is some truth to this – it can be slightly deflating to turn up and hear the same legal luminaries preaching to the converted for the umpteenth time.
Trust is at the heart of all of our interactions in the legal industry, and trust is built on relationships.
But dig a little deeper and there is tremendous value to be gained from these events. And yes, I know it is hard to take time out from the constant workload, but the working life of GCs can be massively enhanced by stepping away from the office and engaging with the wider community. You have to make time, and sometimes you have to invest, but the benefits are there for all to take.
I was invited to Legalweek at the end of January in New York, which discussed the business of law, diversity and inclusion, information and data. My approach to the event was simple: I listened and I engaged. When I arrived at each session, I put down the phone, didn’t check my emails when the speakers and panel discussions were taking place, and wrote copious notes. But I also put my head up and looked around the room – who was in each session, did I know them, could I see what organisation they were from.
At the end of each session, I spoke to the panel speakers and to others in the audience. Some I knew very well, some I knew only slightly and some I had never met. As a result, I had conversations about subjects I would not normally have encountered, made new connections, and some of those conversations are now following up into potential collaborations.
In short, at a time when most of the legal industry is obsessed with the aforementioned tech and i-word, blockchain, machine learning and the like – I went back to basics. I went back to human. A word kept cropping up time and time again in the sessions: trust. Trust is at the heart of all of our interactions in the legal industry, and trust is built on relationships. And relationships, as everyone knows, have to be worked at or they die. So, you need to invest in those relationships to get the best out of them, and to keep them going, even if there is no immediate outcome or need.
But here’s the thing: out of all that investment in listening to the panellists, talking to the other delegates and speakers, and engaging with the content, I gained something else. I learned something. In fact, not just one thing, but an absolute stack of ideas – new ways of working and a host of practical ways to make changes. From the theoretical to the here and now, the conference gave me a new insight into a range of potential solutions in the industry. All of us are magpies, stealing the best ideas here and there to shape into our own way of working. By taking some time out of the office, these events can help shape your thinking.
The things that I would be thinking about as a GC from that event are:
How does ‘VUCA’ affect the efficiency of my team?
Can I use the techniques I heard about to reduce the legal cost of my M&A transaction to a tenth of the price?
How can understanding the ‘4Ps’ marketing concept change how I interact with outside counsel?
Why are ALSPs are no longer ‘A’?
How do I insist my outside counsel budgets my legal work appropriately and, subsequently, how to reward/penalise?
How does Prudential’s ‘Spotlight’ programme actively track diversity in its law firms?
How can I use origination credits to my advantage?
What communication skills are needed with the C-suite to ensure they see legal spend is optimised?
I have the data I need to improve my legal department – so how do I extract it for analysis?
I don’t want ‘more for less’, I want ‘better for less’. But how?
I can tell you, the answers (or at least the right questions to ask at the start) were all there. The downside is that not enough GCs are there to hear it. True, there are some bad events out there, but look around and you will find huge value in attending the right conferences/seminars/workshops. Many will probably say they can’t afford the time to do it – after all, ‘time is money’ according to Benjamin Franklin. But looking at the above questions, realistically, can you afford not to?
‘If you have something that you don’t want anyone to know, maybe you shouldn’t be doing it in the first place,’ – Eric Schmidt, CEO, Alphabet Inc.
The issue of data privacy has been an increasingly prevalent one for corporates and, subsequently, their general counsel in recent years. When the European Union’s General Data Protection Regulation entered into force in 2016 ahead of its 2018 implementation, businesses the world around were put on notice: the rights of the individual with respect to personal data – its collection, storage and use – were now subject to stringent protections designed to safeguard the end user against corporate interests.
But while the boundaries between business prerogatives and the right to privacy have grown increasingly clear, how companies – particularly those working in tech – handle requests for data from the government and law enforcement remains opaque, particularly with new – or, legally speaking, untested technology.
‘Uncertainty with technology is a real problem for civil liberties, because oftentimes what you’ll see is law enforcement trying to engage in a novel kind of search – or novel kind of information request – that’s never been done before,’ explains Esha Bhandari, staff attorney with American Civil Liberties Union’s (ACLU) Speech, Privacy, and Technology Project.
‘The lack of precedent apparent can be used to their advantage – almost an ask first and then see whether or not a court, or the subject of the request, pushes back. That creates a problem when you have the government or law enforcement pushing to try out new types of technology or search requests. The ambiguity in the law is used to their advantage because that particular fact pattern hasn’t explicitly arisen before.’
In such cases, the prerogative for protection of users often falls on the company faced with the request. In the first instance, advising on a matter like this will typically fall on the shoulders of the general counsel, who will be tasked with balancing the rights of the individual with those of the public at large – represented by those tasked with governing the general populous – as well as that of the business itself.
But in a world in which data and the broad-based learnings that can be derived from it become progressively more sophisticated and prominent, determining what constitutes the public’s best interest – particularly in the face of a distinct lack of judicial guidance – has become nebulous at best. When that decision falls on corporate institutions instead of an independent judiciary, weighing the costs of doing the right thing against corporate imperatives like shareholder primacy becomes even more difficult.
‘The warrant was overbroad and turning over that information was a ridiculous request.’
This very issue came to the fore in the wake of the election of President Donald Trump, when law enforcement served subpoenas on a deluge of digital companies in an effort to obtain information which could lead to the identification and arrest of those involved with protesting and causing unrest in the run up to his inauguration.
‘It really harkens back to the question of, “Are we really living in a place where America’s own government is going to be spying on political dissidents?”,’ posits Stephanie Lacambra, criminal defence staff attorney at the Electronic Frontier Foundation (EFF).
‘It shouldn’t really come as a surprise given the practice of spying on dissidents goes back through many decades, from the civil rights movement to the Black Panthers. But what’s different now is that these requests are using technology to achieve their goals. In the information age, spying takes a different colour.’
DISRUPTJ20
In 2016, following the election of Donald Trump, a group called DisruptJ20 began posting online to organise protests to disrupt his 20 January inauguration the following year – relatively mundane stuff in the murky and anonymous online world. But when the US Department of Justice demanded access to all of the information held on the group by their webhost, DreamHost, it became a point of moral principle for the Los Angeles-based company and its general counsel, Chris Ghazarian.
‘Originally, we received a subpoena from the DOJ in January demanding information about the owner of the DisruptJ20 website. We reviewed the subpoena and everything seemed normal, so we produced the information,’ explains Ghazarian.
‘Fast-forward to July and this time we’ve been served with a search warrant, again, the target being DisruptJ20. The warrant we were served with wanted all of the information that we had about the website, not just subscriber information, email address or email content, they wanted our entire database of what we held on DisruptJ20.
‘That amount of information would be huge – we have our own logs that we keep internally for our systems, which include things like HTTP logs and the IP addresses of our visitors. Those IP addresses were the central issue of our case.’
While DreamHost regularly receives orders for information from law enforcement, the scope and depth of the request was unusual – prompting a deeper look from Ghazarian and his team.
‘The first thing we did when we received the warrant was to look over it with our compliance analyst, who told me about the scope. We went over it together and agreed that it was a very overbroad warrant, which was seeking a tonne of data,’ he says.
‘We reached out to the US attorneys that were working the case to have a conversation, because the warrant was overbroad and turning over that amount of information was a ridiculous request. We do this often when we take in court orders or government requests: we spend a lot of time on them and that usually involves reaching out to the appropriate agency or firm or whoever it is if we feel that it’s overly broad. But in this case, when we reached out, they were silent.’
What followed a week later was a motion to compel from the superior court in Washington DC, a common tactic used in discovery proceedings to force a non-complying party to turn over the requested information when they have either refused or the response received is deemed insufficient.
‘That didn’t sit well with us because, historically, we’ve been staunch supporters of privacy. We’ve always taken a strong stance against overly broad requests or similar issues when they arise with law enforcement,’ says Ghazarian.
‘We’ve maintained a strong relationship with all of our law enforcement agencies in the US. We’ve had agents back and forth all the time, we talk to them frequently. Never before had we had an issue like this, where we’re facing a motion to compel and the other side isn’t willing to play ball. So we took a step back, looked at the case up and down and realised we had something very interesting on our hands.’
OVERSIGHT OR OVERREACH?
With an unusual case afoot and significant privacy issues in play, DreamHost prepared to take the unusual strategy of starting a blog to alert the public just what was going on – a move Ghazarian says he was comfortable with after confirming that there was no gag order associated with the warrant.
‘What was particularly unique about this case was that we were dealing with so many people who had innocently visited the website and were going to have their information turned over to the government,’ Ghazarian explains.
‘The government claims that they don’t do anything with the information they don’t use – essentially that any information they didn’t need to look at would be deleted. But in reality, everything is digital, so you can never truly confirm whether something’s been deleted or not. You couldn’t do that with paper in the past, and in the digital age it’s so much harder. When you’re sending a file over the internet, there’s no way you can be absolutely sure that something hasn’t been copied or screenshotted. There’s no real audit trail.’
‘If we were to turn over this information, we would basically be handing over the browsing habits and identities of tens of thousands of people. We had 1.3 million IP addresses associated with DisruptJ20 over the course of the time span in the warrant. But the individual logs tell you a lot more than just that: the amount of time you spend reading each page, the photos you looked at or other links you clicked on originating from that page – everything is recorded. So you’re handing over an entire logbook to the government and that’s disturbing. Very disturbing.’
Of particular concern with the warrant was the content of the site and its underlying purpose – to organise peaceful political protest – which brought to the fore First and Fourth Amendment issues and concerns about whether the request was constitutional.
‘Freedom of speech and freedom of association were really implicated by the breadth of the request that was made,’ says Bhandari.
‘The warrant was specifically requesting information about people who had visited a website discussing organising a protest that was oppositional to the administration. What happens to our rights for freedom of expression, freedom of speech and freedom of association when all of our communications can potentially be seen, stored and analysed by the government? ’
‘Freedom of association was one of the issues we really honed in on and the fact that this can potentially be a very interesting issue if the government is taking action that can suppress that freedom,’ adds Ghazarian.
‘Freedom of association was one of the things we really honed in on.’
‘If you found out that your browsing habits are turned over to the government because you visited a political website, then the next time you want to read about politics or visit a political website, you’re probably going to think twice about whether or not you want to click on it – particularly if you know that there’s a blacklist of all of your information going straight to government from a webhost or ISP (internet service provider).’
DREAMHOST v DOJ
Because of the seriousness of the issues raised in the warrant, as well as DreamHost’s commitment to protecting the privacy of its users, the decision was made to challenge the order in court. Ghazarian retained a Washington DC-licensed external counsel and together, they began putting together DreamHost’s defence.
‘We filed our first argument late on a Friday night. I can remember working until after midnight, drafting the argument, books open all over my office, whiteboards littered with nodes and sites – it was a real throwback, like going back to law school,’ says Ghazarian.
‘Then, after the weekend, we posted our first blog post live on Monday. It was a very short blog which explained the request that we had received and what we were doing to fight against it. I went to bed that night and had no idea what was about to hit me on Tuesday morning.’
After the blog went live on Monday, the media went into overdrive – with Ghazarian tasked with fronting up and representing DreamHost – truly thrusting the issue and case into the public consciousness.
‘I’d never had anything like this happen during my career. I was in shock. I passed the bar in 2015, had barely been practising for two years and then suddenly I’m being asked to get ready to appear live on television to be interviewed by Anderson Cooper on CNN! Nothing can prepare you for that,’ says Ghazarian.
‘That was the day that everything really went public. It was crazy, but putting our case in the public eye – despite the pressure that came along with it all – the amount of support we received showed that we were doing the right thing. We had no intention of making this a front-page story, we just wanted to show what was happening behind the scenes and the type of things we do for every single one of our customers and ever subpoena or request that we receive.’
CALIFORNIA TAKES THE LEAD
California has been a leader, both in the US and globally, when it comes to enacting protections for digital consumers. The California Electronic Communications Privacy Act (CalECPA) invokes protections that require law enforcement to obtain a warrant in order to access a person’s private information – whether that be emails, text messages, location information or other personal data held digitally.
The upshot of this legislation was that law enforcement can no longer approach a company directly for data – it now has to be approved judicially. The Act makes specific reference to Fourth Amendment protections, while prescribing conditions for data access – including time, targets and type of information sought, as well as how data falling outside the scope of the warrant should be treated. In addition, the Act requires law enforcement agencies to notify the targets of the warrants that their data has been searched, as well as notifying the California Department of Justice about the search, which must be made public.
But while the CalECPA was hailed as a landmark development for data privacy and consumer protections when it was passed in 2015 – where, incidentally, it was co-sponsored by the Electronic Frontier Foundation (EFF) – Stephanie Lacambra, criminal defence staff attorney at EFF, says issues persist judicially.
‘In California, we’re fortunate enough to have a statewide law that requires specific articulation of particularity with regards to search warrants. But, even now, we’re fighting fights here in California, where it’s on the books, about exactly what is required for a warrant to meet the statutory requirements prescribed by the law,’ says Lacambra.
‘Still we’re seeing cases where the warrant doesn’t meet the requirements set out by statute that require suppression. We still have the courts saying that it’s at their discretion to decide whether suppression is appropriate and, as a result, we’re litigating a number of cases right now.’
One of the most prominent cases taken up by the EFF is against San Bernardino County Sheriff’s Department, which has refused to release the records as required by CalECPA. The case in question seeks to obtain the records to ascertain whether CalECPA is working effectively and law enforcement is complying.
‘At present, we’re trying to encourage the legislature at both the state and federal level to better articulate for the courts what the requirements ought to be, because there’s still a lot left at the discretion of the courts,’ says Lacambra.
‘In California, the courts can still find that a warrant doesn’t necessarily require everything set out in the Act, which then requires us to go and fight that in the appellate courts, to get the courts to tell law enforcement that there’s been a violation. The problem at the moment is that without further guidance, courts are still rubber stamping some very broad warrants.’
While Lacambra says that the California legislation has gone a long way to ‘try and rein in government overreach in this area’, more broadly she says that more has to be done to bring these issues to the fore and ensure that those involved become better informed.
‘In my view, it’s about educating the public, educating the judiciary, educating the practitioners that are litigating these issues, and educating the legislators to understand the technology and the issues that surround it,’ she says.
‘If they’re unfamiliar with the technology, how it works and just how invasive certain technologies like cell site simulators [the technology in question in the San Bernardino County Sheriff case] can be, they can’t appreciate the full implications of what’s being authorised.’
To this end, the EFF, a non-profit, offers their services – both to counsel and the judiciary alike – in order to help both make informed decisions about how data, technology and the law intersect, as well as to protect the rights of the individual in the digital space.
Explains Lacambra: ‘Our advice to GCs who find themselves in a similar situation to DreamHost, or for any situation where data and privacy is at stake, is to contact us early and often.’
The likes of the ACLU and EFF were quick to offer their support, with more than 100 organisations signing on to a joint public letter to then attorney general Jeff Sessions expressing concern over what they saw as an infringement on American values.
‘When we were involved in the case, we had a number of companies, senators and congressmen who were all lobbying for us directly to Jeff Sessions,’ says Ghazarian.
‘We also had a number of major tech companies publicly come out to back our decision to fight this order. We received a ridiculous amount of support, offers of donations, connections. I was getting calls left and right from so many people in politics and I’d hear the name and be like “Oh my god, I’ve heard this guy on the news so many times”, or you’d Google their names and find out a senator from some far-flung state would be offering their assistance.’
The outpouring of support and assistance, both publicly and behind closed doors, in addition to the wall-to-wall media coverage ignited significant public debate – mounting pressure on the DOJ to justify the legality of its actions specific to this case, as well as its overarching operating procedures. Facing a public relations nightmare and the prospect of a very public, potentially uphill battle in the courts, the DOJ retreated.
‘Two days before the hearing, there was breaking news on TV that the DOJ had pulled back their request for the information from DreamHost in terms of the IP addresses, and reissued their warrant with different language,’ says Ghazarian.
‘That was literally the biggest issue we were fighting for – the IP addresses. So now we’re in a position where the DOJ is publicly doubling back. They issued a public statement, with a corresponding filing, saying that they were never interested in finding out IP addresses or browsing habits of users and they would gladly not pursue those things.’
‘What was particularly interesting about that was that we had evidence on the record of us reaching out to them to explain the extent of their request, specifically the IP address issue – yet they claimed that they had no idea this information would be included. So, in our follow up filing, we pointed out that they knew this, included emails and other evidence to back that up. But the bottom line was, at this point, that was a huge win for us.’
IN YOUR DEFENCE
While pulling back the request for the IP addresses was indeed a significant win for DreamHost, at the time, they still remained involved in an active dispute with the DOJ over the remaining information requested in the warrant.
‘We filed a further response to the DOJ, alerting them to the fact that even though they had retracted the request for IP addresses, there were still a lot of other issues that needed to be talked about,’ says Ghazarian.
‘Our hearing was pushed back by two days at the request of the DOJ, so I flew out to Washington DC for our rescheduled hearing and our day in court. What first stood out – it was surreal really – was the sheer amount of press in attendance. Half of the room was dedicated just to the media and it was at capacity.’
Ruling on the case, Chief Judge Robert Morin of the Superior Court of Washington DC ruled that the DOJ’s request was a valid one and enforced its motion to compel – with some major changes and safeguards to limit the exposure of sensitive and private user information. Delivering his final order, Chief Judge Morin wrote:
‘Because of the potential breadth of the government’s review in this case, the warrant in its execution may implicate otherwise innocuous and constitutionally protected activity. As the court has previously stated, while the government has the right to execute its warrant, it does not have the right to rummage through the information contained on DreamHost’s website and discover the identity of, or access communications by, individuals not participating in alleged criminal activity, particularly those persons who were engaging in protected First Amendment activities. Accordingly, the court deems it appropriate to incorporate procedural safeguards to comply with First Amendment and Fourth Amendment considerations, and to prevent the government from obtaining any identifying information of innocent persons to the website DisruptJ20.’
‘We were fine with this result – to be fair, most reasonable people understand that we weren’t fighting this warrant in order to prohibit the government from obtaining information from DreamHost. At the end of the day, this was a government-issued warrant and they wanted information regarding the case pending against the protestors. We deal with hundreds of these a year, but there’s a proper way to go about these requests,’ Ghazarian explains.
‘Our issue was that the DOJ was casting an ultra-wide net, and would have obtained a tonne of data that violated internet users’ privacy.We knew at the end of the day we would have to turn over some information – we didn’t want to play hardball with that aspect. We just wanted to cut down the legal request to what we thought was reasonable – not overbroad or overreaching.’
What was interesting about the ruling though, something which surprised Ghazarian, was that the final order to turn over information and how that would be carried out was to be negotiated between DreamHost and the DOJ. Rather than having to hand over the information there and then, the negotiation process went on over the following three months, with DreamHost and the DOJ both submitting a proposed order, after which the judge made a final ruling.
‘When that ruling came in, it was one of the happiest days of my legal career. I remember sitting there, going through the order line by line. We had requested a number of protective measures because of the sensitivity of the information requested,’ says Ghazarian.
‘For most of our arguments and requests, the judge had agreed. Anything that was private information – names, addresses, phone numbers, emails – had to be redacted. So we handed over heavily redacted documents to the DOJ, who were then required to identify what information from that production they wanted to use, then identify the agents who were working on the case and with the information, then appeal to the court and justify to the judge why they needed any of the information they were requesting. Then finally, if they wanted any of the information to be unredacted, they needed to show probable cause for it.’
PROTECTING THE FUTURE
The publicity that surrounded the case brought attention to the issues inherent with the DreamHost case, and the underlying constitutional considerations will likely have the most lasting impact. While the courts’ decision to restrict the ability of both the government and law enforcement to access private user data goes some way in terms of establishing judicial guidance moving forward, whether that will stand up to further checks and tests on the power of law enforcement with respect to data remains to be seen.
‘When that ruling came in, it was one of the happiest days of my legal career.’
‘In terms of future precedent and impacting future issues that come up under these categories, our case helps set a great foundation,’ says Ghazarian.
‘In fact, shortly after our case, Facebook had their own issues with the DOJ over DisruptJ20 and they used some of our arguments that we filed in court in their own case.’
While the likes of major companies like Facebook or historically strong advocates for privacy rights like DreamHost have both the will and resources to contest orders that are seen to overreach, clearly that isn’t the case for all companies.
‘It’s certainly important for companies to take on some of these issues and offer to fight these requests, but it does take companies having the wherewithal to recognise requests that are problematic, then having the resources and will to be able to challenge it. This also means that smaller companies will often not have the ability to fight back. So we live in an asymmetrical world where we don’t quite know everything that the government is doing with regards to requests for data, because it’s guaranteed that there are a number of these requests that never see the light of day, because the company didn’t have the ability to fight back,’ explains Bhandari.
‘If DreamHost had not stood up for its users the way that it did, then this issue quite literally would have gone under the radar. All of this subscriber information would have been turned over to the government and the timeliness with which users would be notified would have been left to the discretion of the courts. Had the government asked for a gag order to prevent DreamHost from notifying users that their data had been compromised and provided to law enforcement, then there’s a good chance that the users would never have even found out.’
That raises the question of whether a legislative response is required to enshrine rights to digital privacy and protection. While California (see boxout) has taken steps to make the process of accessing data more transparent – in particular eliminating any discretion for companies dealing with requests from law enforcement and putting the onus in the hands of the judiciary; codifying requirements and tests to justify access; and spelling out clear requirements for notifying individuals when their data has been accessed – it remains the clear exception. Other states have moved to provide updated protections in their own jurisdictions, but in the absence of an update to federal legislation, which remains outdated and stagnant, the rights of the individual when it comes to their data will continue to fall to the conscience of corporates.
Of all current technological innovations, artificial intelligence has undoubtedly generated the most hype, and the most fear. Wherever AI goes, the image of a dystopian future is never far away, nor is a conference room full of nervous lawyers.
The reality, of course, is quite different. Some corporate legal teams, particularly those already in the tech field, or those at companies handling huge amounts of customer data are ahead of the curve. But, for many in the legal world, the future is a far-off land – for now.
‘When you hear people saying that tomorrow everyone will be replaced by robots, and we will be able to have a full, sophisticated conversation with an artificial agent… that’s not serious,’ explains Christophe Roquilly, Dean for Faculty and Research, EDHEC Business School.
‘What is serious is the ability to replace standard analysis and decisions with robots. Analysis further than that, when there is more room for subjectivity and when the exchange between different persons is key in the situation… we are not there yet.’
Much of the conversation around AI, particularly in the in-house world, remains a conversation about potential. The expanding legal tech sector is teeming with AI-based applications in development, but on the ground, even in the legal departments of many of Europe’s biggest blue chips, concrete application appears to be limited.
‘I think the US may be a bit further down the road than Europe. AI is coming, people are thinking about it, some in a partial way, but it will be developing quickly in the coming years. It may have more or less the same role as the internet had 15 years ago changing radically the way we work, but we’re not there yet,’ says Vincent Martinaud, counsel and legal manager at IBM France.
‘While the legal function may change to the extent that there are tasks we may not do anymore in the future, does that mean we will be disrupted? I don’t think so.’
Those views largely align with the general counsel surveyed across Europe on AI.
Only 9% of those surveyed anticipate AI becoming a disruptor in the legal industry within the next two years. 59% of those surveyed expected AI to be a disruptor within the next five to ten years, with the remaining 32% saying it would not be a disruptor within the next decade.
Understanding Argument – Professor Katie Atkinson, head of the department of computer science at Liverpool University
‘You can model argumentation in all sorts of different specific domains, but it’s particularly well suited to law because arguments are presented as part of legal reasoning.
It could be a computer arguing with a human, or it could be two machines arguing autonomously. But it’s basically looking at how arguments are used in order to justify a particular decision and not another alternative. We do that through constructing “formal models”, so you can write algorithms that can then decide which sets of arguments it is acceptable to believe together. That provides you with automated reasoning and, ultimately, a decision about what to do and why.</lip
It’s not necessarily trying to replicate what humans do, it’s more trying to take inspiration from how humans argue and then get an idealised version of that. There’s literature going back to the time of the ancient Greek philosophers on how people argue, so we take a lot of inspiration from that work, and also from legal theories – we look specifically at how legal argumentation is conducted.
What you’re trying to do is come up with a model that can be applicable over multiple situations and then you just feed in the specific facts of specific cases into those models to determine the decision in that case.
Looking at an idealised form of argumentation doesn’t necessarily mean that we can’t consider nuances, preferences and subjective information – all of which can also be modelled.
My own particular research has looked at how we can build these models of argument and then test them using sets of legal cases that are well known in the published literature on AI and law. Over three domains we got a 96% success rate in replicating the human judges’ decision and reasoning, and we’ve published work on that evaluation exercise.’
While the legal industry may represent a potentially lucrative market for software developers, it does not offer the potential gains of sectors like healthcare or finance.
‘In AI, we see many developments with our cars, many developments in the healthcare sector, and therefore changes in these sectors will probably come faster. In the legal field we do see changes, but I don’t think we are at the edge of it,’ notes Martinaud.
With relatively few lawyers utilising AI solutions at present (8.8% of survey respondents reported using AI solutions – with all applications being in low-level work), perhaps it’s time for a reality check.
Applications
For many in-house counsel, the chat bot is the most readily available example of how AI (in a first-stage form) can make life easier for in-house teams. At IBM, Martinaud is using Watson, the company’s deep learning AI for business. Through this platform, the legal team uses, for instance, a chat bot called Sherlock, which can field questions regarding IBM itself – its structure, address, share capital, for example. The team is also working on a bot to answer the myriad queries generated by the business on the topic of GDPR, and on a full data privacy adviser tool which can receive and answer questions in natural language.
‘These are the kinds of questions you receive when you’re in the legal department, and it’s very useful to have these tools to answer them or to ask the business to use the tool instead of asking you,’ says Martinaud.
‘An additional example of Watson-based technology that the legal team has started using is Watson Workspace, a team collaboration tool that annotates, groups the team’s conversations, and proposes a summary of key actions and questions, which is organised and prioritised.’
Another early use-case for AI in the legal profession has been the range of tools aiming to improve transparency in billing arrangements.
Last year, IBM stepped into the mix with Outside Counsel Insights, an AI-based invoice review tool aimed at analysing and controlling outside counsel spend. A product like Ping – an automated timekeeping application for lawyers – uses machine learning to track lawyers as they work, then analyses that data, turning it into a record of billable hours. While aimed at law firms, its applications have already proved more far-reaching.
Daniel Saunders, chief executive of L Marks, an investment and advisory firm that specialises in applied corporate innovation, says the technology is a useful means of monitoring service providers’ performance.
‘As someone who frequently is supported by contract lawyers et al., increasing the transparency between the firms and the clients is essential. Clients have no issue paying for legal work performed, but now we want to accurately see how this work translates to billable hours,’ he says.
‘Furthermore, once law firms implement technologies like Ping, the data that is gathered is going to be hugely beneficial in shaping how lawyers will be working in the future.’
Information management
The clear frontrunner in terms of AI-generated excitement among the corporate legal departments who participated in the research for this report was information management, which can be particularly assisted by developments such as smart contracting tools.
‘Legal documents contain tremendous knowledge about the company, its business and risk profiles. This is valuable big data that is not yet fully explored and utilised. It will be interesting to see what AI can do to create value from this pool of big data,’ says Martina Seidl, general counsel, Central Europe at Fujitsu.
Europe’s race for global AI authority
Artificial Intelligence (AI) is on course to transform the world as we know it today. A 2017 study by PwC calculated that global GDP will be 14% higher in 2030 as a result of AI adoption, contributing an additional €13.8tn to the global economy. The same study states that the largest economic gains from AI will be in China (with a 26% boost to GDP in 2030) and North America (with a 14.5% boost) and will account for almost 70% of the global economic impact. In addition, International Data Company (IDC), a global market intelligence firm, predicts that worldwide spending on AI will reach €16.8bn this year – an increase of 54.2% over the prior 12-month period.
The runners in the AI race are, unsurprisingly, China and the United States, but Europe has pledged not to be left behind. The European Commission has agreed to increase the EU’s investment in AI by 70% to €1.5m by 2020.
Closing the gap
The European Commission has created several other publicly and privately funded initiatives to tighten the field:
Horizon 2020 project. A research and innovation programme with approximately €80bn in public funding available over a seven-year period (2014 to 2020).
Digital Europe Investment Programme will provide approximately €9.2bn over the duration of the EU’s next Multinational Financial Framework (2021 – 2025). These funds will prioritise investment in several areas, including AI, cybersecurity and high-performance computing.
European Fund for Strategic Investments (EFSI). An initiative created by the European Investment Bank Group and the European Commission to help close the current investment gap in the EU. The initiative will provide at least €315bn to fund projects which focus on key areas of importance for the European economy, including research, development and innovation.
However, AI funding is not the only pursuit. While China has pledged billions to AI, it is the US that has generated and nurtured the research that makes today’s AI possible. In the research race, Europeans are striving to outpace the competition with the creation of pan-European organisations such as the Confederation of Laboratories for Artificial Intelligence in Europe (CLAIRE) and the European Lab for Learning and Intelligent Systems (ELLIS). CLAIRE is a grassroots initiative of top European researchers and stakeholders who seek to strengthen European excellence in AI research and innovation, and ELLIS is the machine learning portion of the initiative.
One main hurdle stands in the way of Europe and its run to the finish: the EU’s General Data Protection Regulation (GDPR). GDPR regulates EU organisations that use or process personal data pertaining to anyone living in the EU, regardless of where the data processing takes place, at a time when global businesses are competing to develop and use AI technology. While GDPR forces organisations to take better care of personal client data, there will be repercussions for emerging technology development. It will, for example, make the use of AI more difficult and could possibly slow down the rapid pace of ongoing development.
Individual rights and winning the race
Europe has plotted its own course for the regulation and practical application of legal principles in the creation of AI. Ultimately, the advantages of basing decisions on mathematical calculations include the ability to make objective, informed decisions, but relying too heavily on AI can also be a threat, perpetrating discrimination and restricting civilians’ rights. Although a combination of policy makers, academics, private companies and even civilians are required to implement and maintain ethics standards, continue to question AI’s evolution and, most importantly, seek education in and awareness of AI, it will be a coordinated strategy that will make ethics in AI most successful.
For Nina Barakzai, general counsel for data protection at Unilever, AI-powered contracting has proved to be a real boon in understanding the efficacy of privacy controls along the supply chain.
‘Our combined aim is to make our operations more efficient and reduce the number of controls that are duplicated. Duplication doesn’t help those who are already fully loaded with tasks and activities. Where there is confusion, it should be easy to find the answer to fix the problem,’ she says.
‘That’s where AI contracting really comes into play, because you analyse how you’re doing, where your activity is robust and where it isn’t. It’s a kind of issue spotting – not because it’s a problem but because it could be done differently.’
At real estate asset management company PGIM Real Estate, the focus of AI-related efforts has been to build greater efficiency into the review of leases, to enable a more streamlined approach to due diligence. The legal team approached a Berlin-based start-up that had developed a machine-learning platform for lease review.
‘Since we do not want the machine to do the entire due diligence, we use a mixed model of the software tool reviewing documentation and then, for certain key leases which are important from a business perspective, we have real lawyers looking at the documentation as well,’ says Matthias Meckert, head of legal at PGIM.
‘It’s a lot of data gathering and a machine can do those things much better in many situations: much more exact, quicker of course, and they don’t get tired. The machine could do some basic cross checks and review whether there are strange provisions in the leases as well.’
Similarly, transport infrastructure developer Cintra has looked to the machine-learning sphere for the review and analysis of NDAs, and is almost ready to launch such a tool in the legal department after a period of testing is completed.
‘People always find the same dangers in that kind of contract, so it’s routine work. It can be done by a very junior lawyer – once you explain to that lawyer what the issues are, normally it’s something that can be done really quickly,’ says Cristina Álvarez Fernández, Cintra’s head of legal for Europe.
Far from being a narrative about loss of control, AI in the in-house context is as much a story of its limitations as its gains.
Do you think that AI will be a disruptor in the legal industry?
‘If your own process is not really working right, if you don’t have a clear view on what you’re doing and what are the steps in between, using a technology resource doesn’t really help you. What do I expect, what are the key items I would like to seek? You need to teach the legal tech providers what you would like to have – it’s not like somebody coming into your office with a computer and solving all your problems – that’s not how it happens!’ says Meckert.
When introducing AI solutions – or any technology for that matter – having a realistic understanding of what is and isn’t possible, as well as applying a thoughtful and strategic approach to deployment is critical to gaining buy-in and maximising potential.
‘The risk is of treating new software capability as a new shiny box: “I’ll put all my data into the box and see if it works”. My sense is that AI is great for helping to do things in the way that you want to do them,’ says Barakzai.
Emily Foges, CEO, Luminance
‘The decision to apply our technology to the legal profession came out of discussions with a leading UK law firm, and the idea of using artificial intelligence to support them in document review work was really the genesis of Luminance, which was a great learning experience. For example, we had to teach Luminance to ignore things like stamps – when you have a “confidential” stamp on a document, to begin with, it would try and read the word “confidential” as if it was part of the sentence.
We launched in September 2016, targeting M&A due diligence as an initial use-case: an area of legal work in pressing need of a technological solution. Since then, Luminance has expanded its platform to cater to a range of different use-cases. The key to Luminance is the core technology’s flexibility, making it easily adaptable to helping in-house counsel stay compliant, assisting litigators with investigations, and more.
When a company’s documents are uploaded to Luminance, it reads and understands what is in them, presenting back a highly intuitive, visual overview that can be viewed by geography, language, clause-type, jurisdiction and so on, according to the user’s preferences. The real power of the technology is its ability to read an entire document set in an instant, compare the documents to each other to identify deviations and similarities, then through interaction with the lawyer, work out what those similarities and differences mean.
I view the efficiency savings of Luminance as a side benefit. As a GC, you want to have control over all your documents – know what they say, know where they are, know how to find them, know what needs to be changed when a regulation comes along, and have confidence that you have not overlooked anything. I think the real change we are seeing with the adoption of AI technology by in-house counsel is that lawyers are able to spend much more time being lawyers and much less time on repetitive drudge work. They are freed to spend time providing value-added analysis to clients, supported by the technology’s unparalleled insights.’
‘If you’ve got your organisational structures right, you can put your learning base into the AI to give it the right start point. My realism is that you mustn’t be unfair to the AI tool. You must give it clear information for its learning and make sure you know what you’re giving it – because otherwise, you’ve handed over control.’
Tobiasz Adam Kowalczyk, head of legal and public policy at Volkswagen Poznan, adds: ‘Although we use new tools and devices, supported by AI technologies, we often do so in a way that merely replaces the old functionality without truly embracing the power of technology in a bid to become industry leaders and to improve our professional lives.’
What’s in the black box?
Professor Katie Atkinson is dean of the School of Electrical Engineering, Electronics and Computer Science at the University of Liverpool. She has worked closely with legal provider Riverview Law, which was acquired by EY in 2018, and partners with a number of law firms in developing practical applications for her work on computational models of argument. This topic falls within the field of artificial intelligence and seeks to understand how people argue in order to justify decision-making. Her argumentation models are tested by feeding in information from published legal cases to see if the models produced the same answer as the original humans.
For Atkinson, a key aspect of the work is that it does not fall prey to the ‘black box’ problem common to some AI systems.
‘There’s lots of talk at the moment in AI about the issue of an algorithm just spitting out an answer and not having a justification. But using these explicit models of argument means you get the full justification for the reasons why the computer came up with a particular decision,’ she says.
‘When we did our evaluation exercise, we could also see how and why it differed to the actual case, and then go back and study the reasons for that.’
From a practical perspective, engendering trust in any intelligent system is fundamental to achieving culture change, especially when tackling the suspicious legal mind, trained to seek out the grey areas less computable by a machine. But Atkinson also sees transparency as an ethical issue.
‘You need to be absolutely sure that the systems have been tested and the reasoning is all available for humans to inspect. The results of academic studies are open to scrutiny and are peer reviewed, which is important,’ she says.
‘But you also need to make sure that the academics get their state-of-the-art techniques out into the real world and deployed on real problems – and that’s where the commercial sector comes in, whereas academics often start with hypothetical problems. I think as long as there’s joined-up thinking between those communities then that’s the way to try and get the best of both.’
British legal AI firm Luminance also finds its roots in academia. A group of Cambridge researchers applied concepts such as computer vision – a technique typically used in gaming – in addition to machine learning, to help a computer perceive, read and understand language in the way that a human does, as well as learn from interactions with humans.
CEO Emily Foges has found that users of the platform have greater trust in its results when it creates enough visibility into its workings that they feel a sense of ownership over the work.
‘In exactly the same way as when you appoint an accountant, you expect that accountant to use Excel. You don’t believe that Excel is doing the work, but you wouldn’t expect the accountant not to use Excel. This is not technology that replaces the lawyer, it’s technology that augments and supercharges the lawyer,’ she says.
‘That means that the lawyer has more understanding and more visibility over the work they’re doing than they would do if they were doing it manually. They are still the ones making the decisions; you can’t take the lawyer out of the process. The liability absolutely stays with the lawyer – the technology doesn’t take on any liability at all – it doesn’t have to because it’s not taking away any control.’
This understanding of AI as a tool as opposed to a worker in its own right was essential to framing the measured response that many of our surveyed general counsel took to the revolutionary potential of AI.
‘Depending on the role of AI, it can be an asset or a liability. However, AI will prove useless to make calls or decisions on specific cases or issues. It can, however, facilitate the decision-making process,’ says Olivier Kodjo, general counsel at ENGIE Solar.
A balancing act
The increasing prevalence of algorithmic decisions has caught the attention of regulators. A set of EU guidelines on AI ethics is expected by the end of 2018, although there is considerable debate among lawyers about the applicability of existing regulations to AI.
For example, the EU General Data Protection Regulation (GDPR) addresses the topic of meaningful explanation in solely automated decisions based on personal data. Article 22 (1) of the GDPR contains the provision that:
‘The data subject shall have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly affects him or her’.
This mandates the presence of human intervention (not merely processing) in decisions that have a legal or significant effect on a person, such as decisions about credit or employment.
The UK has established an AI Council and a Government Office for Artificial Intelligence, and a 2018 House of Lords Select Committee report, AI in the UK: Ready, Willing and Able? recommended the preparation of guidance and an agreement on standards to be adopted by developers. In addition, the report recommends a cross-sectoral ethical code for AI for both public and private sector organisations be drawn up ‘with a degree of urgency’, which ‘could provide the basis for statutory regulation, if and when this is determined to be necessary.’
Europe’s Race for Global AI Authority
Artificial Intelligence (AI) is on course to transform the world as we know it today. A 2017 study by PwC calculated that global GDP will be 14% higher in 2030 as a result of AI adoption, contributing an additional €13.8tn to the global economy. The same study states that the largest economic gains from AI will be in China (with a 26% boost to GDP in 2030) and North America (with a 14.5% boost) and will account for almost 70% of the global economic impact. In addition, International Data Company (IDC), a global market intelligence firm, predicts that worldwide spending on AI will reach €16.8bn this year – an increase of 54.2% over the prior 12-month period.
The runners in the AI race are, unsurprisingly, China and the United States, but Europe has pledged not to be left behind. The European Commission has agreed to increase the EU’s investment in AI by 70% to €1.5m by 2020.
Closing the Gap
The European Commission has created several other publicly and privately funded initiatives to tighten the field:
Horizon 2020 project. A research and innovation programme with approximately €80bn in public funding available over a seven-year period (2014 to 2020).
Digital Europe Investment Programme will provide approximately €9.2bn over the duration of the EU’s next Multinational Financial Framework (2021 – 2025). These funds will prioritise investment in several areas, including AI, cybersecurity and high-performance computing.
European Fund for Strategic Investments (EFSI). An initiative created by the European Investment Bank Group and the European Commission to help close the current investment gap in the EU. The initiative will provide at least €315bn to fund projects which focus on key areas of importance for the European economy, including research, development and innovation.
However, AI funding is not the only pursuit. While China has pledged billions to AI, it is the US that has generated and nurtured the research that makes today’s AI possible. In the research race, Europeans are striving to outpace the competition with the creation of pan-European organisations such as the Confederation of Laboratories for Artificial Intelligence in Europe (CLAIRE) and the European Lab for Learning and Intelligent Systems (ELLIS). CLAIRE is a grassroots initiative of top European researchers and stakeholders who seek to strengthen European excellence in AI research and innovation, and ELLIS is the machine learning portion of the initiative.
One main hurdle stands in the way of Europe and its run to the finish: the EU’s General Data Protection Regulation (GDPR). GDPR regulates EU organisations that use or process personal data pertaining to anyone living in the EU, regardless of where the data processing takes place, at a time when global businesses are competing to develop and use AI technology. While GDPR forces organisations to take better care of personal client data, there will be repercussions for emerging technology development. It will, for example, make the use of AI more difficult and could possibly slow down the rapid pace of ongoing development.
Individual Rights and Winning the Race
Europe has plotted its own course for the regulation and practical application of legal principles in the creation of AI. Ultimately, the advantages of basing decisions on mathematical calculations include the ability to make objective, informed decisions, but relying too heavily on AI can also be a threat, perpetrating discrimination and restricting civilians’ rights. Although a combination of policy makers, academics, private companies and even civilians are required to implement and maintain ethics standards, continue to question AI’s evolution and, most importantly, seek education in and awareness of AI, it will be a coordinated strategy that will make ethics in AI most successful.
‘From my end, it is the same old battle that we have experienced in all e-commerce and IT-related issues for decades now: the EC does not have a strategy and deliberately switches between goals,’ says Axel Anderl, parter at Austrian law firm Dorda. ‘For ages one could read in e-commerce related directives that this piece of law is to enable new technology and to close the gap with the US. However, the content of the law most times achieved the opposite – namely over-strengthening consumer rights and thus hindering further development. This leads to not only losing out to the US, but also being left behind by China.’
Anderl speaks to an uncomfortable reality nestled in among the ethics portion of the AI debate. While some remain concerned about the ethical questions posed by AI technology, this concern may not be shared by everyone. However, like most things, those who feel unrestrained by codes of ethics will be at a natural advantage in the AI arms race.
‘We are aware that if other, non-European global actors do not follow the fundamental rights or privacy regulations when developing AI, due to viewing AI from a “control” or “profit” point of view, they might get further ahead in the technology than European actors keen on upholding such rights and freedoms,’ explains a spokesperson from Norwegian law firm Simonsen Vogt Wiig AS.
‘If certain actors take shortcuts in order to get ahead, it will leave little time to create ethically intelligent AI for Europe.’
The ethics dimension also extends to the future treatment of employees. Despite headlines spelling doom for even white-collar professions, those we spoke to within in-house teams were reluctant to concede any headcount reduction due to investment in AI technology.
‘I don’t think this will replace entirely, at least so far, a person in our team other than in the future we would have a negotiation or similar, that we will cover that person with technology,’ says Álvarez Fernández, head of legal, Europe at Cintra.
‘I think this is going to help us to better allocate the resources that we have. I don’t think this will limit the human resource.’
And nor should it, says Atkinson:
‘You wouldn’t want to automate absolutely everything. One of the key aims with my work has been: let’s automate what we can, let’s try and improve consistency and efficiency,’ she says.
‘That ultimately helps the client and it frees up the people to do more of that people-facing work with their clients. People still want to speak to a human being on a variety of options and we still absolutely do need those checks from the humans on what the machines are producing.’
Whatever the future holds, the consensus for now seems to be that any true disruption remains firmly on the horizon – and although the potential is undeniably exciting, to claim that the robots are coming would be… artificial.
When it comes to the implementation of technology for in-house legal departments, getting buy-in from the rest of the business proved to be one of the most influential factors in the likelihood that a team was to have implemented technological solutions within their department.
71% of the in-house counsel surveyed for this report said that they felt their company was supportive of implementing new technology solutions. The remaining 29% did not.
This support manifested in the amount of budget allocated to in-house departments for technology spend: just 27% of counsel from non-supportive companies had been given an increased budget to spend on new technology, while 67% of those from supportive companies had seen an increase.
‘Money is nice, but implementing a new bit of technology will require the cooperation of the whole business – from the board down to the IT department. So money is something, but it’s not the only thing,’ explains one general counsel from the utilities sector.
Is your company supportive of implementing new technology solutions?
Those who did feel that their businesses supported them were empowered to actually implement legal technology into their departments: 95% reported that they had used specialised legal technology within their department, compared to just 58% of those who did not receive the same support. They also tended to be from larger teams, with over half being responsible for teams numbering ten or more.
Despite being a predictor for the level of technology use within departments, comparing those who felt their organisation was supportive of the implementation of new technology with those who did not unveiled some interesting insights.
Those who were well supported in the implementation of legal technology (and therefore more likely to have actually done so) were, on the whole, less cynical about technology: just 34% felt that it would greatly disrupt the legal profession in the next five years. At the same time, 39% thought that today’s lawyers were adequately equipped to deal with technological disruption within their profession.
Compare this to those who were not well supported, where 42% were as positive on the question of current lawyers’ preparedness. Just 27% felt that technology would greatly disrupt the legal profession in the next five years.
6% of those who said they did feel that their organisation was supportive of implementing new technology said that they felt that technological disruption would be a negative for the legal industry, compared to 4% of those who did not feel supported.
The amenability of teams to the use of new technology was also significantly different between the groups: 73% of those in non-supportive organisations said that their team members were receptive to the use of new technology, as opposed to 94% in supportive organisations.
This may have as much to do with the composition of those groups as anything. Counsel whose businesses did not feel supported tended to be from larger companies in more traditional sectors. 80% of those that felt their businesses did not support them belonged to businesses with annual revenues of at least £1bn, and 31% were responsible for a team of more than 10 lawyers. Over half were from companies involved in financial services – the likes of banking, insurance and audit.
‘With a smaller team, you tend to be more agile in your budget choices,’ says one general counsel in the fintech sector. ‘Also, with a smaller headcount, the actual investment you’re asking for from the business is likely to be much less than if a multinational bank was to look to adopt a global legal tech solution.’
Of those who reported their company as being supportive of implementing new technology solutions, just 39% felt that today’s lawyers were properly equipped to deal with technological change, 92% felt that AI would be a disruptor to the legal industry and 94% felt that their team members were receptive to new technology. For those who felt their company was not supportive of implementing new technology solutions, the numbers were 42%, 88% and 73% respectively.
Unease with the anticipated digital and disaggregated future is real in many dusty corners of the legal profession, and with around 1,400 legal tech companies fighting for a share of the global legal services market, the prevailing story has been the threat these offerings pose to traditional law firm models. However, this narrative hides a subtler shift in how some law firms are approaching this impending disruption: they are working with the innovators, not against them.
Getting into bed with the enemy
In the past two years, law firms have started to create technology incubator programmes within their own walls. Much like the ecosystem of incubators and accelerators famous in Silicon Valley and tech hubs around the world, the idea is to take a business concept in the early stages of development and provide any combination of support, mentorship, facilities and even investment.
This shift might seem counterintuitive to some: why would the old hands team up with the young upstarts whose end goal, in many cases, is to capture the law firm’s own clientele of general counsel who are under continued pressure from the board to minimise their contribution to the $600bn dollar global industry that is big law?
For some firms, engagement with start-ups is the result of a process of introspection, one that began in an attempt to root out the pain points of its lawyers’ working lives.
This growing cohort of law firms is convinced that that there is much to be gained from a willingness to demonstrate a pragmatic grasp of today’s legal marketplace.
Typically, the rewards for the law firm are financial: should they hit on a unicorn, the monetary returns can be huge, as well as the reputational boost given by being associated with a true disruptor in the legal market.
But while the money and fame are both good, oftentimes, the best rewards are less tangible.
‘It’s true; it’s difficult to show to the business real and tangible KPIs. They are more intangible ones,’ says Francesc Muñoz, chief information officer at Cuatrecasas, one of the many law firms around the world who have entered this space. Cuatrecasas is a Spanish firm that has teamed up with innovation platform Telefónica Open Future to create Cuatrecasas Acelera, an accelerator now on its third call after launching three years ago. Cuatrecasas Acelera supports companies at the pre-series A1 phase with mentorship in marketing, finance and business models, as well as 20 hours of free legal advice from 40 participating Cuatrecasas lawyers.
For Cuatrecasas, working with a multinational blue chip like Telefónica has amplified the reach and impact of its Acelera programme. But Telefónica itself also reports the benefits of collaboration in extending influence in the innovation space.
‘On one hand, our network of partners extends our reach and provides us with shop windows to new industries and ecosystems. This allows us to learn from them and eventually enter new markets, hand in hand with market leaders. On the other hand, our partners help us improve our value proposition to entrepreneurs by putting more resources, investment and business development opportunities on the table,’ explains Agustín Moro, global head of partnerships at Telefónica Open Innovation.
‘But some of the start-ups that we are helping become small clients and we hope that they become, in the future, big clients. So you are putting some seeds into the business sector to see if start-ups grow in the future,’ Muñoz adds.
Edmond Boulle, co-founder, Orbital Witness
‘The team comes from the space industry and, when we set up, we were looking at how we could use satellite imagery to solve problems in real estate transactions and litigation. But the real pain points were around other datasets – so accessing all of the information that is required for searches, making that information easier to digest, easier to report back and then communicate to clients. Our system is learning what features to look for from the data, which trains our system to recognise the types of, for example, restrictive covenants, easements, restrictions on the Land Register, and other data sets outside of Land Registry data, that may be indicative of a particular risk in a given type of property transaction. We were one of the first start-ups chosen for the joint PropTech accelerator programme, Geovation, run by HM Land Registry and Ordnance Survey, which means we have their help to innovate with their data.
We came to MDR LAB with very much a fledgling concept, being the earliest stage company they had taken on in the first cohort. The lab was helpful in a number of ways: in terms of access to great advisers, in understanding the wider real estate industry – not just the legal side. By far and away the most important thing was being able to sit down with over 40 of their real estate lawyers, day-in day-out, and just go through how they work in an almost forensic way. This allowed us to identify which bits don’t add value to their practice and were time consuming and repetitive, which we could then meaningfully make an inroad into, in terms of helping them with speeding up or automating.
A good solution is one which works at both ends, so they made introductions to their clients – in fact we’re piloting with a few of them as well. It will be between the law firm and the client to decide how best to allocate the use of our platform, so maybe the client can do some of the work in-house, and then the law firms can maybe do the deeper dive on the due diligence themselves a little later on, and still get the benefit of using us to work more quickly and more effectively.
Lawyers are still typically very risk averse – even among the firms who are pushing innovation, fundamentally, some individual lawyers are more risk averse. I think there’s a sense in which you can be welcomed in initially, and then it can soon feel that you’re having to battle more traditional attitudes. But then, I don’t even put that on the law firms. They are responding to the risk that their clients are willing to take. So if their clients express a desire to take a little bit more risk, the reward from it will be a faster and lower cost service. Quite often, they want to reduce fees as well, but they still want that quality service.
Very recently, at an insurtech conference, someone made a really nice point that when lawyers talk about innovation, they often use the image of a robot. And when they talk about machines replacing lawyers and a) how concerned they are by that, or b) how ridiculous they think that is, they also use the image of a robot. So even in the industry, they’re not quite sure what to make of this.
We’re starting to make some great headway; we’re working with a number of early adopter law firms who are highly respected in the field, and a leading title insurance company and we are going to continue along that path, at least until the end of the year. There’s a point at which you can’t call the next client an early adopter any more!
We’re working very closely with our first customers because their feedback really helps accelerate product development. And Mishcon de Reya was our first customer. We’re also piloting and testing our products with small teams and GCs at the clients of the law firms that we work with. The issues around that are quite interesting because if you’re working with a big law firm with upwards of 50 lawyers, you have one pricing model, which has to scale appropriately and allow for disbursable cost elements. But then you come to an in-house team with three or five people, so you have to think, “How do I make my pricing model work for them?” It’s a different game. How do you go from being a product that’s serving large departments, to serving a client with a smaller number of lawyers in-house if, for example, you are offering a subscription service?’
Those seeds could include investment, although that is not the point, says Muñoz. At Cuatrecasas Acelera, the firm doesn’t take a stake in the businesses that pass through the programme. But the agreement includes an option that, at the next investment round, Cuatrecasas could invest under the same conditions as the lead investor, up to a percentage.
‘It’s really quite a minor percentage of the start-up. It’s completely an option, but other acceleration programmes take a stake in advance of 2%, 3% or 5%,’ says Muñoz.
Culture change
But there is a broader cultural benefit to be enjoyed much sooner, according to Muñoz. ‘You are putting the most innovative people that you can find in your sector in contact with your lawyers, with your teams. It creates a really beautiful circle and a lot of passion within the people that are interacting with them and giving advice,’ he explains.
The head of another law firm-founded incubator agrees: ‘I’ve seen how the legal sector is quite traditional, but also how the firm’s people – the partners, the associates – have actually become a lot more innovative in their thinking just by spending time working on a day-to-day basis with those start-ups based in their building. And actually, with the companies from last year, the majority have continued to work with the firm and have integrated inside, so the firm is now using these new technologies, making them a whole lot better, and they’ve changed their own mindsets, too.’
However, opening up to innovation often means letting go of a mindset focused on success, ingrained by the often adversarial nature of both litigation and corporate law. The reality of start-up life is the ever-present whiff of failure, and that is something that law firm lawyers, accustomed to being the experts, must adjust to. For many, that’s a case of learning how to ‘fail better’ and move on. Being the expert in one vertical might simply not be enough in today’s marketplace, where openness to innovation might be less of a soft skill and more of a business imperative.
‘As a former lawyer for stock markets, I always keep an eye on the new trends in the legal tech niche. The transformation speed in this traditional vertical is so fast that I could not think of a law firm that aspires to be market leader without working with start-ups and using their technologies. All the leading firms that I am aware of have programmes or initiatives to capture and benefit from innovation,’ says Moro.
Making a mark
In a profession often noted for its resistance to change, there can be kudos for those bold enough to be a first mover. According to Edmond Boulle, co-founder of Orbital Witness, a start-up real estate intelligence platform that employs satellite imagery and property data analysis to flag legal risk in real estate transactions, there is a clear advantage for those who get in on the ground at an early stage in technological development.
‘They have a meaningful say in product development. We are listening to that and we are designing our products around the things that they are telling us are painful. They are seeing iterations of the product and feeding back on that, so if you’re an early adopter, you’re bespoking it a little bit to your style of working. As soon as you’ve got a critical mass of customers, it ceases to scale from the start-up’s perspective to adapt your product to individual needs and preferences, and from the customer’s perspective, it’s more of a fixed offering,’ he says.
But, perhaps the bottom line speaks loudest. A spokesperson at one law firm accelerator claims that a growing willingness to embrace technology has meant that not only is there no better time to be a lawyer – but that the efficiency savings of legal tech could even grow market share.
‘Let’s be fair, some parts of a lawyer’s job are not very fun. You don’t want to stay up reading the same lease a thousand times, you don’t want to chase signatures at midnight or hang out at the printer. You want to do the legal work and so the technology enables that by taking away a lot of the drudgery. The smart lawyers understand that they can pull that off, they can get more work, win more competitive panels, they’ll grow their share of clients and have a more fulfilling legal practice.’
A helping hand from Goliath
For the legal tech start-ups themselves, the benefits are much more tangible. For Orbital Witness, coming into the MDR LAB, run by UK law firm Mishcon de Reya, was an opportunity to adapt a fledgling space tech concept – it was the earliest stage company the lab had taken on in its first cohort – into a viable legal tech one, by gaining an inside view of the workings of a law firm.
‘The genesis of the Orbital Witness platform, frankly, was seeing lawyers’ desks covered in papers – from the local authorities, from specialist search providers, from the Land Registry – and every time they were trying to find a piece of information talking about a property, instead of being able to jump to what they wanted, they were either searching through document management systems on their computer or rooting through the desk strewn with papers. It just struck me as very laborious,’ recalls Boulle.
But on top of the opportunity to forensically analyse the working methods of 40 lawyers in the firm, Orbital Witness was able to learn about the real estate industry beyond the legal side and, crucially, meet some clients.
‘We’re piloting with a few of them now. And we’re actually going a little bit further than that as well: we’re building collaborative tools. We saw that a lot of time goes into emails and phone calls between a lawyer and a client. Now, obviously, that’s part of the personal relationship with the lawyer and client, and that’s not going anywhere. But if you’ve got five emails back and forth trying to describe what part of the land the lawyer is talking about, that’s just inefficiency. So by bringing both the lawyer and the client onto a collaborative workspace on the platform, you can cut out a lot of that needless, repetitive back and forth,’ explains Boulle.
For some firms, engagement with start-ups is the result of a process of introspection.
Other benefits for start-ups that join such innovation spaces might include the opportunity to adapt an existing product to a new legal and regulatory environment, or to get that first customer. Those in the latter position face a slow, and sometimes demoralising sales cycle into big law of 18-24 months.
‘We started as a DMS (document management software) six years ago with a focus on law firms. After some years, we realised that law firms are slow to decide and that they don’t have the big budgets large corporations have for growing their organisations. Therefore, we changed our strategy and began offering our product and service to large corporations,’ explains José Manuel Jiménez, CEO of Webdox, a Chilean start-up and beneficiary of Telefónica’s Wayra Chile programme.
Beneficiaries of law firm accelerators benefit from compressing that cycle by piloting their technology to an audience with an intellectual, if not financial (yet) stake.
If a law firm doesn’t ultimately take the bait, the legal tech model, often comprised of Software as a Service companies charging per user even while their founders sleep (as opposed to billing hours), seems to be increasingly appealing for institutional investors – which bring professional management expectations and software company economics into the legal tech ecosystem.
Don’t fear the new legal ecosystem
The result of all this is a new ecosystem within the legal community. Firms are no longer at odds with legal innovators, and lawyers shouldn’t let a fear of ushering in their replacements stop them from securing benefits of their own out of this new norm.
But is any residual fear within the legal services industry justified? At Cuatrecasas, Muñoz thinks not: ‘We don’t see lawyers disappearing from here; we see keeping probably the same amount of lawyers – doing different things, sure, and in a different way, sure – with more support of technology, probably working much more with engineers in order to set up a full legal service, not only legal advice.’
Boulle agrees that the sector will change, but not necessarily to the detriment of lawyers. ‘Certainly the product that we have now is just about starting to make their lives easier and better, and it works in symbiosis with them – we can’t work without lawyers,’ he says.
‘I think there is room in certain parts of the industry to remove particular tasks from lawyers altogether. I don’t think of ours as a “putting lawyers out of a job” tool, it’s just simply saying there are some things where, if the volume and cost of the work means it’s not feasible to have a professionally qualified individual doing a detailed analysis, it makes more sense to balance the risk and the cost and have a machine to assist in the process.’
The realist of start-up life is the ever-present whiff of failure.
In-house legal departments, driving this market with their continued disaggregation of external support, also stand to benefit from a diversified job market for their own skills, as the legal tech sector expands, offering hybrid legal-entrepreneurial roles.
Of course, this is likely to be some way off. Legal tech companies with true brand recognition remain few and far between, with much of the investment cultivating companies applying state-of-the-art technology to commonplace tasks like contract review – hardly the stuff of dreams. And as companies progress beyond the start-up stage, growth will be a challenge, as multiple small operations compete for the bandwidth of law firms.
If the law firms incubating and accelerating legal tech are to believed, private practice has more to gain than lose from embracing technology. An easier life, greater professional satisfaction, and an enlarged – and happier – circle of clients who remain loyal because they share in the efficiency dividend all beckon for those with open minds.
But for those who think that is too good to be true, perhaps becoming a stakeholder in the digital future is at least a way to avoid ending up at its sharp end – sharing the gains of technology rather than counting among its casualties.
It’s no secret that general counsel are being asked to do more with less – in fact, that’s likely true for almost all facets of business in the current climate. But rather than piling up hours at desks to make ends meet, the results of our survey suggest that an increasing number of in-house teams are turning to technology in order to improve efficiency within their departments.
80% of the in-house counsel surveyed reported that the use of technology within their departments had increased over the past five years, with 21% describing that increase as significant. But that number didn’t align with an increase in budget for technology, with only 56% reporting an increase in budget over the past five years – a figure which the underlying numbers reveal to be significant.
Of the 44% of respondents who did not receive an increase in budget, only 4% reported a significant increase in the use of technology within their departments, with 30% reporting no change or a decline in use. That figure stands in contrast to those who did receive an increase in budget, where 86% of departments reported a subsequent rise in technology use – suggesting that those teams who did receive an increase in budget were not only spending it, but ensuring that it was being deployed across their departments.
For those with stagnant budgets but a desire to utilise new technological solutions, looking internally instead of externally was a common solution – although the numbers suggest that it’s not having the impact seen by those with deeper pockets.
‘Because we’re at heart a technology company, we’ve been able to mobilise our internal resources to help our department become more modern. Our IT department have been proactive in working with us to implement new systems, while members of the legal team have sought solutions which emulate what other departments are doing, only without the associated cost,’ reported one general counsel from the IT sector.
That sentiment wasn’t uncommon – particularly from general counsel heading smaller departments. For legal teams of ten people or less, only 47% reported seeing an increase in their budget for technology.
‘There is still the need for smaller teams to provide increased efficiencies, but the budget doesn’t allow for it. It’s then left to us to find ways to use technology to provide efficiency, but essentially for free. That’s not to say it can’t be done, it’s just more difficult,’ said one general counsel from the consumer goods sector.
Have you received an increase in budget for technology over the past five years?
Teams with smaller headcounts had the worst rate of uptake of technology, with 42% of departments with less than ten people saying that they didn’t use any legal technology at all (compared to 7% of departments with more than ten people). Despite that, all of the general counsel from smaller departments who were yet to implement specialist legal technology said that they believed it can enhance outcomes for in-house legal departments.
One general counsel from the food and beverage sector said that while they saw the potential for technology to have a positive impact on in-house legal departments, for smaller teams, the type of work it could currently assist with meant that it would not provide a meaningful return on investment.
‘Technology will improve efficiency on a long-term basis, however, this will most apply for standardised processes or transactions. Larger teams will see higher benefits. At present, I do not yet see a great benefit for small teams dealing with non-standard issues,’ they said.
While reporting a moderate increase in the use of technology within his own legal department, Konstantin Pogrebezhskij, deputy head of legal for Kronospan GmBH, says that a small headcount – not necessarily budget – can make implementing meaningful technology solutions a challenge.
‘The main disruption for us, generally, is the time required to customise the technology solutions and fill the data into it. At some point, you feel that you waste the time saved by the technology just to keep it running,’ he says.
For teams with a larger headcount, particularly those with more than 50 people, technology was seen as a higher prerogative. 100% of respondents in legal teams numbering between 50 and 100 employees said that they had both received an increased budget and had actually increased their technology use in the past five years.
Those with very large legal teams – those with a headcount of more than 100 employees – fared slightly worse than those with a headcount of between 50 and 100, with 61% reporting an increased budget and 72% saying their use of technology had increased.
One general counsel from the banking sector attributed a lower increase in budget and technology for the very largest teams to an unwillingness of these general counsel to upset the status quo.
‘Technology forces in-house teams to identify low-level repetitive work and to find solutions for it which do not involve large amounts of legal manpower,’ they said.
‘That remains a challenge and perceived threat for a certain cohort of in-house lawyers, but an opportunity for those genuinely keen to focus on more strategic work.’
The proliferation of blockchain technology has forced nearly every sector to re-examine traditional ways of doing business. Nowhere is the potential more apparent, or the sector more traditional, than in the negotiation, creation and execution of contracts. If the blockchain evangelists are to be believed, the manner in which parties’ contract will be changing drastically in the not-too-distant future. But while a number of high-profile success stories illustrate the transformation potential of the technology, it’s clear that there is still a way to go.
Blockchain understood
To understand blockchain technology and the potential value that it brings to business, think of how an ordinary business transaction works: there is an agreement and exchange of goods or services between parties. Each party keeps their own ledger, which records the transaction. But because the ledgers are held independently, there is scope for discrepancy between them – be it through error, disagreement or fraud. Traditionally, this was mitigated by introducing a third party to the transaction – usually a bank. But reliance on a third party introduces cost and inefficiencies that need not be there if there was a way to create and maintain a singular, shared ledger – one that is equal parts transparent and secure.
Enter blockchain
A blockchain is a series of mathematical structures, inside which individual transactions are recorded. The record of each transaction – each ‘block’ – is mathematically contingent on the block that came before it. The transaction becomes a permanent part of the history of the blockchain and, in that way, it cannot be tampered with: once it is added to the blockchain, all subsequent transactions are recorded in relation to that block and all of the blocks that came before it. Following each transaction, the updated blockchain is distributed to each participant. In this way, blockchain becomes a decentralised ledger that is impossible to tamper with effectively: any attempt to change a record in the blockchain will put it at odds with the version held by every other participant in the blockchain, as well as all of the subsequent transactions that have been recorded.
Put simply, blockchain technology allows for a distributed, decentralised and secure ledger that eliminates the need for third parties, while providing a level of validity to participants that would otherwise have been impossible. It is this technology that has made cryptocurrency like Bitcoin a viable endeavour. But the applications of blockchain are far more varied.
Smart contracts
Smart contracts are one such innovation made possible by blockchain technology – though as a concept, smart contracts have existed since the early 90s. The idea is that instead of a paper contract – one that amounts to the words on a page and the interpretation that third parties give them – one could record a contract in the form of computer code. The code not only provides for the terms of the agreement, but the execution of it as well. When the obligations of one party are satisfied, the platform behind the contract will automatically release the benefit owed by the other party.
The key to smart contracts is decentralisation – there are no banks or other third parties involved in the execution of the agreement. The idea is to allow the creation and execution of a contract between two people to be as simple and direct as possible.
The obvious question follows: where is the smart contract actually stored and how can it be possibly be trusted?
Blockchain technology is the solution. The decentralised, theoretically uncompromisable central ledger makes for a perfect arbiter for the integrity of these agreements. Once coded, the smart contract is added to the blockchain ledger, with its integrity provided for in the same way as anything else on the blockchain. If the transaction calls for it, the money at stake can be paid by each party into the smart contract using cryptocurrency, at which point the contract will hold the money in escrow until the necessary conditions are satisfied.
In theory, removing the element of trust between parties to a contract should make for more reliability.
‘What we have realised is that smart contracts are rapidly becoming an alternative way to transact, with more than $10bn raised through smart contracts in the last 18 months,’ says Olga V. Mack, vice president of strategy at Quantstamp, a company working to build security infrastructure for blockchain-based smart contracts.
‘What we have also noticed is the rapid proliferation of this technology. The widely cited figure is that, globally, there were more than 500,000 smart contracts that existed one year ago. That number has grown to about five million that exist today. The use of smart contracts has been growing exponentially and is showing no sign of slowing down.’
Smart and secure
The trepidation surrounding blockchain and smart contracts is by no means limited to those that don’t understand it. Plenty of ardent advocates for the widespread adoption of this technology acknowledge that, like most innovations, users should exercise caution against overreliance.
The execution of the agreement is where the real value of smart contracts is realised, but the process of negotiating, agreeing and coding the contracts themselves necessarily requires a human element. As such, it is subject to the same kinds of vulnerabilities as virtually anything else. There have been a number of high-profile breaches and hacks brought about by improperly coded smart contracts that have resulted in the losses of millions of dollars. Because the process is decentralised, and the money is wrapped up in the contract itself, the normal process of testing, reporting on and fixing erroneous lines of code will not suffice. Smart contracts need to be airtight from day one.
The DAO is a smart contract protocol. By June 2016, over $250m worth of cryptocurrency had been invested in the DAO by nearly 20,000 individuals. On 17 June, a vulnerability in the core code of the protocol was exploited and used to drain over $50m in virtual currency.
blockchain technology allows for a distributed, decentralised and secure ledger.
Vulnerabilities in code are nothing new – even the most diligent traditional financial institutions commissioning software intended to govern staggering numbers of monetary transactions will not expect their code to be free of bugs or vulnerabilities. The potential for catastrophe should these vulnerabilities be exploited is limited: as soon as they are identified, they can be corrected and updated. But because smart contracts rely on the ever-present and immutable blockchain ledger, once a smart contract is let loose into the world, changing it becomes difficult, if not impossible.
This question has led to a burgeoning economy of auditors whose speciality is to review smart contract protocols in order to expose vulnerabilities. This isn’t perfect for the same reasons that any piece of code isn’t completely unexploitable, but the extra step of third-party verification may go a long way in making sure that would-be investors or end-users are confident.
Taking Blockchain In-House
Before taking on her new role as vice president of strategy at Quantstamp, Mack spent nearly a decade working as an in-house counsel, putting her in the unique position of being able to consider the impact of blockchain technology for corporate legal departments.
‘I think at a high level, the opportunity is not all that dissimilar from electronic signatures. I think it will free GCs to be more creative and more impactful on the business side. Smart contracts will be another tool at the disposal of the modern GC, but we’re probably not quite there yet – the infrastructure and platforms are being built as we speak,’ she says.
‘Once we figure out the platform protocol and infrastructure challenges, I would expect at that point the proliferation of applications to take place. It’s good for lawyers to get into this now, both to understand and frankly to help build it – so they are part of building applications as opposed to suffering the results of misinformed others building it.’
‘It’s certainly a revolution. But so far the most impressive applications I have seen are outside the legal world,’ adds Vincent Martinaud, counsel and legal manager at IBM. ‘The most advanced are in trade finance (we.trade consortium), global logistics (the cooperation with Maersk) and in the food ecosystem (Carrefour being the last eminent player joining Walmart, Nestlé and Unilever amongst others), and all these initiatives are underpinned by blockchain technology.’
The Maersk example that Martinaud refers to is TradeLens, the blockchain platform born out of a partnership between global shipping company Maersk and IBM. The aim is to bring the global supply chain into the future by using blockchain and smart contracts to enable smarter collaboration between importers, exporters, customs agencies and other governmental bodies to make international shipping a smoother process without compromising on auditability and security.
‘In the legal field, I don’t think there is anything comparable yet. I’m not saying smart contracts aren’t used or going to be used, but at this moment in time the technology is not as pervasive as in other, more mature sectors.’
It is not hard to imagine the potential uses of blockchain within the legal sphere: anything which relies on record-keeping between multiple parties could find value in the technology. Land registries, particularly in developing countries where record-keeping is beleaguered by inaccuracy and corruption, could be revolutionised, as could intellectual property registers around the world.
That blockchain technology hasn’t become a staple of the in-house toolkit makes sense: the broader business world is still working to realise its potential. It’s also a highly technical and often misunderstood area: while lawyers are used to quickly digesting and using foreign pieces of information, this is a different beast entirely.
As these innovations become increasingly common within business, lawyers will not only have to begin thinking about how they can be leveraged for use on their own in-house teams, but how they can put themselves in a position to give legal advice in a post-blockchain world.
This may not be a perfect fit for a profession that has long been accused of technological aversion.
Blockchain is a field where the two worlds of software development and legal expertise meet. As the applications of blockchain and smart contracts move towards the legal realm, the pressure is on for lawyers to grow their understanding of a field typically left to the CIO.
Gloria Sánchez Soriano, group vice president and head of transformation, legal at Santander, has considered how disruption of this kind might impact the kinds of lawyers that can thrive in in-house teams.
‘Lawyers, and the people we will be hiring in the future must be able to provide legal advice to innovative projects. If you don’t understand blockchain, it will be very difficult for you to provide advice on this. And we are also considering all this in our training programmes at the Santander Legal Academy,’ she says.
Blockchain is a field where the two worlds of software development and legal expertise meet.
‘Santander has a department which is in charge of the legal advice of our innovation areas, but there are also many other areas – for example, corporate investment banking – which have just done a blockchain project with a very technological base, so the lawyers who were traditionally advising these businesses now need to be able to advise about technological issues.’
There is an appreciation among lawyers interviewed and surveyed for this report that while this technology will be important going forward, lawyers are currently not equipped to deal with the change. Just 14% of those surveyed felt that current lawyers were adequately equipped to deal with technological changes within their profession. 61% felt that they were not.
Ready or not, change is coming, but these changes don’t spell doom for the legal profession: they simply mean that there will need to be an adaptation.
‘I do think that it will transform the expectation of competency for lawyers. In doing so, I also ultimately think it will make our jobs more exciting so that we don’t have to do all those administrative things that can be minimised and we can really drive volume- and quality- generating for our businesses,’ says Mack.
‘I think the next 10-20 years will be an exciting time to practice law. We will have an impact, we will be true partners to other business units. There is an increasing trend for legal to be a partner, to be volume and quality generating and to measure all of that. I think this is a technology that will help us to get there sooner and will help legal to become embedded and solidify the support of any business.’
Trepidation and regulation
While businesses marvel at the potential of blockchain, governments around the world are fighting their own battles with the technology. With the potential of blockchain to have a major impact on many highly regulated areas of business, it is inevitable that a regulatory response is coming.
The philosophy at the foundation of blockchain already sits uneasily alongside current regulatory and governmental structures: for instance, the EU’s General Data Protection Regulation (GDPR) dictates that individuals be able to request for their personal information to be deleted by those that hold it, yet the biggest draw of blockchain is the permanence of its record.
The anonymity that blockchain provides for cryptocurrencies also lends itself to use in more illegitimate endeavours. Tax evasion is a concern. Because cryptocurrency transactions are not easily attributable to individuals (if at all, depending on the currency being used) it makes it difficult for tax authorities to detect the lost tax revenue and punish those involved.
Then there’s the hard kind of criminality – money laundering, terrorist financing and drug dealing. For these, the EU has already taken steps to include cryptocurrency in the existing regulatory framework. The latest iteration of the EU’s Anti-Money Laundering Directive (AMLD5) brought cryptocurrency exchanges and certain e-wallet providers within the scope of the regulation. It would put these entities in the same position as traditional firms when it comes to their obligations to implement preventative measures and report suspicious activity relating to money laundering. The new directive entered into force in July 2018, meaning that EU member states will be required to comply by 10 January 2020.
The AMLD5 is not comprehensive, and certain corners of the cryptocurrency world are not covered, including certain wallet providers and independent trading platforms. Also, being an EU creation, it is only applicable to EU member states. As adoption of this technology grows, the need for global collaboration will increase, given its borderless nature.
Other jurisdictions have taken a more suspicious view of the technology. China banned cryptocurrency entirely in 2017. In the same year, South Korea banned initial coin offerings and interested parties are now eagerly waiting to see how the government proceeds from here. Japan was one of the first countries to recognise Bitcoin as a currency, though regulators have been silent on other blockchain-backed innovations.
The tension at the heart of proposed cryptocurrency regulation is an old one. With convenience and efficiency at the core of the blockchain and smart contract value proposition, the inevitable attempt by world tax authorities to take their cut of these transactions may hinder the core draw of the technology. On the other side of the coin, is there really any need for complete anonymity when it comes to financial transactions? This tension will inevitably shape the approaches to regulation of blockchain technology and, ultimately, play a major role in uptake – both for in-house purposes and beyond.
The pressure on general counsel to innovate could be having a trickle-down effect on the external legal advisers they instruct.
The overwhelming majority – 91% – of in-house counsel surveyed for this report felt that it was important that their external advisers kept abreast of new technologies.
‘It is absolutely essential,’ says Gábor Kukovecz, head of legal and operations at Diageo. ‘The baseline is that we must be able to communicate very effectively with our external law firms. This requires that they use state-of-the-art communication and cloud-based collaboration software. In the near future, we will implement a collaboration software in which we work together with our external law firms that they must also fully implement.’
How important is it that your external law firms keep abreast of new technologies?
Despite there being a common recognition that it is an important factor, nearly as many in-house counsel reported that they didn’t know if their external providers were implementing technology to deliver their legal solutions (36%) as those that answered that they were (40%). Just 37% felt satisfied with the use of technology by external firms; 25% were not satisfied, and 38% were unsure.
As the conversation around alternative fee structures and the traditional firm-client relationship continues, many in-house counsel made the point that there is no reason that their efforts to reduce costs and increase efficiency via technology shouldn’t be replicated by their external counterparts. After all, in a number of ways, the GC is to the law firm as the business is to the GC – which is to say, the GC is the client and it should be incumbent on the firm to provide the best value for money.
‘Clients are no longer willing to pay for high numbers of billable hours when they are aware that many tasks can be done faster and cheaper,’ opined Tobiasz Adam Kowalczyk, head of legal at Volkswagen Poznan.
Are you satisfied with the use of technology by your external law firms?
‘Paralegals and associates who once devoted hours for document review can be now easily replaced by e-discovery processes. In a constant pursuit for efficiency and optimisation, clients expect more for less, which has made the legal market even more competitive. Fresh players have entered the market, providing clients with automated and cost-cutting solutions. I see automation as the way forward, making projects smarter and more efficient. Legal automation won’t be un-invented, and – eagerly or not – more and more firms will need to adopt it out of necessity.’
There are also rewards to be reaped in terms of collaboration. The initiatives taken by external firms can serve as a useful model for in-house teams trying to create efficiencies of their own.
‘External firms must have technological systems updated in order to provide us with the most modern solution and to share it with our internal legal team,’ said Ana Soriano, head legal counsel at Inveravante.
Not everyone is as bullish on technology, however. To some, the use of technology is mostly smoke compared to other, softer competencies.
‘The improvement I actually want from law firms is not based in technology,’ said Ruth Pearson, general counsel of LendInvest. ‘I’d be far more inclined to instruct a firm that could demonstrate an investment in understanding their clients – for example, by hiring non-lawyers to improve their commercial acumen and understanding of what drives their clients, moving away from billable hours to a client-focused incentive structure, understanding risk appetite and being able to advise within those parameters, than a firm that thinks it can demonstrate technological innovation.’
‘I prefer a good lawyer not using tech to a bad lawyer using tech,’ stated the general counsel of one large French manufacturing company.
When asked if the question of technology arises when undertaking a panel review of external advisers, just 35% said that it was a factor, while the majority (41%) said it wasn’t a factor at all. With panels becoming narrower and more deliberate all the time, the points on which firms differentiate themselves will take on an increasing importance. Given GC’s evident interest in the use of technology by external firms, this factor may grow in significance in the near future.
‘Depending on the jurisdiction and the business activity being undertaken, it is of moderate importance,’ said the group counsel of one global engineering company. ‘However, in the selection of lead counsel for C-suite-led matters, it has moved to the forefront of selection criteria.’
Despite clear interest from the in-house community, the growth of legal tech hasn’t achieved the same blistering pace that fintech has managed. The rate at which the financial sector has caught on has meant wide-ranging technological innovation, at every level of the industry.
‘As successful fintechs have rapidly matured from start-ups to mature technology disruptors, banks have started the journey to transform their core digital capabilities, with several areas of focus. These include: a digital-native customer experience; big data and advanced analytics; moving towards a scalable technology landscape through cloud and automation; adoption of APIs (Application Programmable Interface),’ says Giulio Romanelli, associate partner at McKinsey & Company.
Part of the reason for the legal profession’s shortfall is a lack of enthusiasm on the part of the legal community and a natural aversion to change, but that doesn’t tell the whole story.
‘There’s a lot of hype in the space and I think there are often very clever technical solutions looking for problems,’ says Chris Wray, chief legal officer of Mattereum, a start-up working to bring blockchain technology to business.
‘Although there is interest in the theory or the potential, I think there’s also, quite rightly, a demand for: what’s the use case right now? I’m not sure I would criticise the profession generally for being somewhat cautious. I do think there’s a curiosity and a willingness to try and learn about both the potential implications and to update skills accordingly but there’s also, I think, the correct recognition that a lot of the use cases are still in the future.’
The reality is that, for blockchain, alongside more prosaic types of technological assistance, many legal teams remain in monitoring mode – surveying the field and keeping tabs on likely applications, but not necessarily investing just yet.
‘We simply have to be clever in finding the right applications, and also doing a little bit of trial and error rather than just rushing to one of the service providers, buying their generic application and then learning later that it was not the most suitable application,’ says Dr Alexander Steinbrecher, head of group corporate, mergers and acquisitions and legal affairs, Bombardier Transportation.
‘I’d rather invest a little bit more time window shopping and defining our needs rather than rushing ahead and being the first users.’
The sense among the in-house counsel surveyed was that their private practice counterparts aren’t faring much better: just 40% of respondents said their external legal advisers were implementing new technology to deliver their legal services and solutions. Still, one common sentiment among those interviewed was that private practice has a role to play in being a first mover in the legal tech takeover, setting the example for in-house teams to follow.
‘When we first undertook the research process of finding out what was in the market, it came as a pleasant surprise to see that law firms are leading innovation in the legal sector and how many are doing things like working with start-ups in developing new technology,’ says Cristina Álvarez Fernández, head of legal Europe at transport infrastructure developer Cintra.
‘Clients in particular are trying to change the way that they invoice, looking at alternate fee arrangements or, in some cases, bringing more work in-house. As a result, I think they have been forced to find ways to reduce cost and maintain their profitability. But at the same time, they will have no doubt seen other industries disrupted by technology and seen that this is the way forward.’
In an increasingly competitive European marketplace for legal services, corporate pressure on the billable hour is driving law firms (including those at the sharper, mid-sized end) to increase their own efficiencies, and reshape their service offering and value add for companies.
‘Let’s be fair: some parts of a lawyer’s job are not very fun. You want to be doing the legal work and so the technology enables that by taking away a lot of the drudgery. The smart lawyers understand that they can pull that off, they can get more work, win more competitive panels, they’ll grow their share of clients and have a more fulfilling legal practice,’ says a spokesperson at one law firm-sponsored legal tech accelerator.
Bridging the Gap between Technology and Four Generations
When acting for in-house counsel, adaptability is a quality that independent law firms have in their favour. It is the agility of their operations and the ongoing awareness of novel developments that can give them the competitive edge.
Globally, experts predict that by 2020, millennials and generation Z will account for more than half of the world’s working population. For the first time in history, four generations with an age gap of over 50 years will be working side-by-side in the same environment. Millennials are rapidly becoming the most powerful connector between these generations and will soon be in leadership roles within firms and in-house counsel positions. They are the first generation to grow up in a fully digital society, which accounts for a completely different approach to objectives. Leveraging the most technically savvy talent, coupled with a firm’s visionary decision-makers, will inevitably create a lucrative approach to meeting and exceeding client expectations.
As found by a survey for millennial lawyers and their millennial clients conducted by World Services Group, firms should look to develop expansive multigenerational strategies for their new client groups, offering the most comprehensive array of professional services. They should look internally to create committees that focus on the millennial client, on process efficiencies, and on keeping current with the latest technological developments. Then, by focusing on the client’s business as a whole, savvy firms may quickly become trusted partners asked to act on their strategic advice for deals or territories that they had not previously supported.
The biggest evolution to the legal industry is yet to come, and while technology is the cause, it is also the very thing that is bridging the generational gap in the industry. The successful law firms will be easily identifiable, not because of the technology they utilise, but because as a firm, the indispensable need for flow among the generations will create a new culture that more easily matches client needs.
But some in-house are more sceptical about the extent to which law firms are truly aboard the innovation wagon.
‘It’s mainly driven out of fear. It’s less: “Let’s be super innovative and change the market and then ultimately be super profitable”, it’s more: “I think something’s happening and it may have a negative impact on our business model so let’s work on it to manage the negative impact”,’ says Matthias Meckert, head of legal at PGIM.
‘The activity on the side of the law firms – all of them talk the talk but only a few are actually able to deliver. It may have something to do with the fact that law firms are run by lawyers and rarely by entrepreneurs. Behind the scenes, many admit that they are fearing the investment. The ones who invest do really exciting stuff.’
While in-house teams might be more cautious when it comes to making decisions on which solutions to adopt, at law firms, the conversation is sometimes clouded by existential angst.
‘The conversations we are having with in-house teams on the application of AI technology are different to the conversations we are having with law firms. With law firms, there’s always that concern of: “If we adopt this technology, how is it going to affect our model? How is it going to change the way that clients perceive us? Is it going to make the client value us less because we’re using technology to support us in the work?” Whereas with in-house teams, it’s fairly straightforward: “I need to make a change, and I can see that this is going to make my life more efficient, more interesting and more stimulating” – it’s a much less complicated discussion,’ says Emily Foges, CEO of legal AI platform, Luminance.
Disruption – at the margins
When asked whether technology had the potential to disrupt the legal profession over the next five years, 84% said they believed that technology will be disruptive. The real trouble comes when trying to drill down on what form this disruption might take.
Just 6% of those who believed technology will be disruptive in the next five years thought that the disruption would be negative. 66% felt that it would be somewhat positive, and 29% thought that the disruption would be entirely positive.
Between the believers and non-believers, there is room for nuance. Many GCs are taking an approach that falls dead in the middle of those who think that tech is going to revolutionise the profession in moments and those who think it’s all smoke and mirrors with no real capacity for change. Instead, they believe that rather than technology being a disruptor of the in-house legal role, it does not go far enough to modernise and truly transform.
‘By implementing some tech tools you get a 10%, maybe 20% efficiency increase. This is not really disruptive, this is where I am improving a little bit, I’m streamlining existing structures, but not changing the fundamentals,’ says Meckert.
‘Change gets really exciting once you say, “Let’s start big picture and not with the details – why are we doing that, how do we create value for our business, should we outsource or should we collaborate with others?” Then you start really changing the game.’
Most in-house commentators are confident that the core tasks carried out by lawyers are unlikely to face the kind of disruption that renders the profession obsolete. Although standard and routine work is likely to eventually be automated, businesses will still require lawyers to provide advice on more complex issues such as risk management and corporate governance. Many anticipate an opportunity to engage in more strategic, value-added work, such as relationship-building, lobbying and training across the business. Jobs lost are predicted to be on the routine end – perhaps paralegals, those providing exclusively contractual or notary services, or those providing non-complex high street advice.
private practice has a role to play in being a first mover in the legal tech takeover.
‘According to one global consulting firm, 85% of the jobs that people will have in 2030 don’t exist today – which is quite frightening, because it means that only 15% of today’s jobs will survive to 2030. But I would not say that 85% of what I’m doing with my legal team will no longer be done by us in 2030,’ says Steinbrecher.
‘… Smart in-house legal teams will have managed to develop in-house legal expertise and knowledge in areas where they are no longer dependent on external lawyers, and they can only do that because they are no longer wasting their time and energy on low-skilled, legal administration work.’
Far from reducing headcount in-house, it will actually help combat attrition, some predict.
‘People are less interested in doing day-to-day work on a repetitive basis. People would like to do projects which are more challenging, would like to be empowered. So if you could outsource more administrative and bureaucratic things to a service provider or a tech solution, super, as those tasks need to be completed,’ says Meckert.
‘We embrace those solutions as resources would become free to do higher value, higher risk, more intellectually challenging, more fulfilling work. This keeps my team engaged and allows a better contribution towards the business.’
Similarly, on the law firm side, a digital revolution must be accompanied by an analogue one for any real disruption to occur.
‘Law firms need cultural disruption. Lots of law firms talk about being disruptive, but very few are. There has been very little disruption of law as a service and the change that will be best received by their clients is unlikely to be technology led,’ says Ruth Pearson, general counsel of LendInvest.
A (value) chain reaction
The ecosystem of law firms, their clients, businesses, their in-house teams, and third-party legal tech providers has always been delicate, but the surge of innovation and technology is challenging the value chain to shift to accommodate the changing roles played by each link.
In light of this, each player must go through a process of understanding the space they occupy in this new value chain. Suddenly liberated by the digitalisation of research, due diligence, analysis and document drafting, lawyers will be free to build on the customer relationship by being more responsive and alive to the impact of their advice – particularly in companies moving at a highly innovative pace.
‘If my business is now fully embracing, for example, processing and collecting data and I could patch my piece of the puzzle – the legal data – into that platform, that’s great. In the age of platform industries, the law department can’t be an island, it needs to be integrated and fully aligned with the business and its digital strategy.’ says Meckert.
‘The best inspirations are those I get from conversations outside my “home” industry or with non-lawyers. Those ideas challenge the way we think traditionally.’
Patching into the corporate zeitgeist enabled the Cintra legal team to leverage company-wide investment in technology for the legal team and plan its own technological upgrade. The legal team has worked closely with the IT team to investigate potential new legal tech tools.
‘This isn’t something that’s unique to legal, it’s been happening in other departments already. In general, our company and the group are very interested in innovation and new technology,’ explains Álvarez Fernández.
‘I think that in time, we will see the relationship between in-house departments and external firms change as a result of technology – mostly where fees are concerned. I suspect that the fees of law firms can be reduced, or at least controlled, depending on the market and matters at hand. But I don’t think the interplay will shift.’
Many agree that they do not see an Uber-type revolution arriving on the horizon for the external legal services market, although most concede that there will be some future adjustment of legal service providers.
‘It will be a game changer in the end. Alternative service providers are entering the market in Europe (some have been in the States for a long time now) and some of them have their own technology,’ says Sánchez Soriano.
‘I’m also seeing small law firms with very, very specialised people in technology projects. I think that is becoming interesting because these are not the typical law firms that we are used to working with, but maybe for very technological projects, you’d call these people who are doing things in blockchain or using other technologies.’
Human resources
One other very significant way in which this trend towards technology is changing legal departments and private practice firms is in the makeup of their personnel. 60% of those surveyed for this report felt that today’s lawyers were not adequately equipped to adapt to technological changes within the legal profession.
In response, a focus on technology innovation has led, in some cases, to the creation of roles to specifically facilitate transformation, as innovation managers, data scientists and legal technology administrators begin to enter the field, particularly in law firms. However, such functions are currently less common in-house.
‘Sometimes I have found people in-house who, additionally to their own duties, are in charge of innovation, but the problem in many cases is that these people don’t have a real budget for implementation or even worse, that they don’t have the support from the general counsel or the wider business,’ says Sánchez Soriano.
But, at least on the technical side, some predict that these roles could eventually permeate the in-house ecosystem, as legal specialists with the responsibility for licensing and maintaining tools and platforms like the standardised written and coded terms utilised in smart contracts. Digital legal officers or lawyers that compile software tools with intelligent applications could evolve.
‘The new role of lawyer is more likely a legal process designer to some extent,’ says Dr Volker Daum, general counsel of B. Braun Group.
‘… This will create and maintain jobs, and may even create future jobs, because it’s not just legal advising anymore – we are part of the process and the value chain.’
But equally, although the nature and nascence of new technology makes it difficult to immediately separate the truly transformative from the passing curiosity, hard tech skills of some sort will inevitably be in need of an upgrade.
‘We have projects focused on everything from blockchain to machine learning, so as lawyers, we need to understand these technologies but also provide legal advice for the new questions and challenges that will arise as a business,’ says Sánchez Soriano.
‘We put a high premium on lawyers who understand our business well.’
‘…We will be considering all this for the training we need to give to our lawyers and the people we will be hiring in the future, so that we are able to provide legal advice to innovative projects. If you don’t understand blockchain, for instance, it will be very difficult for you to provide advice on it.’
Counsel are divided over the extent to which it will be necessary for lawyers to learn coding, beyond the skills that will likely be taught as a routine part of elementary education for future (and, to some extent, current) generations.
Shaking the foundations?
If lawyers entering the profession today are required to be of a different breed than those that came before them, the question must be asked: are legal education institutions preparing them for this?
Up until now, the bedrock of a solid legal training has been the time spent as a trainee or junior lawyer on due diligence, contract drafting and analysis.
‘We can already remember (fondly or not) the time when, not so long ago, junior lawyers would spend hours preparing first drafts of transactional documents and hence were indirectly trained to the underlying issues behind a specific drafting or wording,’ says Olivier Kodjo, general counsel of ENGIE Solar.
But even if the potential impacts of automation and AI are overblown, these institutions will have to adjust to avoid an undermining of the experiential foundations of the profession. Alternative training models will likely have to be found: a training that neglects the technological skills that are becoming part and parcel of the job is becoming increasingly unfeasible.
‘As educators, we need to be doing these things… Even if you are not convinced, you need to better train your students on these kinds of tasks because they ask for it,’ says Professor Christophe Roquilly, Dean for Faculty and Research at EDHEC Business School.
However it is achieved, demystifying technology for lawyers at all levels – and thereby equipping them for an innovative, digital future – will likely be a bridge to the elusive culture change that underpins the successful evolution and future-proofing of the industry.
‘Innovation flows much better when people are able to see machine learning not as magic, not as something that someone with a magic wand goes ‘Ping!’ and it starts working,’ says Professor Enrique Dans, Professor of Information Technologies and Systems at IE Business School.
In today’s business world, more than ever before, learning is a lifelong pursuit and it is the responsibility for those at the top of each organisation – the corporation, the law firm, the law school – to have the foresight to set a tone that prioritises innovation and agility. For true innovation to take hold, there needs to be an agreement of what constitutes good service and an alignment of priorities and mindsets throughout the organisation and the value chain – to avoid each party being left incompatible with the other.
Much has been said about whether disruptive technologies could spell the end of the legal profession as we know it, but GCs aren’t worried. In fact, they’re excited.
Of those in-house counsel surveyed for this report, the vast majority agreed that technology will disrupt the legal profession in the next five years, with 94% acknowledging that technology will be at least somewhat disruptive. 32% said that they feel this disruption will affect the profession to a great extent.
Every respondent that said they expected there to be some disruption in the next five years felt that this would be positive, with 71% saying that the disruption will be ‘somewhat positive’, and 29% saying that it will be ‘entirely positive’.
‘I’m fully convinced of the benefits of the AI, and we all need to adapt to what is coming, because it is coming, whether we like it or not,’ says Cristina Álvarez Fernádez, head of legal at Cintra. ‘I’m 100% optimistic this technological revolution is going to be good for us: we’re simply going to provide legal services differently.’
This positivity is echoed by the approach many of the GCs interviewed for this report have taken to the issue: embrace disruption and reap the benefits.
‘The legal function needs to and can play a role in showcasing the benefits of introducing technological solutions in an enterprise,’ says Johan Huizing, associate general counsel at Itron. ‘We must be leaders in adoption of high-performing technology and not merely followers. Only then can we play a role as thought leaders and will we be accepted as team members that have value for the business.’
To what extent do you agree that technology has disrupted the legal profession in the past 5 years?
‘Legal professionals who want to thrive in modern business must lean towards technological transformation,’ adds Tobiasz Adam Kowalczyk, head of legal at Volkswagen Poznan.
‘The great news is that lawyers have the tools at their disposal to enable this change. The digital revolution offers us the chance to compete, and it provides law firms and legal departments with the ability to transform into something much more exciting. The legal profession will not disappear, but it will surely change due to technology. This shift will most probably trigger new forms of what being a lawyer means. The sooner we accept it as the new normal, the better off we’re going to be.’
One general counsel from a prominent international engineering firm, who did not think that AI will be a factor within the next ten years, said that their main concerns were ethical.
To what extent do you agree that technology will disrupt the legal profession in the next 5 years?
‘How can you build trust in code? There are ethical questions around its use in certain applications such as disciplinary actions or other employment-related areas,’ they said.
‘It’s not all hype, but the profession is very conservative and the ultimate question is: to what extent will management trust a “machine”?’
Virtually all of those surveyed agree that AI will be a disruptor in the legal industry, with just 9% feeling that it will not be a disruptor at all. Despite this apparent enthusiasm, just 6% said their team currently uses an AI solution, all of whom said they only use it to assist in low-level work. Within this small group, overall feelings on AI’s ability to act as a disruptor in the industry are positive: 83% agreed that AI would be a disruptor, with half feeling that such disruption would come between the next five and ten years.
When asked which factor was more important when considering adopting an AI-based tool, all respondents cited either the reduction of costs (38%) or an improvement in quality of work (62%).
‘Looking forward, AI will be able to cover all technical and easy legal work: cost reduction, quality improvement,’ says Artem Afanasiev, general counsel of DIXY Group.
Overall, the key disagreement comes over the question of when, not if. Over half feel that AI-based disruption would come between the next five to ten years, but a portion said they thought the disruption would come much later: 23% think it won’t be a factor for at least ten years.
Overall, how positive do you think technology disruption will be?
Then comes the question of preparation. If disruption is coming for the legal profession, all eyes will turn to the incumbent lawyers to see how they fare in response to the seemingly inevitable changes heading for their profession. Whether or not legal education institutions and professional development programmes throughout Europe have left today’s lawyers well placed to adapt and thrive will be imperative.
When asked about current lawyers’ preparedness for technological disruption, the in-house counsel surveyed and interviewed were less enthusiastic. 14% felt that today’s lawyers, on average, were adequately prepared; 61% did not. The rest were unsure.
‘AI is limited for the majority of in-house right now because the base data sets are not in place, substantial enough or well enough maintained,’ explains the general counsel for a prominent consumer goods brand.
‘This is a real point of difference with the accounting/finance world where recording data in a structured way has always been the order of the day – that area will see a huge impact from AI in the near future whereas in-house legal first needs to get its ducks in a row, change its behaviours and set that foundation upon which expensive AI solutions are built.’
