By Amy Spooner
U-M Law
SHOW ME THE MONEY
According to the research firm CB Insights, some 280 legal technology startups have raised more than $750 million since 2012. Although legal-tech funding fell 74 percent in the first half of 2016, compared to the same period in 2015, the field’s growth still has been astronomical since the Great Recession.
Dan Linna, the Michigan Law adjunct professor, says that these startups and alternative legal service providers are impacting the marketplace for legal services, and that the impact will continue to grow rapidly. But he cautions that technology is not a silver bullet.
“Some lawyers tell me that they’re just waiting to see which software and artificial intelligence solutions rise to the top and then they’ll implement them,” says Linna. “This completely misses what’s happening. Forward-thinking law firms and corporate legal departments are disaggregating legal matters, breaking them into their component parts, and determining how to best accomplish the component tasks with people, process, data, and technology. These organizations are empowering everyone, not only the lawyers, to innovate, continuously improve, and deliver greater value for clients. They’re on the path to building learning organizations. You cannot buy that off a shelf.
“Second, some people in the legal-tech space are pushing things that aren’t real, things they can’t deliver on,” continues Linna. “Unfortunately, this gives naysayers the opportunity to say that the buzz around legal technology is a bunch of BS. There’s no need to oversell these solutions. We can do some amazing things with people, process, data, and the technology available today. Lawyers need to be implementing solutions today so that they’re prepared for future advances. Some startups will deliver. Some will fail. That’s how it works in every vertical. Lawyers can’t bet the practice on startups. At the same time, lawyers must do a lot of hard work before they’ll be ready to harness the breakthroughs that startups deliver.”
Plenty of startups are trying to deliver these breakthroughs. As an angel and seed investor with an interest in legal technology, Peter Krupp seeks to separate the technological wheat from the chaff. He is a retired partner at Skadden, Arps, Slate, Meagher & Flom LLP.
“I always thought that law firms could be utilizing technology more efficiently. So about 10 years ago I started talking to people who were involved with legal innovation,” says Krupp. These days, he reviews several legal-related investment pitches each month.
Krupp met Dan Katz, the Chicago–Kent professor and LexPredict co-founder, about a decade ago. Krupp is not an investor in LexPredict, but he is an adviser to the company.
“Beyond predicting outcomes, I liked that LexPredict had a broader application in terms of helping people get access to data. It gets to the larger, healthy debate going on right now about who owns the law,” says Krupp. “LexPredict is built on the benefits of predictive analytis, and I believe that the use of predictive analytics and AI will fundamentally change the way we practice law.”
Krupp’s current investment portfolio includes multiple legal-tech companies, including ones that use AI technology and other data science to review documents and solve issues, and another that uses statistics and data analytics to help predict which lawyers to hire.
“I sift through and look at the addressable market, the size of the problem they’re trying to solve, and the amount of capital it will take to get to scale,” says Krupp of his decision-making process. “And then I check my gut feeling about the team.”
In Silicon Valley, where self-proclaimed next big things happen almost daily, Duncan Davidson has shifted his career from the law of technology to funding the evolution of technology in the law and beyond. Davidson, who has an undergraduate degree in physics and math, came to law school knowing he wanted to practice computer law, an emerging field in the mid-1970s. He began his career at Cleary Gottlieb, where Bill Fenwick started a computer law practice before he left for Silicon Valley. Davidson then moved to the Left Coast to work at Irell & Manella, where he worked with another pioneer of the field whose “incredibly advanced” philosophy about computer contracts inspired Davidson’s approach.
“He viewed contracts like construction projects. Instead of writing in clauses you can sue over later, build the software in a way that will work,” says Davidson.
After a brief stint in venture capital, Davidson became a consultant and helped a floundering Apple Inc. avoid bankruptcy in the early 1990s. Others in his portfolio included AT&T, Hughes (which launched DirecTV), Intel, and Disney.
“I told Disney that the new ‘information superhighway,’ the Internet, was the wave of the future, not cable,” Davidson says. “Years later, they conceded I was right.”
Davidson went on to have two successful IPOs before moving back into the world of venture capital. Since 2010, he has been a general partner at Bullpen Capital.
The work suits Davidson, who swam against the current from his earliest days at Gottlieb.
“Being an innovator is difficult because you know this stuff works, but you put it out there and others reject it because it doesn’t fit what they were taught,” he says. “Lawyers are more likely to look backward, while businesspeople look forward and embrace risk. I was increasingly drawn to the risky side of business.”
The legal profession’s risk aversion makes investing in legal-tech especially challenging, Davidson notes.
“Innovation is not occurring in law firms or legal departments,” he says. “It’s occurring among the businesspeople who want to get around the legal department, and then it’s adopted by younger lawyers who recognize that it will make their lives easier. It’s almost got to overwhelm the powers-that-be before they officially endorse it.”
The team at Bullpen mostly looks at companies that sell to clients rather than to law firms, says Davidson. One company he has been exploring uses artificial intelligence to analyze patterns in patents, with potential markets in both the United States and China. Another, in which Bullpen has invested, does smart contracts (i.e., contracts written in code with self-executing provisions based on conditional logic) on the blockchain—a secure, unalterable, distributed record of transactions.
“I think that the future we envision, with smart cities and self-driving cars, will not scale until we have really cheap smart contracts happening in the background,” says Davidson, who notes that the unpredictability of the future makes venture capital such a rush. “I get to look forward and make investment bets on what this vision might look like. I’m not sitting here worried about what might happen. I’m trying to help shape it.”
Amid the buzz over the burgeoning legal-tech industry, Adam Ziegler says lawyers must stand their ground.
“I get disappointed when I see a bury-our-head-in-the-sand approach. I’m equally disappointed when everything about technology is portrayed as magical. I’m an advocate for lawyers being enthusiastic and critical participants in what’s happening. I want lawyers to look for ways to put their stamp on new technology.
“Lawyers shouldn’t cede that ground to vendors, computer scientists, or venture capitalists. They should embrace, own, create, and contribute to the development of tools that can make them better able to serve in whatever capacity they act as lawyers,” Ziegler continues.
The rise of legal-technology companies raises questions for practicing lawyers beyond, “Will this cost me my job?” says Jayne Rizzo Reardon, at the Illinois Supreme Court Commission on Professionalism.
“How do we continue to regulate when there are new players who don’t have to abide by lawyers’ rules of ethical conduct because they aren’t lawyers?” Reardon asks. “As we promote professionalism, we have to know what it means to be a profession.”
DEMOCRATIZING THE LAW
Beyond innovations that make the existing legal system operate better, there are the wannabe clients who historically have been left behind by a system they can’t afford and/or don’t know how to navigate.
Says Reardon, “If you look at access-to-justice reports and various studies about how 80 percent of the civil legal needs of average Americans go unmet, the question we have to ask as a profession is, ‘If we’re not providing legal services to the vast majority of citizens, what are we doing and where are they going?’”
Many are going to one of the most high-profile legal startup success stories, LegalZoom, or similar companies. Mentioning LegalZoom might cause neck hairs to rise or eyes to roll on the part of the legal establishment, but James Peters says the company plays an important role in today’s legal landscape. He has been with LegalZoom since graduating from Michigan Law and currently is its vice president of new market initiatives. Peters originally wanted to pursue a public interest career, but “I thought it was interesting that there was this company that wanted to help ordinary people access legal services. I work for a for-profit company with a public-oriented purpose.”
Peters joined LegalZoom when it was just two years old. Today, it employs around 1,000 people and has helped nearly four million customers. While many traditional law practices struggled in the wake of the Great Recession, LegalZoom thrived. For one thing, layoffs and a lack of hiring across many sectors caused aspiring entrepreneurs to take the leap and start their own businesses. Also, uncertain economic times meant people wanted to reduce what they saw as unnecessary expenses, such as hiring a laywer.
“We cater to both of those groups,” Peters says.
All of LegalZoom’s offerings were developed by lawyers, and for an additional fee, one of LegalZoom’s affiliated lawyers will review what the customer creates. That ability for interface with a practicing attorney—albeit through a computer—sets LegalZoom apart from its competitors, notes Peters.
“We put a lot of people behind our operations, so customer satisfaction is a huge deal,” says Peters. “We don’t just send people off to navigate technology; we back them up with access to a dedicated network of attorneys in every state.”
In addition, Peters says that LegalZoom’s systemization of basic legal services, like incorporating a small business or creating a power of attorney, is advantageous to customers beyond saving them money.
“The more you systematize, the less chance of human error. That’s why surgeons and pilots follow procedure checklists,” says Peters. “Companies like LegalZoom that are using a technology-plus-people platform build those checks into the system to a far greater extent than private practitioners.”
He understands why the legal establishment is wary but argues that the company is building awareness of the value that lawyers, as a whole, provide. Through the company’s extensive advertising, “we are planting the seed that if you’re starting a company, you have a legal need. If you are starting a family, you have a legal need, whether you end up using LegalZoom or not. The more we educate the general population about their legal needs, the better.”
He also insists that LegalZoom is not in direct competition with traditional practitioners.
“There aren’t a ton of people who are saying, ‘I was about to go to a typical lawyer, but I’m going to LegalZoom instead.’ Our customers are the people who either wouldn’t be likely to use a lawyer or who are looking for a type of service that falls outside of what most law firms provide. We live in a country where 80 percent of legal needs are unserviced. The biggest issue for anyone providing legal services in the U.S. is under-consumption from the public, not any particular competition.”
While LegalZoom’s business model merged legal access and technology from the get-go, Microsoft Corp. built its global empire in the technology sector and now is using its influence and expertise to increase access to justice. David Heiner, Microsoft’s strategic policy adviser, is helping to lead the charge. In 2016, Microsoft announced a partnership with Legal Services Corporation (LSC) and Pro Bono Net (PBN) to build a portal that will enable people to navigate the court system and legal aid resources, learn about their rights, and prepare and file basic documents. They will pilot the project in Alaska and Hawaii in 2018, with eventual sights on all 50 states. Microsoft is providing at least $1 million and project management expertise to build the prototype.
Heiner chairs the board of directors at PBN, a national nonprofit that leverages the power of technology and collaboration to help close the access-to-justice gap. PBN offers multiple technology solutions, including CitizenshipWorks and Immi, which are self-help websites that enable people to see if they qualify for citizenship and then apply, or see if they qualify for any basis to stay in the United States. PBN’s partnership with LSC and Microsoft merges personal and professional interests for Heiner, who has a bachelor’s degree in physics and has long been interested in technology, but also was attracted to the law in order to help promote access to justice. He served for many years as a vice president and deputy general counsel in Microsoft’s law department, where, in addition to overseeing the company’s antitrust work, in later years he was responsible for privacy, telecommunications, accessibility, human rights, and online safety. He now focuses on technology policy relating to artificial intelligence.
“Microsoft’s mission is to develop technology and get it out to people in a broad, inexpensive way, to enable people to achieve more with their lives. A big part of that is sales, but we’re also looking for ways to showcase how technology can benefit society,” he says.
For Heiner, who spent nearly two decades as Microsoft’s lead internal antitrust counsel, the project reconnects him with his longstanding interest.
“Part of the appeal of going to law school was to help people who couldn’t afford a lawyer,” he says. “I’ve always been intrigued by ways to combine legal skills with the technology angle to do that.”
The portal grew from a discussion group of state court professionals, legal aid professionals, and tech industry representatives that LSC convened. The group discussed how great it would be to have a comprehensive online resource for people with economic or logistical barriers to hiring a traditional lawyer, but shelved the idea for lack of funding. A subsequent meeting between LSC President James Sandman and Brad Smith, president and chief legal officer at Microsoft, reignited the project—and Heiner’s involvement.
“When Brad asked me to lead the project, my first step was to bring on Pro Bono Net to leverage its experience in developing legal aid technology,” Heiner says. “My second step was to connect with our artificial intelligence researchers, who are doing state-of-the-art work in computational reasoning and understanding.”
The prototype will utilize Microsoft’s newest AI technologies, including ones that aren’t yet available in products—from inferring meaning from users’ searches (instead of merely homing in on key words) to directing users to appropriate resources, and even to providing predictions on likely outcomes, all with a conversational interface.
“The goal is to help make sense for users of what can be a very confusing legal system.
“It’s hard for people to know if they have a legal problem and if there’s a legal solution, and then where and how to get started. AI can help,” says Heiner.
LAWYER 2.0
So how do lawyers and future lawyers add value in a profession where the value proposition is shifting?
“First-year associates need to show they have a value proposition, and a technical skillset is a great way to do so,” says Katz, the Chicago–Kent professor. “There are more opportunities now for them to make an immediate difference, instead of sharpening pencils for years before they’re drawn into meaningful work.”
The tech mindset can be different for a profession traditionally grounded in the liberal arts—“I hear people say, ‘I didn’t come to law school to do math’ all the time,” says Katz—but it is changing. In Michigan Law’s fall 2017 entering class, for example, STEM majors accounted for 18 percent of the class (up from 11.5 percent in 2016) and included 11 math majors, the highest ever.
Also, new lawyers must prepare to adapt to a shifting landscape throughout their careers, says Ziegler, who teaches at Suffolk University Law School in addition to leading Harvard Law Library’s Innovation Lab.
“We must teach students to be active participants and open-minded skeptics contributing to the design of technology; to distinguish marketing puffery from real value propositions; and to reconcile legal professionalism and legal ethics with all that technology makes possible,” says Ziegler.
As Reardon has noted by the increased attendance at the Illinois Supreme Court Commission on Professionalism’s annual futurelaw conference, lawyers increasingly are embracing opportunities to talk about these topics. In 2014, Linna and Katz founded the Chicago Legal Innovation & Technology Meetup to accelerate the adoption of legal innovation and technology.
“We are building a community of people who want to improve legal services for everyone,” Linna says.
The meetups bring together practitioners, technologists, lean thinkers, project managers, academics, law students, and others interested in delivery of legal services, law and technology, and the importance of legal systems.
“When we first started, it was mostly innovators and early adopters—people who were ahead of the curve. Now, we have many more traditional lawyers from legal departments, law firms, and legal aid organizations. We are seeing the marketplace continue to evolve,” says Linna.
Beyond technical competency and a willingness to learn, lawyers also must demonstrate their ability to work in cross-functional teams to solve problems.
“My message in class is that law is a profession but also a business, so you’ve got to be able to collaborate across your business to understand the business impact of your legal decisions,” says Peters, the LegalZoom VP who also has taught at the University of Miami and Michigan State law schools. “Lawyers have to give solutions, not just spot issues.”
That paradigm shift toward problem solver opens up limitless possibilities, Reardon says.
“We need to change the mentality of waiting until client matters get so bad that we’re heading to court. Technology can help us be more proactive. If we start thinking of our profession as more than just being hired guns, there’s a lot of promise.”
It’s a promise born from complex problems that will require equally complex systems—technological and otherwise—to solve.
“While some fear that improved processes and technology will lead to fewer lawyers, the failure of lawyers to improve their services and provide value to clients is the greater existential threat,” says Linna. “By embracing these disciplines, lawyers can create the capacity to focus on solving ‘wicked’ problems, which continue to grow in number and complexity in our increasingly connected, interdependent world.
“It’s an exciting time. So much is happening in the world, and who better to lead the change than lawyers?”
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