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Technology Impact on Law Firms

Technology Impact on Law Firms

Technology is having a profound impact on law firms. Traditionally, the legal profession has been very conservative and early attempts to introduce technology in legal service delivery were often met with contempt and exhortations of culture and tradition. Today, it is a given that technology impact on law firms is inevitable. Even diehard legal traditionalists now accept that the law profession’s technological adoption is good for clients and the trade. This is probably with the benefit of hindsight after seeing how other industries have coped with disruption brought on by technological innovation. 

A good example is the music industry. The combination of the Internet, file-sharing, and MP3 technology almost brought down the industry, which tried in vain to outlaw the technology and prevent people from using it – but the genie was already out of the bottle. Eventually, innovators like Steve Jobs saw an opportunity in the disruption and created iTunes. The analog film industry was also another casualty of technological disruption. Eastman Kodak registered the first for a digital camera in 1977 but chose not to develop the product because they couldn’t fathom how they could remain in business without the manufacture of photographic film, their cash cow at the time. The effect was that they missed out on a piece of the technological pie. Kodak could quickly have become the world’s largest digital camera manufacturer and possibly even spawned an early social media site to share photos and make money on advertising. But, they squandered the opportunity, and the rest is history. Recent history is replete with similar stories. 

Before we get into the substantive issue of the technology impact on law firms, it puts things in perspective to examine technological evolution over the last three decades and how it has impacted law firms. 

PeriodTechnologyTechnology Impact on Law Firms
1950sDictation MachineDictation machines were first marketed to lawyers. Lawyers began using them to record client meetings. The information was later transcribed by an assistant. 
1970sArpanetThe earliest version of the Internet made it possible for Lexis Nexis to create the first UBIQ (ubiquitous) terminal for case law research 
Word ProcessingBy the late 1970s, many law firms had purchased Word Processing computers to create legal documents faster. 
1980sPersonal ComputersIBM released its first personal computer in 1981. Apple launched the Macintosh in 1984 while Microsoft launched MS-Dos, a desktop operating system. Many lawyers bought personal computers and used Word processing to create and store documents, and spreadsheets for various calculations such as damages, settlements, expenses, etcCase management systems such as Concorde and Summation also began to emerge in the late 1980s. 
Fax MachineThe 1980s also fax machines become affordable and begin to appear in law firms. Documents could now be sent to clients in a much shorter time.  
1990sWeb browsersIn 1993, Mosaic, the first web browser is introduced. This was soon followed by the Netscape browser and the Internet Explorer. Some lawyers began using the Internet to carry out case research. 
Windows 95The development of Windows 95 made it easier for people to use personal computers. It was more user-friendly than MS-Dos and had a much gentler learning curve. As a consequence, many law firms rolled out computer usage across the entire organization in the late 1990s.  
ScanningScanning and Object Character Recognition (OCR) software made its first impression in the early 1990s. This is also the time when the first real legal tech vendors came into the scene. Vendors scanned documents for lawyers and then used OCR to convert the images into text. 
Computer Networks & EmailLaw firms initially resisted the Internet but as usually happens, client pressure forced them to start using email for communication. 
2000sCloud-based software In the early part of the 21st century, we saw the first virtual law offices and the earliest versions of cloud-based legal software.
Cloud computing & storageAdvances in cloud computing and storage led to the growing use of electronic data in legal cases. Civil procedure rules were amended in many jurisdictions to incorporate electronically stored information (ESI) in litigation. Electronic discovery reference models are also published. By 2009, the size of ESI in the legal industry had grown to 800 billion gigabytes.
Smart devicesThe first iPhone is launched in 2007 and quickly becomes a status symbol and communication tool for lawyers.
2010sTechnology-assisted review (TAR)This technology is first used by lawyers in 2010 and in 2012 a US judge issues a ruling endorsing its use. 
BlockchainEven though Bitcoin, whose underlying technology is blockchain, was launched in 2007, it isn’t until 2013 when we see the first feasible application of smart contracts built on blockchain technologies such as Ethereum.
Artificial intelligence (AI) & machine learningStarting in 2015, we begin to see the proliferation of numerous legal tech startups building applications whose backbone technology is artificial intelligence and machine learning. Billions of venture capital money begin to flow to these startups.

Technology Impact on Law Firms

Let’s delve into some detail by considering some specific ways how technology will impact lay firms.

  1. Billable Hours

Billable hours is the most common pricing model used by lawyers. Under this system, a lawyer has to record all the time spent with a client and working on a client’s legal issues. Many firms have target billable hours for lawyers on staff. In recent years, this system of billing has been challenged and has come under scrutiny by clients. Many clients no longer want to be billed in this manner and prefer alternative billing methods or paying for results. Clients don’t care about how much time a lawyer took on a matter, if the results are not what they expected. The pressure on income via billable hours first began after the 2008 world economic crisis. Many CEOs were under pressure to cut costs, and the first department they raided was the legal department. But, implementing alternative fee arrangements (ARAs) hasn’t been easy. A recent study revealed that the leading barrier to ARAs is the difficulty in determining profitable pricing accurately. 

Legal technology facilitates the abolishment of the Billable Hours system. It is now easier to predict the time, cost, and effort it will take to deal with a legal matter and provide price certainty to the client. For example, Luminance, an AI platform, performs document reviews that would otherwise take paralegals ten hours to complete in just ten minutes. This allows lawyers to focus more on value billing than time billing. Legal technology makes ARAs such as fixed fees, capped fees, success fees, and other types of value-based billing possible. The media recently reported that Clifford Chance was considering scrapping Billable Hours as a performance metric for their lawyers. 

  1. Diamond Shaped Law Firm

The second technology impact on law firms is the complete change in the makeup structure of its staff. Like most companies in other industries, traditional law firms are organized as a pyramid, as shown below. You have the most junior people at the bottom making up the majority of staff, and as you climb up the corporate ladder, the number of staff reduces with the fewest people at the top.

Legal technology is forcing law firms to assume a diamond-shaped structure. The routine work usually done by paralegals will be wholly taken over by AI tools, thus reducing the need for vast numbers of paralegals. The future law firm will have more associates and data scientists or tech specialists in middle management. 

  1. Talent Acquisition and Training Process

In recent years, many law firms have had to edit their job descriptions to incorporate a preference for highly tech-literate law graduates. They have also had to change their training manuals and processes to include more technology-related training for new attorneys and existing lawyers.

Different firms are responding in various ways to legal technology. 

  • Team up with Tech Companies: This is an obvious strategy borrowed from other industries such as financial services. It is easier to form a strategic partnership than build your tech solutions. 
  • In-House Legal Tech Solutions: Law firms can also develop their own bespoke legal tech solutions. Ashurst LLP, Bryan Cave Leighton Paisner, and many others have successfully deployed homegrown legal tech solutions. 
  • Legal Incubators: One of the classic examples of this is Allen and Overy. This law firm developed its legal incubator, a learning hub to showcase legal technologies, known as Fuse. The firm encourages its legal staff to mingle and interact with the software engineers and data scientists to understand the technology first-hand.

As seen in our legal technology timeline, the formative years of legal technology were mostly about taking what lawyers do and automating it. We are now seeing the emergence of applications that can take on some of the lawyers’ work, including many areas that have historically been regarded as bespoke. These new areas include legal research, document analysis, document drafting, and other areas that suggest legal technology is moving from the back office to the front office. 

As legal tech startups continue to grow and attract massive funding, we can only brace ourselves for what promises to be a decade of fascinating developments in legal tech technology. 

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