An introduction to LegalTech or are Smart Contracts the end of Lawyers?

A couple of weeks ago I read an interesting article that predicted the end of the legal profession – at least as we know it. Since I’m a lawyer by training myself, I got both terrified and excited at the same time.

What is LegalTech?

LegalTech or Legal Technology, which simply means using technology and software to provide legal services, is behind this bold prophecy. It has gained significant investments over the last couple of years with start-ups popping up all around the globe, trying to get a piece of the pie of this ancient profession and the huge sums in fees it generates.

Of course, technological support of the legal profession is not new, take one of the more traditional areas of LegalTech like Practice Management, which consists of software solutions that help lawyers with billing and timing tools However, it appears that thanks to the technological advancements in artificial intelligence and data analytics the field has made significant progress, so let’s have a look at the different areas and their level of disruption:

E-Discovery refers to processes that search electronic data for evidence to be used in legal proceedings. Specific rules govern the use of such tools depending on the different jurisdictions. Given the complexity of the matter you would usually find lawyers that are specialists in the respective legal field and forensic specialists along IT professionals and record managers involved. Players include traditional organisations that can handle large amounts of data because of their expertise in data management, but start-ups like Logikcull or kCura are trying to make their mark, though they have to overcome challenges like data security and privacy, in particular with regard to social media and mobile data.

Practice Management Software, which we already mentioned, focuses on all activities for the day-to-day management of a legal practice like billing, accounting, payments or simply time management. Cloud-based solutions as well as software as a service are the obvious game changers, but process automation can generate significant cost and time saving and are ways to get your foot in the door as a start-up. Lawcus and Clio are just two names of the new entrants in a crowded arena.

Legal Research deals with any form of technology supported research for lawyers and incumbents like Westlaw and LexisNexis battle it out with newcomers like Docket Alarm, Lex Machina or Ravel Law. Cost is a massive argument that can play in favour of start-ups but using AI or machine learning to generate better results is a key differentiator.

Lawyer Search is inevitable in this list: the Internet is made for connecting clients and lawyers, but it goes beyond the function of the yellow pages. Start-ups like Lexoo try to help you compare lawyers to find the most suitable one, while others like LawDingo can direct you to a specialised lawyer, but also make it easier to get legal advice or specific contracts and agreements through a few mouse clicks.

Legal Services is basically already included in the above category and as with many of the different services discussed in this article, it is often difficult to draw a line between them, especially since companies most of the time don’t provide just one service, though start-ups like RocketLawyer or Avvo seem to focus on providing legal services online. Like with Lawyer Search key aspects are making lawyers more accessible and responsive or merely making legal services simpler and more affordable for consumers.

Notarisation Tools aim to provide consumers with tools to have documents certified or notarised online. Start-ups like Hire Peter and Notarize along a handful of more established firms in the field work on that already, but the emergence of blockchain technology could take to a whole new level (for more information of the use cases of blockchain technology including record management and verification) and these companies might be well positioned to take advantage of it.

 

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Talking about blockchain, smart contracts are the cause for the end of the legal profession according to the article mentioned above, but you might have got that from the title already. Anyway, a smart contract is basically a contract written in computer code on a blockchain that stores all the information and which can theoretically execute itself. This concept is revolutionary as it is immune against meddling from third party, transparent and potentially much more efficient, faster and cost saving. That’s the theory, but, of course, it’s much more complicated and I suggest that you read our dedicated post on the topic. To give you an idea of its potential use and the problems it incurs, let’s have a look at one example that is often used to demonstrate the use of smart contracts, which are smart insurance products: a smart contract that stipulates all the aspects of an insurance agreement, say a crop insurance against bad weather. Everything gets coded into the smart contract and you could link it to a weather data source in order to trigger the insurance pay-out if rainfall amounts drop below or exceed a particular level. In practice though this could create problems in respect to the actual accuracy of the data source, similar to traditional insurance contracts. The downside there then is that if the triggering event, i.e. the exact amount of raindrops, is disputed, who decides about it and how do you code it into a smart contract, which is supposed to execute itself without external exercise of influence? This highlights not only the issue of the underlying data or factors that determine the execution of a smart contract but also the downside of one of a smart contracts advantages, the lack of its flexibility. Its nature is to execute its code exactly as it was agreed upon on the creation of the smart contract. Centuries of drafting traditional contracts, however, have shown that an agreement at its outset is often not precise, since reality sometimes it is unpredictable, for which, for instance, force majeur clauses exist. A smart contract cannot decide though, whether a condition is met or circumstances have changed, so an equivalent mechanism needs to be developed to amend a contract if the parties to it agree to. Smart Contracts are still in their infancy, but it should be obvious that this technology has the potential not only to alter certain aspects of how law firms work, but disrupt the entire legal profession.

So, the article concluded that it wasn’t the end for lawyers just yet and we are still a long way off to overcome the obstacles of smart contracts, which is supported by the fact that no working practical application is in use yet. Having said that, only because the guy with the “The End Is Near” sign wasn’t right today, it doesn’t mean he might have a case tomorrow… By all means, change is coming to a law firm near you, if they like it or not.

 

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