Q&A Roundtable: The Future of Legal Technology

CA: Good venture capital firms do their homework before investing, so I see this as a positive sign that others view the legal tech market as ripe for investment and still maturing. To the extent that funding is used to improve and expand the tech products lawyers use, I see that having a positive impact. There is also something estuarial about it—mixing disciplines and ideas—that could give rise to innovations and creative solutions to problems that the legal industry hasn’t yet been able to conquer on its own. But I am not without concern. Even though it seems to be an old-fashioned notion these days, I believe in the sacrosanct nature of a lawyer’s independent thought. We will need to preserve that independence and the bastions of justice it’s intended to protect.

ZW: The assertion that legal tech is going to grow is an obvious one, but what’s more interesting to me is that there will increasingly be more stark winners and losers. Previously, it wasn’t too tough for an attorney to get interested in tech, build a solution with a little help and try and bootstrap their way into the industry. I don’t think that’s as feasible anymore as legal tech looks more like the wider technology industry, where start-ups are often swallowed up by bigger fish and are consistently looking for big funding.

JP: When private equity enters the door, it’s a little like the Hulk agreeing to help you move. It takes care of the heavy lifting, but the crystal may not survive the process. On the one hand, smart money entering the space helps everyone by signaling the potential in this space. But as venture capital digs in deeper and companies have to worry about delivering short-term results to justify the investment, that can have a negative effect on innovation.

CE: In the small firm space, I think that smart companies will hunker down and focus on quicker product development in response to client needs, which is a good thing. I’ve always felt that more generic practice platforms like Google Apps or Salesforce had an advantage over legal because they have so many customers and so much revenue that makes it possible for them to constantly iterate. Historically, many law practice management companies did not have that same financial backing behind them.

Venture capital (VC) investment will also push companies to develop native applications instead of using outside systems as a crutch for what they are missing. Many solo and small firms are spending money on practice management tools, CRM, e-discovery/litigation support and payment processing, which can add up. Companies will want to find a way to hold on to that revenue. That’s not to say that companies should build siloed systems—integrations are important for many lawyers, but mission-critical functionality shouldn’t require a separate subscription and I think that is where we’ll see solo/small development focus. On the BigLaw side, we’ll see VC backing AI-powered tools to give big firms a competitive advantage and reduce costs for clients.

JP: Somewhere in between. We were seeing a lot of activity even before the pandemic but throw in rock-bottom interest rates and money burning holes in investor pockets and conditions are ripe for deals.

CA: It’s hard to say. But with lots of venture money available in the market, it’s about time more of it made its way into the legal tech market. Additionally, lawyers stepped up to the challenge of the pandemic and showed they are more agile and adaptable than previously thought. It’s possible recent regulatory changes in several states will also serve as a catalyst to some of that money as well.

CE: That’s a really good question. I don’t think the pandemic was a factor for BigLaw, which was already investing in products to serve corporate clients. In the solo/small firm space, the pandemic was an accelerant for sure because it helped increase the demand for remote tools. But at the same time, we’re 10 years into cloud-based practice tools and the market is now beginning to mature, which means that we’re starting to see acquisitions and consolidations.

ZW: I personally think it would have occurred regardless. You were already seeing nine-figure investments and substantial growth between 2015 and 2019. Certainly, more firms are now taking advantage of the benefits of technology due to the pandemic’s effects, but venture capital has always understood that legal is an untapped tech market.

ZW: That’s a tough one, because it depends on the impact you’re looking at. Generally, with consolidation in any industry, prices are going to go up with less competition. That could squeeze out smaller firms. But the firms that pay those prices will get more well-baked solutions, and the investment of the development budgets at these larger companies should result in some cool innovations.

CA: It will probably be mixed. As products consolidate and certain ones rise to the top, companies begin to have more capital to invest in the features and characteristics lawyers truly need. But the price also rises as competition decreases, and there is no guarantee the companies will invest in and innovate on right features.

Working with predominantly immigration lawyers, I have a courtside seat to a small market of immigration-specific tech companies. This year we have seen several buyouts of well-established products, along with some rising star startups making bolder moves and adding competitive features. We’ve also seen some really new and ambitious start-ups just getting into the market over the last few years. Right now, it still seems like it’s anyone’s game, but as of yet, no one has answered the age-old pain points.

JP: I think it depends. For products at a certain level of maturity, consolidation is key because the cross-promotion involved in moving everything under one roof is vital and provides the convenience of a seamless workflow. But it turns on whether the consolidator knows that the task requires more than “add products and stir.” Building something greater than the sum of its parts is a unique skill.

CE: That’s another really hard question. We’ve already learned how well-connected duopolies—like WEXIS—can capture state bars, stymie innovation and make products unaffordable for many solos/smalls. So too much consolidation is not a good thing in my view. At the same time, law firms need some stability, and if they invest in a platform, they want to know it will be around for a long time. That may not be possible with dozens of underfunded companies competing for a piece of the pie.

KR: I believe it will have a positive effect on legal clients in the end. Generally, I think consolidation results in fewer but better products, as good features of multiple products are blended into a single product (and often weaknesses are eliminated). We have all had the experience of reviewing several products designed to do roughly the same thing and finding that each has its strengths and weak- nesses. I’ve learned that most often consolidation means better products in the end. Not always, of course, but more often than not. That means that the quality of representation a lawyer can provide to a client will be improved over time. Clients will receive better service, often in less time and at markedly lower costs. 

CE: This is going to depend upon how the acquisition is executed. If a company buys a product and doesn’t integrate it, it’s going to be a problem for end-users. Or if the integration doesn’t do much more but let you open one system within another, it’s kind of a wasted opportunity.

CA: Do you mean end-user lawyers or end-user clients? Because I think we should be talking about end-user clients, and I think we often get stuck in the mindset that the lawyers are the end-users. In an ideal world, end-user clients would get more of what they need, communicate with their lawyers better and the legal world’s problems would be resolved faster with less friction and financial expense. But I don’t think things move so linearly. I think we will bob and weave toward our progress. The thing is, if we don’t giddy up, some technology companies are going to solve a lot of the easier client problems without us.

JP: I kind of think this overlaps with the answer above. If consolidating entities realize that putting everything together requires different skills and effort than building a stand-alone, then it can be great for users.

KR: For the good, since lawyers will be able to provide better, more efficient and effective services to clients, reducing their own costs in the process and freeing up capacity to take on additional matters. 

ZW: I could see it going a couple of different ways. More money means more into research and development budgets, and I could see big legal tech companies refining their systems even further to be sharp machines, with cutting-edge AI and automation. But refined doesn’t necessarily mean new, and the loss of competition among start-ups or midsize companies seeking to stand out could mean the industry loses out on some novel, outside-the-box ideas that are totally different from what we see currently.

KR: It depends. If consolidation means that one company can dominate a market, it may stifle innovation because entrepreneurs will hesitate to enter a market with significantly high barriers. And it is often new entrants into the market that push innovation—for themselves and for the existing companies in the market. No new entrants mean reduced innovation and reduced downward pressure on prices. (This is the standard argument against a monopoly.) But if consolidation only reduces the number of players while retaining competition among those who remain, prices will necessarily remain lower and the barriers to entry into the market will also be lower, encouraging innovation by entrepreneurs. That, in turn, will push existing players to innovate and improve, resulting in better products for lawyers and improved service to clients.

JP: Until someone becomes entirely dominant I’d like to think innovation will survive. But if some player gets too big—that’s when innovation suffers.

CA: In the long run I think the bobbing and weaving enhances innovation, but it also slows it down. 

CA: New start-ups always stand a chance if their idea is truly relevant and currently unsolved. Stand-alone products stand a chance as long as they are built well and integrate with other products. It does seem that integrations are the way of the future, although they come with their own set of problems. I think the secret is a user-friendly interface and a willingness to work with your customers to build out what they need.

JP: There’s always a home for a better mousetrap. That said, the risks of going it alone are always going to be high. As legal tech conference organizers bemoan fewer and fewer buyers in the exhibit hall, I’ve always said the buyers are there; it’s just that the buyers are the deep-pocketed exhibitors looking at all the start-ups. It may influence how a start-up approaches the endeavor but there’s absolutely a market for “identify a feature the big players don’t have yet and build that.”

JP: An AI that also blockchains its analytics? That seems like something a venture capitalist would invest in.

ZW: It may seem antithetical, but increasingly a lot of the innovations I’m seeing are either for the larger consumer market or the corporate legal department market. On one side, companies like Rocket Lawyer or LegalZoom are getting funding to bring legal automation to the masses, while on the other side investors see corporate legal departments increasingly looking at contract or workflow automation and seeing potential.

CE: Maybe (hopefully) some advancements in legal research tools and starting to aggregate and capture rulings from local courts that are rarely reported. Also, document automation will be made easier and may be more widely adopted. I also personally hope we will see the end of court reporters and transcripts accurately transcribed with AI tools and supplemented with video, which would save litigants hundreds of thousands of dollars and help level the playing field.

CA: Large infusions of capital help to create better products, which generates more user subscriptions and higher revenues. This in turn can be used to greatly improve those products and expand their functionality. For companies that achieve that cycle, many more innovations become possible. What specific innovations do I expect? I expect more chat-bot-type logic trees to replicate lawyers’ advice and stand in to give clients legal advice. I expect more client portals to be app-based in the future.

KR: This is tough, and I can’t find my crystal ball. But one obvious one would be the streamlining of AI products, so they become affordable to a larger section of the legal community. Right now, serious use of legal AI seems confined to big, wealthy firms. If I were a tech entrepreneur in the legal space, I’d be trying to figure out how to expand the market for the use of AI technology.

I also anticipate that numerous products will appear designed to manage remote working. The legal market is changing markedly, as more and more lawyers work—and insist on working—remotely instead of in the traditional office setting. Firms are worried about how to do this, while recognizing that they have to hire remote lawyers if they are to compete.

I’ve been told that nearly all job applicants today ask to work remotely, at least part of the time. If you want to hire lawyers—and most firms today have open positions—you need to let people work remotely. So, how do you manage these attorneys? How do you train them in the firm’s practices? How do you convey firm culture? (Or do you even try?) How do you maximize firm profit in a market where big firms in big cities are willing to pay top dollar to remote workers? How do you control the quality of the work that is produced? I think this set of questions is the next big sore spot for law firms, and technology innovators who can provide solutions will thrive.

Think of this: a program that creates an office environment for attorneys scattered across the country, built in a way similar to video games (with which today’s younger lawyers are very familiar). No bricks and mortar, just a platform for meetings, drop-ins, client meetings, all integrated into the practice management software the firm uses so that hundreds of lawyers (or dozens) can work in the same firm environment. There’s promise there.

ZW: Here’s where I’ll swerve: It doesn’t exist, at least not in the next couple of years. Because there’s so much work to be done with getting attorneys to actually adopt and use the tools that they already have, I think a lot of legal tech companies are focused right now on their user inter- faces, their training and doing everything they can to make their tools as easy and streamlined as possible. With that as their focus, I don’t think we’re going to see too much that’s way outside the box in the immediate future. Low-hanging fruit is the name of the game.

JP: Sadly, I’m a terrible futurist. I’m inclined to say something like electronic gavels.

JP: The only thing I might venture to guess is that a new generation raised on Minecraft might push for more adaptability. They can code their own bespoke workflows so vendors might be pushed to give users a little more room to fiddle around.

CE: It has to be in the courts. We need to improve technology in the courts and make them more accessible and modern and consider online dispute resolution as a way to resolve claims. The courts are holding the legal profession back, and with few exceptions (and there are some), are an embarrassment. Hopefully the other legal tech innovation we will see will be ancillary—business model innovations with women and minority-owned law firms leveraging technology to gain more market share and dominance in the legal profession. Finally, I hope we will see the emergence of lower-cost, data-driven tools that are accessible to solo/small firm and nonprofit and government lawyers.

CA: Client portals, mobility, virtual meetings and professional texting and notifications from a fully integrated legal platform better be ubiquitous. It would be so novel if time and billing was done for us by a robot. I would love that for all the lawyers who abhor tracking time and balancing the books.