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Legal Tech and other smart contracts: what future for legal automation?

Over a number of years, the legal industry has been affected by a troubling change that looks every day less like a science fiction story. Lawyers and legal experts are witnessing the rise of digital services that integrate increasingly complex functions of the legal sector. The rise of Legal Tech has spawned a proliferation of startups focusing on the development of new technologies. Hence, secular jobs, which should have been spared by new technologies, are at the forefront of an assimilation phenomenon by artificial intelligences. Will robots wear court dresses in a near future?

May 2016
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Executive Summary

Legal Tech was born in the United States in the early 2000s, with companies that have become major players such as Rocket Lawyer and LegalZoom, providing dynamic documents, intelligent contracts and legal advice. Why in the USA? Not only for technological reasons. The US legal services market has an estimated value of $400 billion, and many segments market are directly concerned by automation.

study by the Pew Research Center has shown that 65% of Americans now believe that automation will drastically affect a substantial part of the economy by 2025. However, 80% also think that their specific trade or industry will not be affected by this trend: in short, automation only affects the others... But American lawyers do not share this optimism regarding automation. Legal professions understood, better and faster than any other professions in the United States, that the digital revolution would also affect their activity. A study by the Altman Weil Group for 2015 has shown that 47% of lawyers interviewed considered that it would be possible within 10 to 15 years to replace their “paralegal” employees (the administration that works as subordinates to a lawyer, in the United States) by solutions of artificial intelligence. 35% think that junior lawyer positions could be fully eliminated over the same period, a 10% increase over one year. Lawyers are therefore particularly aware of the automation process undergone by an important part of their profession, especially the paralegal aspects, that were previously part of their core business.

The US legal industry is currently adapting to the Legal Tech. This trend also appears in Europe since several years, especially in France, where the legal automation market is experiencing a spectacular growth rate, close to 20% per year. An increasing number of players are now providing services that outsource some legal functions of the company.

Following this trend, the legal profession is narrowing down its activities to a high-value core, while legal tech gradually conquers a larger share of the legal life of businesses and individuals, corroding the added-value base of the legal industry.

Conquering Europe

One of the distinctive features of the Legal Tech is that firms aiming at a global influence are very rare. Law is for its larger part a national matter. In addition – to take only one example – legal cultures of common law and civil law countries are very different one from another. They are based on different forms of reasoning ... and therefore, on different technologies.

American pioneers will not easily take up the European, African and Asian markets. What is the status on the development of Legal Tech outside of the United States?

The European Legal Tech market is much less advanced: in 2013, while there were no less than several hundred players on the other side of the Atlantic, a country such as Germany only accounted for ten. France and Belgium differ from their European neighbors by the number of legal automated services. Although it was created in the United States, Legal Tech has dramatically expanded in France, where the legal system is known for its complexity. Entrepreneurs took this legal complexity as an opportunity, by basing their business model on this legislative patchwork. Startups transform legislative complexity into an opportunity to create value by providing simplified solutions to individuals and small businesses that do not have the appropriate skills to cope with this kind of complexity; but wouldn’t necessarily seek help from a professional either. Legal Tech doesn’t only compete with services offered until now by professionals. It creates a new market, positioning itself on an “informal” segment, consisting of more or less effective documentation efforts and more or less disinterested aids. Spurred by Legal Tech startups, the gray area of legal services is becoming both a wide and deep market.

Two examples illustrate this fact. The Guacamol startup was created in 2015 as result of the meeting between a lawyer and an engineer. It offers a business registration service and develops a series of legal management tools for startups and other companies. The solution is integrated and allows for a complete outsourcing of tedious administrative and legal tasks, leaving more time for entrepreneurs to concentrate on their project.

LeBonBail, another startup born in 2015, automatically generates a lease in accordance with the provisions of the French legislation (including the Alur Act of March 24, 2014). The service drafts contracts in compliance with a law that most persons, including real estate professionals, find incomprehensible. Also present on the Belgian market, the company allows owners/lessors not to worry about the difficulties caused by legal regionalization in Belgium.

We could enumerate many other French players in the LegalTech field. is a form of search engine in the legal domain that was launched recently and based on big data. It provides precise legal search in a few seconds. In a near future, it will not only index all French legislation and jurisprudence but even EUR-Lex. As Belgium doesn’t have a legal research tool like Légifrance, entrepreneurs have decided to create a legal database at a national scale:

For all these legal services, marketing is simple and clear: the contractor or individual using it no longer has to worry about the process behind the service. Pricing is fixed and the legal pack indicates a specific price that does not vary according to the number of hours of work of any qualified staff. The automation’s greatest advantage is to offer attractive deals, which contributes to building a formal market.

The impact within companies

Other similar services, such as PayFit or Fred de la Compta, facilitating the accounting and fiscal management of the company, have also developed. Their potential impact on organizations is considerable: the paralegal dimension is on the verge of disappearing. This type of services, already firmly established in the United States, is also popping up in Asia. The Indian company VakilSearch offers a platform for outsourcing these paralegals services by establishing a relationship with third parties rather than a management software, strictly speaking.

Startups such as Captain Contrat in France and Lawbox in Belgium, enable companies to generate various customized forms based on smart and quick forms. These actors follow the model of American pioneers behind Legal Tech, such as Rocket Lawyer. This ability to develop smart, custom-tailored contracts, adapted to the law and based on an intelligent and dynamic form, is becoming increasingly widespread.

This market is increasingly globalized which, as we have seen, is not the case for all Legal Tech. But international trade mobilizes by definition forms and references that cross national borders. Trade integration of Asia is accompanied by a legal integration that already offers a regional, possibly global, reach to some specialized firms. The Dragon Law firm, based in Hong Kong, proves the potential export of smart contract solutions. Dragon Law has extended its business in Singapore since summer 2015, based on a strong appetite for such services in the Asian market, particularly in large megacities. Dragon Law is in direct competition with LawCanvas, another service for generating legal documents born in Singapore, which has managed to expand its market in Malaysia, Australia and Hong Kong. Dragon Law and LawCanvas have already begun to compete for the most promising areas of future Asian market, which is only beginning to develop.

Asia offers significant opportunities for future Legal Tech players but also many difficult challenges to overcome. A country such as Japan is characterized by a strong compartmentalization of legal data within companies and difficult access to documents: since the added value of Legal Tech is based on the use of big data and data analysis capabilities, Legal Tech companies will find themselves faced with major development challenges in this market. According to Tim Hwang, CEO of FiscalNote, an American startup for the ongoing monitoring of the evolution of international law based in Washington DC, Chinese and Japanese markets are still too isolated to allow a real short-term development of the Legal Tech, and the Asian continent as a whole has not yet a firmly rooted culture of posting legal information that allows for the development of such services. FiscalNote, however, has a strong interest in the Asian potential and has acquired the South Korean application MyCandidates to gain a foothold in Asia. In China, a company such as Zhiguoguo, specializing in intellectual property, has also managed to carve out a share of the market by benefiting from a specific niche market.

Uberization of the legal field: curse or blessing for lawyers?

Despite their position in legal loopholes, all these startups represent a real disruptive threat to traditional legal professions. It is becoming increasingly clear that paralegal services form a branch of the legal sector that can be managed externally, at minimum cost. But some services exceed this first stage of legal automation and invest in functions that form the core business of the sector.

Legal professionals have been slow in developing their online presence and to reshape their offers in order to adapt to the specificities of online sales. Entrepreneurs have taken advantage of this poor capacity to adapt of legal professions and specialize in the development of platforms allowing lawyers to acquire customers through other channels.

A company such as UpCounsel has in fact already been compared to a form of Uber of the legal sector. This startup offers a complete array of online legal services and ensures the visibility of lawyers and jurists on the site. In France, startups such as LawcracyLegalUP or Legalife uberized the profession of lawyer and legal advisor. It is now possible to contact a lawyer online and even to receive personalized advice without having an appointed lawyer. This is how these companies manage to democratize the access to law.

With DemanderJustice, it is now possible to resolve disputes by initiating friendly settlements (€39.99) or legal proceedings (€89.90) online. This startup has faced numerous charges but has never been condemned for interfering with the professions it competes with.

As one can imagine, this uberization of the legal field causes an outcry in the professions concerned. Band while the hourly price of lawyers will significantly decrease as these services spread, demand will also increase accordingly, when new sections of the population access more easily to these decentralized services. It is therefore difficult to measure the long-term impact of these new entrants on the sustainability of legal professions.

Competitive loop: to stay competitive, lawyers must use Legal Tech

By resisting to this automation process, actors of the legal world participate in the change they first wanted to delay. Indeed, being forced to reduce their costs to compete with these new digital services, law firms and other legal professionals must increasingly resort to affordable services provided by the competition. Disruptive Legal Tech services will somehow generate more demand, forcing traditional professions of law to review their cost structure and pricing, forcing them to outsource part of the legal tasks with insufficient added value to be handled internally.

From the point of view of competition, firms are slowly forced to review their pricing methods. In January 2016, in a report entitled How Legal Technology Will Change the Business of Law, the Boston Consulting Group (BCG) anticipated and described this adaptation. In order to meet the competition from Legal Tech, law and legal advice firms must review their cost structure and the pricing of their services. Legal professions are forced to turn to fixed rates in order to resist the offer of startups offering price transparency from the outset. As a result of this price revision, costs will be limited and an increasing number of automated aspects of legal services left to third-party players... of the Legal Tech industry. To survive, lawyers will need to resort to robots and therefore contribute to their own end. In the years to come, we will certainly witness a “competitive loop” where former players of the destabilized industry will be forced to use the same digital services that disrupted the health of their business.

But of all the services described above, none seem to truly replace the most important part of added value of the legal profession or legal counsel i.e. help in decision-making and consulting. In fact, an intelligent document or a dynamic contract doesn’t add anything in strategic terms. A standardized contract is certainly convenient, but it will not help a company beyond the resource savings allowed by automation. In short, why should the classical professions of law fear Legal Tech?

Will artificial intelligence replace legal advice?

Beyond the automation of legal documents and matchmaking platforms, great promises and opportunities are looming for the law industry. Artificial intelligence at the service of the legal industry and fueled by big data could indeed lead to the creation of services capable of taking decisions supported by thousands of texts with a jurisprudential character and assessed by an AI.

Recently acquired by LexisNexis , the Lex Machina company specializing in the treatment of public and legal information for lawyers and legal specialists assists in taking decisions based on statistics analysis. The method isn’t cost-efficient yet and does not even consider the data of businesses and private groups. But ultimately, it could prove equally effective and affordable, even more than the services of an expert or lawyer. Other startups such as Kira Systems and LawGeeks provide automatic analysis of contracts and other legal documents thanks to a comparison system based on a legal document database, and thus the automatic classification of files and an assessment of their relevance.

These services are still in their infancy, but they could eventually represent the future of the legal profession and radically change the landscape of this industry. Law professionals would do well to address the issue in order to anticipate their adaptation methods to this new reality as soon as possible, and it is not too late for entrepreneurs to gain a share of this booming market.

Similarly, law students would do well to diversify their portfolio of studies and skills by themselves in the coming years: in the future, legal professions will need both versatility and skills in IT and statistics. It will take some time for academic institutions to fully adapt their curricula to future realities. We are entering an era where even the most ancient trades are subject to the vagaries of t

Romain Keppenne
Business Analyst, LeBonBail