Why is the legaltech market fragmented, like a Jackson Pollock painting? Should lawyers code? What does technology really bring to the legal world?

In this podcast, Margot, Marketing Manager at Hyperlex, interviews Richard Tromans, a legal innovation expert who created the blog The Artificial Lawyer. A no-holds-barred exchange.

Hyperlex's podcast series: Richard Tromans, the Artificial Lawyer, the Legaltech market

Richard Tromans is a jack of all trades. He is a consultant, and provides legaltechs, whether they are start-ups, SMEs, ETIs or large groups, with strategy and management advice.

Richard is also the founder of The Changing Legal, a think tank dedicated to promoting common standards, sharing data and news from the legaltech market, and rethinking the means of legal production.

Richard conducts workshops and conferences, and chairs events around the world. He is the founder ofthe Artificial Lawyer, a news site dedicated to the evolution of the law, with an emphasis on the use of technology.

Here is the transcript of the episode.

What do you think has caused the recent "boom" in legal technology?

Richard Tromans: I think there are two key factors.

The first is a very simple factor that we often overlook, which is that it is possible. Twenty years ago, we didn't have legal technology solutions. We didn't have cloud technology, or at least not the way we have it today. Data processing speeds are much faster today. The amount of data that can be managed and analyzed is much greater. And you can do it very cheaply, almost for free.

Law is a very text-heavy field. It's basically deciphering text, whether it's litigation or transactions. It's just tons and tons of documents. So it's basically a text problem. Text is what we call unstructured data. It's not numbers. It's words, and words have been, until very recently, very difficult to digitize in a meaningful way. You can scan a document, but can your computer read it? Can your computer do anything with that information?

We have also seen the development of tools such asNatural Language Processing, the technology behind much of the legal AI technology.

It is therefore a technology that can read text like a human being. It's probably an exaggeration to say it like that, but it's far from false. This technology can look at an entire clause and compare it to another clause in a contract, allowing it to work much like a human lawyer would.

Then there's everything about digitizing data. Everything has become much easier, cheaper, more agile. We now have the technology to do these things. Twenty years ago, the cost of developing and running an NLP system that could read 10,000 documents would have been absolutely astronomical. This is the kind of thing that only NASA, or the CIA, could have afforded.

Now anyone can do it. You or I can go to GitHub, download some free natural language processing software, set up an account with a vendor, call a few law firms and ask them if they want to analyze their documents. And obviously (with a little training, it's not that easy, but still) the actual costs of setting it up are almost negligible. A student could technically, in theory, create a fairly efficient legal technology company, which is amazing. So that's the first factor.

The second factor is demand. The legal world has, until very recently, generally escaped the rules and has, in a sense, defied gravity. Most sectors of the economy have to become more efficient over time. If you take the retail sector, or the tourism sector, for example, look at how they have changed. The food industry, restaurants... The watchword is: efficiency, efficiency, efficiency. It's really only in the absolute top end, in the luxury world where you buy, for example, a $100,000 dress, that efficiency is not always desired. And there are parts of the legal world that are still like that.

But the truth is that large companies, like EDF or Renault for example, have literally millions, maybe even hundreds of millions of contracts. Their day-to-day compliance probably requires a team of a hundred lawyers working all day, every day, just to keep up with the day-to-day business. Here we're talking about contract management, compliance, regulatory issues, customers, etc. All these things are just manual processes that can be done more efficiently. But generally, the leaders of these companies, the shareholders, and the management teams are just starting to think about it - and that's amazing because it's 2021.

When I was a kid, 2021 was the title of a science fiction book. When you think that computers started to be used by companies in the 80's... And certainly in the 90's, almost all big companies were already digitizing some parts of their business.

I think one of the biggest problems is that this topic of legaltech and law is very unevenly developed. You can walk into a law firm in London and this reality can shock you. Because you think, these people are so modern, everything is digitalized. Their clients understand what they are doing. If you work in finance, you'd say to yourself: these people have it all figured out! You could walk across the street and go to another law firm of equal status and just as respected, who still use paper and pencil. And for their clients, it's not a problem, they don't care.

The legaltech market is very strange. You can literally walk across the street, and go from the 21st century to the 19th century. There's a famous phrase that says the future is already here, but it's not evenly distributed. And that's absolutely the case here.

You are the founder and editor of The Artificial Lawyer, a news website dedicated to legal innovation. Why did you create this media?

Richard Tromans: To be honest, it was an accident. I didn't mean to create it.

I started a blog, like many people, actually. I'm a management consultant, and before that I was a journalist. I stopped being a journalist in 2004. So a long time ago, I started working as a management consultant around 2008. And in this field, like many professionals, people keep blogs.

They blog about things like their puppies or origami or flower arranging or whatever. So I thought, what should I blog about? I'm going to do a blog about technology. It's a topic I know absolutely nothing about. And it will be fun and interesting.

And as you can imagine, one of the tasks in my blog is to try to predict the future. You have to do it because people say, well, why should we get into this legaltech project?

And so you have to make a plan two, three, five, 10, 20 years into the future to say, look, this is how the market is changing. Look at all these different dynamics. Look at these forces. Look at what's happening on the regulatory side. Look at what's happening in terms of the globalization of the market, what's happening with China, etc.

And you also have to think about the business. Are we going to get richer? Are we going to get poorer? And if so, there's no point in doing it.

So a perspective that serves the business is to say, look at legal technology. But also to show why it matters. Has it made a difference? Has it made a difference for lawyers and their clients? For society as a whole? Because ultimately, the key point is right here. And if it didn't, I simply wouldn't have the motivation to write for my blog. We live in a rules-based society. So you need lawyers, it's true. But there's no reason why providing legal services should be slow, inefficient, and unnecessarily expensive.

If a large company is just managing its 10 million contracts and the cost of managing those contracts is so high that it actually starts losing money and increasing its own liabilities and risks. Well, that's a very silly situation to be in, because technology can solve this problem!

The gray area of law and technology has always been a topic of conversation in the legal world. On The Artificial Lawyer, you write about legaltech innovations like AI document review, document automation and contract platforms, smart contracts. How are they changing the way lawyers and legal practitioners work?

Richard Tromans: Well, again, I think it goes along with my previous point, which is that some law firms have fully embraced or are trying to embrace as much of this technology as they can where it's useful to them.

It's kind of hard to say because, as I said, the adoption of legal technologies is completely heterogeneous. It's like a Jackson Pollock painting, there's no regularity.

The only thing we can say for sure is that in the UK market, the top ten law firms have invested heavily in technology and continue to increase their investments, they use these tools to analyze their contracts or automate their management to work faster and increase client satisfaction. And that's partly because of client pressure.

In fact, the smaller you are, the less money you have to invest in technology. Similarly, the customer matters. The money they pay you becomes less and less important.

So the incremental benefits of investing in a technology that you could have only bought for 30,000, 40,000, or 50,000 euros becomes less and less useful because you say to yourself, "Let's say you're a large company and a technology will cost you 50,000 euros."

The average job you do for a client is €2,000 or €3,000. And this technology saves you 10% of your time, which you can then invest in finding new clients, operating more efficiently and completing more tasks. So you generate more revenue.

Small businesses don't think like that. They're like corner stores, you know, they stand there with the door open. The customers come in, they work. When they finish the job, they send them the bill. And we move on to the next one. As they get bigger and bigger, they become real businesses. They start saying, "Look, we have a thousand junior lawyers. If we do low-value work, that mass of junior lawyers is going to generate less profit for us. So we have to think about that. We need to think about how we can use technology to support the business. And that's what this is fundamentally about."

Lawyers don't use technology much. But that's because unless you can prove the business case, why would they? Law firms make gigantic profit margins compared to many other industries. A retail business, for example, might make a 1% profit margin. The best legal services firms might have profit margins of 30%, 40%.

So these are incredibly successful companies. So when a bright young man comes along and says, "You should use technology. Law firms think, "But why should I? You want me to invest in a legal solution that is going to be a pain for us to implement. Plus, I don't really understand what it is. Clients don't ask me to do it. And on top of that, it might even prevent us from making money."

Some people think that legaltech solutions should be used just because the legal market must religiously do everything they say, just because it is "the right thing to do".

Why is the legaltech market so fragmented?

Richard Tromans: It's a fragmented and messy market in terms of adoption because it's only when the technology has been proven to increase profitability, reduce risk, optimize efficiency, and make more money for the company that they jump on board.

So if you're a billion dollar company and you're facing bankruptcy, you have a lot of unhappy people, so paying $10 million to a law firm for advice that might not include any technology at all is a good deal.

What good will it do us? The truth. Because the story everyone wants to hear is like one of those American-style success stories, a la TED Talks, where, you know, Bob was a lawyer. He was slow and not very good. And then a wonderful little legaltech came along. It changed his life, and now everybody is happy and much richer. That's just not true. That's not how it works. The truth is that Bob is actually an incredibly successful lawyer. He makes a very good living. His clients don't care about legaltech solutions as much as we think they do.

And these solutions are basically seen as a pain because they cost money. And on the client side, in many cases, they don't know any more about legal technology than the law firms do. So they don't even know what they want.

It will take years. It's kind of like global warming, and in this case, it's like we want the warming to actually happen. It's going to be gradual, it's going to be really slow. But the big revolution is just not going to happen quickly.

That's what many believed when these legal AI tools arrived because they massively increase efficiency. The truth is that small businesses don't want to use them unless they're making money off of them. And that's okay... If I tried to sell you a technology that was a pain to use and didn't increase your profits, why would you agree? Personally, I wouldn't.

I wouldn't do it either!

Richard Tromans: Legaltech has always had an uphill battle. And for many, many years, it has focused primarily on areas where there was no need to have arguments.

For example: let's have a management system that allows us to better manage our work. Or let's have a digital contract library to put all our contracts in. If you have 10 million documents to read, there's no way to do it manually. You have to use some kind of technology and the benefits are obvious.

Even the largest law firms with huge resources admitted 20 years ago that some technology was absolutely necessary for the law. If you were in a U.S. courtroom, and you tried to do a big litigation without e-discovery, the judge would probably step in and say you have to use technology. Otherwise, this case is going to go on for 25 years.

So there have been some good areas of progress, but where it really gets complicated is when the business case and technology collide.

Do you think legaltech software should be made by lawyers or legal experts?
Richard Tromans: That's an extremely interesting question, because it goes to the heart of a really classic problem in law. Let me ask you a question in return...

Is Elon Musk an astronaut? No! Yet he owns and has developed the most successful space company outside of big government. He is not qualified by NASA. He has never been on a space station. From what I understand now, if someone who has virtually no space experience, who is not an astronaut, can build and run the most successful space technology company in the world... Then why should a lawyer start a legaltech? They don't have to.

The reason lawyers end up working in legaltech is a curious one. It's mainly because most people outside the legal world don't understand what goes on in big law firms. And why would they understand it? Law firms, like most businesses, are surrounded by a wall of secrecy. They don't try to make public how they work. And that's also because most people wouldn't be interested.

And the fact is that the population that makes up tech entrepreneurs and investors are people who are going to MIT to get a PhD in machine learning or whatever, they generally don't have much connection to the legal world and don't want to understand that they just want to work for Google or for a really cool retail app that's going to go from zero to a billion in about six weeks.

Legaltech, on the other hand, takes about ten years to go from zero to 10 million, it grows really slowly because the legal world is a desert for technology. There are some great little places for sure, but generally it's a desert. The retail world is more like a rain forest. So who's going to create these legal technology companies? Very often lawyers.

If you're bored with being a lawyer, or frustrated with practicing. Then you say to yourself, I don't want to do this job anymore. So you leave.

And then you think, say, oh, my God, what am I going to do? And you end up starting a small technology company, but should lawyers own and run legal technology companies?

Absolutely not. And I've seen this many times in the French legal literature. And I think it's a huge problem for the country and probably for other countries. And you really have to abandon this idea because it's dangerous. And you could really kill innovation in the marketplace, because if you assume that the professionals whose business it is have to own and manage and control the technology that's going to help them, it's going to move very, very slowly.

Let's say in America the government says you can only own a space company if you are a qualified astronaut. So there would be no Jeff Bezos. No Elon Musk. No Richard Branson. So there would be no private space companies in the United States.

So I think it's really important in France and in other countries to get the message out that, yes, it's fantastic that lawyers want to give up their work and create legaltech. That's great. But the idea that only lawyers should do it is a really risky approach. You really need to make sure that people don't see the world that way, because if they do, you're going to block legal innovation.

Very interesting. And now, here's my last question for you. What are the latest legaltech news that you have picked up and why?

Richard Tromans: There is so much going on! The legaltech market is constantly evolving. I think what's most amazing is how fast it's learning.

Lawyers learn very quickly because they have to, and also because as a small people, not always, but generally, they have to have the ability to see something new coming, to predict what's going to happen to it, to bring it into the firm to test it, to experiment with it, to develop departments and a process to deal with it and create value from it.

It's extraordinarily fast. So, take Linklaters, for example. They have, four or five different parts of the organization that deal with technology and innovation in different ways. There are people who just focus on testing and experimentation, they have their own group that builds their own technology and sells it.

They think broadly about efficiency, technological innovation and how that feeds into customer service. Then there are the day-to-day techies who just manage everything that's been brought in.

And then you also have lawyers who are still practicing and whose job is to think about technology innovation and help with implementation projects.

But think of it as a multi-billion dollar law firm. They have the resources. And I think actually, again, this is one of the challenges that France faces. They have tons of resources. They could do the same thing if they wanted to. They could afford to do it.

Legaltech solutions are not that expensive. You know, for a lot of these legaltech tools, the license can be €30,000, €40,000, €50,000, which for a successful law firm is a pittance. It's not the cost of the software that is the problem. It's the fact that you have to implement the technology internally.

So if you want news, I mean, there's tons of stuff going on, but I think the real news is really: how far will this technology go?

Thank you very much for your time, Richard. I hope you enjoyed this interview as much as I did, and I encourage everyone listening to us to go read the Artificial Lawyer!

Richard Tromans: Thank you so much for having me on the show! And for the lawyers watching, drop me a line.

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