Legal technology won't fulfil its promise until it is properly targeted

Law firms sell guided access to 3 layers of valuable information. Legal technologists need to understand these layers, and target them in the right order if they want to effect meaningful change.

Pat Brown and Henry Fraser run Codepact, a tool that helps you custom build powerful contracts like a pro. Our new and improved version of the app, Treescribe is now available for alpha testing!

Resistance to change

Law has been remarkably resistant to technological change. It's puzzling: legal services are mostly about managing and communicating information (contracts, advice, negotiation and so on). Other information businesses (like media and finance) have changed dramatically in the past 20 years, but the way that legal work gets done is not markedly different to how it was in 1998.

Why is this? Is it because lawyers are risk averse and don't like change? Because law is a closed shop? Because regulation and compliance is prohibitive? Probably all of the above, but they are not the only factors at play.

In order to improve access to the law, we need to understand - really understand on a conceptual level - what it is that law firms do. They are the primary gateway to the law, after all. What is the value proposition that law firms offer, and how can technology do it better? What do lawyers do that technology can do more quickly, cheaply, conveniently, or even more effectively?

Law firms as information silos

Law is an information business. Law firms - the commercial / transactional groups at least - make money by controlling, and selling guided access to, valuable information. Perhaps it’s not surprising that one of us (Henry) should see things in terms of structures of control over valuable information, since he's spent that past 5 years thinking and writing about copyright - a law that directly and indirectly impacts who controls valuable information in the form of books, software, web content, music, pictures, articles, film and TV.

One way to describe a commercial law practice, then, is as a silo of valuable information, with three layers.

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The bottom layer: templates

The bottom layer is the firm’s ‘precedent’ collection. These are the templates that lawyers use to build documents to formalise business deals. For example, a mergers and acquisitions group builds up a collection of all the documents needed to do merger or an acquisition. A technology group builds up a collection of documents like SaaS agreements, development agreements, privacy policies and data center agreements. An IP group has a set of templates for transferring or licensing IP, letters of demand for enforcing IP, templates for notice and takedown procedures, and so on. When clients come to law firms with new work, lawyers don’t write legal documents from scratch. They start with templates. A key part of the value in the law firm business, then, is in having a good collection of templates to meet client demand.

The middle layer: ‘know-how’

The next layer of value-producing information in a law firm is (for want of a better word) ‘know-how’. A contract template usually contains:

  • standard language;
  • a series of choices between options for dealing with a particular issue; and
  • blanks to fill in, with details about things like fees, taxes, timelines and so on.

In order to turn the template into a fully functional contract, you have to first choose the right template (a critical choice), then choose the right options to suit the deal, remove the irrelevant parts of the template, fill in the right details in the blanks, and finally custom-make whatever else you need to add in. Shared knowledge in a law firm about how to do all that is a key part of the firm’s valuable know-how.

Sometimes the know-how is recorded in a template. For example one clause for selling an asset might be flagged as being ‘seller friendly’ and another variant of it as ‘buyer friendly’. In other cases the know-how is in the shared experience of a team in using a template. After using it so many times, team members just know which choices to make in order to protect their client’s best interests. This repository of specialised knowledge and information - whether written down, or just understood through experience - is what allows law firms to really derive value from their collection of templates.

The top layer: legal intuition and experience

The top layer of valuable information is another kind of knowledge, but it’s more complicated than know-how about how to make simple, binary choices like ‘buyer friendly’ or ‘seller friendly’. It’s hard to describe precisely what distinguishes the top layer of knowledge from the middle layer of know-how, but an example might help. Say you’re a consultant, and you’ve presented a potential client with your terms. But they are a big company, and instead of signing, they come back with their own standard terms. If you hire a lawyer in this scenario, the lawyer is not going to create a new contract for you.

Their job, in this context, is to review and analyse a document that the big company gave you; to advise you on what risks it creates for you; suggest how you might change the document to improve your position; and then carry out a strategy of calculated change and negotiation. Your lawyer might suggest, for example, that you change what the agreement says about limitations of liability (the amount you can be sued for), so that you’re not exposed to potentially disastrous law suits.

The intuitive, experience-based, abstract skills and knowledge required to do this is the top layer of valuable information. It's the icing on the law firm cake. This is a skill that is very much tied up in individuals. It’s the reason why ‘star’ lawyers can charge their clients thousands of dollars per day.

What does this mean for legal technology?

Legal technology should be directed at giving people access to these valuable layers of information - templates, implementation skill, and experiential know-how - at a cost lower than the cost of hiring a lawyer. So far, it seems like most legal tech has been focused on the bottom layer (templates). This has not resulted in really meaningful change.

The bottom layer, the silo of templates hoarded jealously by law firms, is well and truly breached. If you look hard enough, you can find a template for just about any kind of document online, either for free, or for a pretty modest cost. Users are encouraged to pick a template and fill in the blanks. But it's clear that the widespread availability of free or cheap document templates has not put lawyers out of business. The reason for this is pretty straightforward. People don't trust templates. There's not much guidance out there about how to even choose the right template. Even if people find a high quality template, they don’t trust themselves to fill it in to best effect. If templates contain useful guidance, it's often too complicated. It feels like you have to be a lawyer just to follow the guidance. If a business deal or contract really counts, most business-people aren't confident that they have the know-how to properly protect their business against serious risks. They want the assurance of a lawyer making these decisions.

What about the top layer? Many people are excited about the possibilities of AI in this area, but it has not yet fulfilled its promise. One reason is that AI needs good data to work with. We need to lay the foundation for automating the top level, by building lower level inputs. We need to use good data structures to properly automate the middle layer (basic know-how) and use that data pool as a foundation for AI.

Conclusion: target the middle layer

The best target for productive, technological change is the middle layer of valuable information. Here we’re dealing with a level of complexity that is totally surmountable with existing technology. We’re talking about making straightforward choices, based on limited parameters. A few fairly simple variables - who has bargaining power? who can best cover the cost of potential risks? who will own what? - will determine particular options we choose in a contract template. You don’t need whizz-bang artificial intelligence for this.

All you need to program this software is a combination of legal competence and an understanding of data structure. It’s a matter of structuring things so that the choices involved in using a template are digestible; so that using a template feels like stepping through a series of straightforward, short questions, one at a time, rather than wading through a bog of complicated prose for guidance and information.

What happens when mid-level know-how is integrated into the templates in a digestible, straightforward way like this? All of a sudden, you’ve replicated two thirds of the commercial law firm’s value proposition: the bottom and middle layers. That is where we think legal technology work should be focused, and that is where we are focusing with codepact.

By Henry Fraser and Pat Brown