Legal Tech: Evolution of Legal Tech Solutions
Evolution: From LexisNexis in 1970 to Artificial Intelligence and Machine Learning in 2018
What is Legal Tech?
The evolution of "Legal Tech," referring to the general use of technology in the legal field, began with tech-enabled product that offered assistance to attorneys in their day-to-day tasks such as research, billing, and client management. Legal Tech has now evolved to include advanced technologies, including artificial intelligence, that significantly improve attorney's efficiency and capability.
Traditionally, legal technology, or “Legal Tech,” refers to technologies utilized by law firms and attorneys to increase efficiency in core functions such as accounting, document storage, and ediscovery. Law firms have used technologies to improve billing accuracy, alleviate repetitive work for attorneys, and provide advanced analyses for upcoming cases.
The term "Legal Tech" has taken on a new meaning for more advanced technologies developed to augment (or even replace) the typical attorney's workload. Some Legal Tech companies are disrupting the traditional legal field by offering products which connect clients with online-based attorneys or software tools created to circumvent the need for attorneys in many transactions. As of the writing of this article, Stanford Law School’s CodeX Technidex counts 1,045 companies changing the legal field, not including established Legal Tech companies already used by firms and practitioners.
New startups are developing advanced software solutions, including artificial intelligence and machine learning, that greatly enhance productivity, lower billing costs and track compliance. Most new technologies aim to drastically increase an attorney’s use of their time by automating repetitive processes ranging from document review to drafting agreements.
Below is a synopsis of the evolving Legal Tech marketplace and a cursory review of recent developments.
Legacy Legal Tech – LexisNexis, ROSS, Judicata, Clio
The use of technology by lawyers to increase efficiency isn’t a new phenomenon. Law firms have been using Legal Tech solutions such as client billing software and case research platforms for decades, starting in 1970 with LexisNexis. For our purposes, we will designate these preceding solutions “Legacy Legal Tech” because they have been a staple of the legal industry for several years.
Industry-standard technology solutions including ROSS, LexisNexis, Judicata, and Clio are separated between two major groups of product: practice management and enterprise solutions. Many of the Legacy Legal Tech solutions included above are considered staples of the industry nowadays, but were originally breakthrough technologies that gave law firms competitive edges over their peers. These products help lower administrative costs of running a practice and also make lawyer's time more efficient and thus cheaper (at least in theory) for the client.
Next Gen Legal Tech – EBrevia, RAVN, Leverton
“Next Gen Legal Tech” refers to solutions that build on previous legacy solutions or incorporate artificial intelligence, big data, or other analytical software solutions. The next generation of Legal Tech has in many senses already begun. Advanced document review technologies such as eBrevia and RAVN have already been adopted by major law firms looking to utilize AI (artificial intelligence) to review millions of documents in mere minutes. Firms utilize these more advanced products to gain a competitive edge over slower-to-adopt peers.
The next generation of Legal Tech encompasses two distinct categories: Replacement and Augmentation. These differences are outlined in the chart above.
- Replacement Legal Tech - LegalZoom, Rocket Lawyer Some Legal Tech companies have focused on replacing the need of attorneys in certain transactions such as basic document drafting, including companies like LegalZoom, Rocket Lawyer, and other legal-information providers. These solutions, in some but not all respects, replace the need for lawyers altogether by provided free or low-cost document generation, state-specific legal information, and provide portals where clients can quickly connect with an attorney without leaving the internet browser. These technologies have grown exponentially in recent years (see my article on LegalZoom’s rise here) as they built strong document repositories and gained the trust of clients seeking cheaper legal services.
- Augmentation - LawGeex, Docket Alarm Augmentation-focused Legal Tech solutions aim to artificially enhance an attorney’s abilities. Artificial intelligence and a subset of AI called machine learning have become popular with big law firms looking to efficiently distribute their associate’s billable time. Solutions such as LawGeex and Docket Alarm automatically handle certain tasks that lawyers previously had to spend significant time on. A typical NDA or other basic contract can be analyzed in seconds by AI-enabled technologies to alert attorneys of unenforceable terms buried in legalese.
Integrative Legal Tech – Several large law firms have started a new trend in Legal Tech by building their own technology solutions to challenge growing Next Gen Legal Tech competitors. Integrative Legal Tech solutions bring together the efficiency of startup Legal Tech solutions with the backing of a large law firm, its reputation and its resources. Large law firms including WilmerHale (link), Goodwin Procter (link) and Cooley Go (link) have established user-friendly and intuitive websites for entrepreneurs and small businesses in their efforts to integrate innovative and accessible legal technologies. These law firms provide document-generation software similar to that of LegalZoom and its competitors as well as legal information developed and vetted by the firm’s own attorneys.
Integrative Legal Tech is very new and still just a concept for many firms. However, as large law firms continue to merge and grow their resources, the market will likely see an influx of law firm-developed portals building out their Integrative Legal Tech offerings to consumers.
Recent Developments in Legal Tech – Mergers and Acquisitions
The Legal Tech industry has expanded rapidly over the past several years at a breakneck speed. However, more recently consolidations, buyouts and major investments have dominated the industry. Where startups previously looked to leverage their unique offerings, they are now bundling products with other startups through joint packages and investments. Legal Tech revenue is growing and continues to have room to grow as well. The size of the U.S. legal services industry as of 2017 was $437 billion, while Legal Tech companies raked in $16 billion.
Investments in Legal Tech across the entire industry have increased exponentially in 2018 compared to 2017, which was already a record-setting year. In 2017, $233 million in investments poured into new and existing Legal Tech companies, more than 5% more than the year before.[ii] Already in Q1 of 2018 $49 million was invested compared to a paltry $1.35 million in the same quarter in 2017. As discussed in my other article, a single investment of $500 million on Legal Zoom this year has already eclipsed all investments for 2017 (article available here).
More recently, Legal Tech companies have been completing a rash of mergers and acquisitions as the industry faces increased competition and product offerings from new startups and Legacy Legal Tech companies. In 2017, there were 22 consolidations between Legal Tech companies looking to combine services or improve their current offerings with a competitor’s technology.[iii] Already in 2018 there have been 11 major mergers and many others are in discussion.[iv] This overall trend indicates that Legal Tech is entering a maturation phase of growth and competitors are now looking to strategically position their product lines for future market share as law firms and practitioners adopt more advanced Legal Tech solutions.