How Startups Are Making Inroads Into Law

Opinion14.03.2017
notebook and pen

If you were to look for legal services during the 1960s, you would probably use personal connections or consult the local yellow pages in order to find a lawyer to give you legal advice. He would then sit down with you to discuss the subject-matter, conduct research and bill you by the hour. Fast forward to today, and it is interesting to note that in most instances this hasn’t changed dramatically.

Although law firms have adapted to technological change in the past few decades, these changes have been few and far between. Typewriters have been replaced by PCs and notebooks, and legal research has moved online, making a host of law librarians obsolete. Bus as a whole, the industry has been by no measure anywhere near the forefront of technological innovation. The legal industry to a large extent is still attached to manual and paper-based processes – and that for good reasons: As law firms pass cost directly onto the consumer, they have less of an incentive to adapt new technologies that drive overall cost down than businesses in other, more competitive markets. Another factor may be that law firms tend to be more averse to taking the risks associated with the introduction of new technology – understandably so in an industry where a minor software glitch might result in the loss of a million-dollar lawsuit.

Things are changing, though. Consumers are becoming increasingly demanding as regards time and money spent on legal services, and technological progress has advanced to a point where not using the best and latest technologies to improve processes and efficiency may put law firms at a serious disadvantage compared to their competitors. Here are some areas where legal tech companies and start-ups have started to disrupt the industry:

Legal research and document review

In the past, LexisNexis and Westlaw had a duopoly on the market when it came to providing computer-assisted legal research. But in the past couple of years, a number of start-ups have pushed into the market. One example is US-based Casetext, a start-up that raised more than $7 million during its first round of venture capital financing. Casetext not only allows its users to search a database of several million cases for free, but also to review annotations and specific points by legal scholars and practitioners. Similar services are provided by Judicata and RavelLaw.

Document review is another area that, until recently, relied heavily on cost intensive human labor. But in the same way as in legal research, innovative start-ups have pushed into the market, providing services that allow lawyers to run their practices more efficiently and pass cost savings onto the consumer. Meet Diligence Engine, a sophisticated piece of software released by the start-up Kira Systems. Diligence engine uses machine learning in order to automate the process of analyzing legal contracts that have to be reviewed during due diligence. It allows its users to review contracts faster and more accurately, which in turn speeds up legal processes and thus helps to bring costs down. To date, Diligence Engine has handled more than $100bn worth of contracts and was named M&A Technology Product of the Year 2015 by ACQ5 Global Awards.

E-discovery

During big commercial court cases lawyers usually find themselves sifting through tens or hundreds of thousands of documents, both of the paper and digital variety, in order to find relevant evidence. Until recently, this time-consuming process has not only occupied countless work hours of the lawyers involved, but also in turn added considerably to the overall cost of major court cases. This is where CS Disco, a law firm – turned - software company found an opportunity to offer a new and simple service. Their software, Disco, automates the tedious task of finding and organizing the trove of data and documents required in litigations. For its users this has dramatically driven costs down. Instead of having to spend hundreds of thousands of dollars on the process of discovery, Disco’s subscribers have to fork out a mere $30 per gigabyte per month. Only one year after its start, Disco attracted 60 global clients, among them two of the biggest insurance companies in the world.

“Do-it-Yourself” Legal

The rapid technological advances since the turn of the millennium, especially in the field of mobile technology, are starting to take hold in the legal industry. This also has started to introduce a clear border between legal transactions that require the services of a law firm and ones that don’t necessarily do so. Some start-ups provide services in the latter category, creating a market for what some call “pseudo-legal services”. One already established legal tech company is LegalZoom. It offers standardized legal documents as a cheaper alternative to hiring a lawyer, thereby giving individuals and small companies access to basic and cheap legal protection. Shake, another legal tech start-up, has moved one step farther and created a free mobile app that allows its users to create, sign and send contracts between users in a matter of minutes. It has found a big number of users (e.g. in freelance) for whom traditional legal services would have been too costly.

Legal services was a $616bn market in 2014 (the latest data available). However, legal tech companies have raised a mere $739m in aggregate funding since 2011, suggesting that there is still a lot of room for start-ups who aim at improving processes and efficiency in the industry through new and innovative products. While legal services are unlikely to witness a rapid major disruption like other industries have during the past couple of years (think transportation), a big number of legal tech start-ups have shown that they not only can bring about improvements in efficiency and cost at established legal businesses, but also make legal services more accessible for individual persons and small businesses. Such a lowering of transaction costs would be a major boost to the economy and would erode, to some extent, the advantage that big firms with large legal departments have over small businesses.