In all industries, disruptive startups and ideas make the economy and society change. For a long time under the radar has remained an area that ultimately forms the basis of our democracy – the legal system. LEAD spoke with James Carstensen, who uses his expertise in IT, business and legal to help law firms digitize their processes.
LEAD: In recent years, you often hear of more or less disruptive startups that fall into the categories Fintech, Insurtech or Entech. But what is Legal Tech about?
James Carstensen: Although there is no common definition of Legal Tech, as with the other terms, it is essentially the use of law firm technology that ranges from document management tools to AI solutions with machine learning and natural language processing to automate legal procedures , Documentation, contract automation, and e-discovery tools currently make up the bulk of legal tech, but there are also developments in legal research, artificial intelligence judgments, case forecasts, and so forth. Oddly enough, IP protection seems to be one of the least addressed areas to work on, despite the great demand for IP tools.
There are already legal research applications, such as ROSS Intelligence, Lexis Answers or Westlaw Answers, using Artificial Intelligence or NLP. This allows them to identify important cases under negotiation and to extract relevant passages from natural language based judgments. The value of such applications is enormous, as, for example, documentation automation can process a large number of documents extremely quickly – much faster than a room full of legal assistants.
Legal Tech can tackle philosophical questions in another direction, which I personally find very interesting, such as the “trolley problem”. What, for example, should an autonomous driving car do if, in the case of the case, it has to decide whether to override a passerby or only hurt another person? If someone is killed by an AI, who should be legally liable? And to bring it back to a practical perspective – how will we as lawyers deal with such cases in the future?
LEAD: Why is the topic of Legal Tech becoming relevant right now?
Carstensen: Legal Tech’s tools are evolving rapidly and many big companies, if not all, are investing heavily in Legal Tech and Artificial Intelligence. Why this is so was recently shown in a study in which the accuracy and speed of lawyers were opposed to that of an AI. Both were to consider a contract for possible problems and the result was devastating: Human lawyers achieved an accuracy rate of 85 percent and took an average of 92 minutes. The AI was significantly higher with 94 percent – and took only 26 seconds. The research is progressing rapidly here, which is certainly helped by the more than 1200 startups that Stanford University in the USA lists on their website. And in Germany, too, the number of Legal Tech conferences and groups is growing.
In the future, law firms will therefore be dealing more often with companies that are originally outside the industry, for example service providers who automatically claim compensation for canceled flights. Such ads can already be seen on Facebook and they are just a simple example of what kind of competition the industry will get in the future through tech companies. The Conference of Ministers of Justice in Germany is already addressing the question of whether such services should be reserved for law firms. But this also shows that Legal Tech is not in the distant future but is already a reality. For lawyers and law firms, therefore, the question is not the “if” but the “when” when it comes to the use of Legal Tech.
Also interesting: Flight cancellations: how an AI determines the chances of success of complaints
LEAD: In your opinion, who are the biggest players in this field at the moment?
Carstensen: Many large law firms are already investing heavily in Legal Tech, such as DLA-Piper, Taylor Wessing, Clifford Chance or Wolters Kluwer. LexisNexis is already putting money into document analysis, and Thompson Reuters has a tool that scans databases to find online trademark infringements. And IBM’s artificial intelligence system Watson is also being used for legal services. There are also a lot of promising startups, but it’s actually too early to set a leading player. There are currently a lot of consolidations in the industry as many startups are bought by large companies.
LEAD: It seems that the digitization of the legal system is similar to that in other areas. What impact will Legal Tech have on the industry? Will there be a counterpart to the fourth revolution, as in mechanical engineering – Law 4.0?
CarstensenThe biggest change from Legal Tech is likely to be improving the accessibility and affordability of legal services. “Big Law”, big law firms and players in the industry, are notorious for keeping market entry barriers high and benefiting from them. This has long allowed them a virtual monopoly on legal services. Many of them have to be done manually with a lot of time and have remained inefficient for a very long time, or in other words very profitable. Which in turn ensured that innovations were not in demand, because enough money comes in.
For example, if someone tells me that he has lost 10,000 euros through fraud, but could not seek legal protection because the legal fees would have been higher than the loss, then it has nothing to do with justice. This is a lot of money for ordinary people. Too often, the law fails to protect the most vulnerable people in our society. And that just has to change.
As mentioned, Legal Tech can help scan a contract in 20 seconds, breaking up such inefficient and law firm-looking business models. Thus, legal protection would become more affordable and accessible. Paradoxically, it is big law that has the resources to invest in such technologies. So it may be that the opposite happens when such companies create a monopoly for certain legal tech services.
LEAD: In many industries, AI is often demonized as a threat to jobs. Do we also apply to the legal system?
Carstensen: Ultimately, any type of technology is about generating value while keeping the potential downsides as low as possible. This question also plays a role in my current study on the future of work. If you see news reports that show high numbers of jobs lost through technology, you might want to look at the big picture. An important societal aspect is that technologies such as AI and automation are more likely to replace “low level” work, idle, low performing diligence tasks.
And who does such legal tasks? Specialist and trainee lawyer. That’s how we earn our spurs by searching through bulky folders, drafting dozens of standard contracts, and doing other tasks like this. It’s not glamorous, but it’s still a great way to learn how things work in the industry. If these tasks disappear, what will take their place? The same can be seen not only in Legal Tech, but in all jobs that are changing with technology and automation. This means that, above all, it will hit people hardest who, because of a lack of qualifications, already have problems finding jobs. What do you do with a superfluous 40-year-old factory worker who has two children to feed and pay a mortgage and is no longer needed? The whole thing is a double-edged sword.
From a political point of view, you will have to talk about regulation here, and I myself am not a fan of over-regulation, as in France, for example, where you have simply banned analytics in the legal system. The same applies to the poorly implemented EU regulation of the “upload filter”, which was apparently passed without any technological understanding.
LEAD: Keyword EU. Can Legal Tech be used to improve legal processes between countries?
Carstensen: The legal system is still firmly anchored in its respective territorial model and continues to struggle with the digital economy. E-commerce is also booming, content on YouTube and other platforms also, despite numerous cross-legal sales, the violation of trademark and copyright and other legally unresolved issues. On the other hand, cross-border legislation is usually covered by extensive international treaties and the like, such as the United Nations Convention on Contracts for the International Sale of Goods or the TRIPS Agreement on International Intellectual Property.
In this sense, there may not be an urgent need for Legal Tech to address issues of international law, sometimes wondering how business can be done in these complex structures. However, in my consulting work for SMEs, I have also seen that companies often had no idea how their websites should be structured in the different countries they deliver to. Or how it looks there with consumer protection. Then you just like throwing something on the internet and hopes for the best – legally, however, you sit on a ticking time bomb. Even legal tech can do that, but that’s a tedious task to work on for the mentioned structures.
Philipp Kalweit is the most sought-after hacker in Germany – and that’s why he’s already on the Forbes “30 under 30” list at the age of 18. Why we quit our password cloud directly after the interview, you read in the current LEAD Bookazine 2/2019!