The Future of Legal Practice

(or, How to Stop Worrying and Embrace Change)

In three decades, the internet has grown to permeate all aspects of our society. Its onset has been accompanied by seismic disruptions in many traditional sectors, while new industries have emerged (seemingly) from thin air. Web development, social media, global communication and worldwide retailing are just some of the ways that the online world has materially changed our lives. Professional sectors have been traditionally more resistant to the change. Characterised by legacy corporate structures and established practices which are increasingly at odds with technology, the financial and legal worlds in particular have resisted making substantive alterations to their business models.

The legal industry is perhaps most notorious for its conservative technological stance. Paper-based filing systems, six-minute billing cycles and correspondence via traditional mail are just some examples of the ‘old ways‘ still prevalent in many legal practices.

Rapid innovation is now occurring in areas directly relevant to the legal profession, and it’s paramount current practitioners and firms are not only aware of the changes, but actively engaging with them. Below is a brief overview of several emergent technologies and the unique ways they will affect the practice of law. It’s by no means exhaustive, but it demonstrates the wave of change ready to wash over the industry.

My goal in this piece will be to demonstrate that this isn’t something to be feared, but embraced – and that astute lawyers, firms and entrepreneurs will have unprecedented opportunities to separate themselves from their competition and build truly innovative practices in the coming few years.

 

lots of files on a shelf

What most lawyers associate with the word files

Blockchain and Smart Contract Technology

Distributed ledger technology, colloquially referred to as ‘Blockchain,‘ allows the transfer of money and information on an open, shared, transparent, auditable and decentralised platform completely free of third party intermediaries. Using a blockchain, capital exchange can occur near-instantly without the need for banks, agents, payment processors or settlement services.

 

Diagram with transactions, banks, business logic

The current interaction between money and code

 

Blockchain technology allows all members of a network to have complete transactional visibility, creating a level playing field for parties to do business, transfer value and establish relationships with ‘eyes wide open‘. Built-in encryption and consensus algorithms secure the network, while allowing stakeholders to make decisions in a collaborative and visible manner.

On newer platforms like Ethereum and Cardano, code can be written to interact directly with blockchain transactional data. Referred to as ‘smart contracts’, they make it possible to automate business logic and the transfer of money/information in a manner that’s transparent, consistent and auditable. This will likely have applications in almost every industry as the technology matures, but the innovation is particularly relevant to the practice of law.

 

Simple model of a blockchain system

Blockchain: Money and code interacting without intermediaries

 

Take for example the simple trust. Currently, trust deeds require extensive documentation to establish the trustee’s obligations to the beneficiaries, and develop comprehensive prohibitions on trustee conduct. However, the documents don’t intrinsically prevent the trustee from making harmful or fraudulent actions. Rather, it merely allows the beneficiaries to seek relief against the trustee if they discover it performed an action inconsistent with the deed. I refer to deeds like this as reactive agreements, as they are enforceable only by action from the wronged party, after the fact.

 

diagram of a trust

 

A trust which utilises a smart contract in conjunction with a traditional written agreement circumvents much of this ambiguity. Most importantly, rules can be coded (not just written down) at the establishment of the trust. If there are five beneficiaries to be paid in equal, 20% portions every six months from the trust account, that non-discretionary distribution can be built directly into the smart contract, as the smart contract is attached to the trust account. Any trustee looking to discretely favour one trustee over another would find that the contract prohibits it, because the code does not allow an action inconsistent with its terms. I classify this as a proactive agreement because, try as that trustee might, it cannot take an action which is not permitted by the code.

 

Smart Contract Trust Diagram

 

Currently, almost all of our legal framework and technology can be characterised as reactionary. Lawyers draft contracts, make agreements and conduct transactional relationships without any true form of active contract enforcement. Instead these instruments rely on the threat of consequences, implied trust and good faith in establishing legal relations.

Blockchain technology presents an avenue by which lawyers can increasingly develop proactive solutions for clients. It promotes trust, allows condition-based transactional execution and prevents many of the simpler, but expensive, litigative issues that are prevalent in our legal framework today. Further, it presents opportunities for firms to provide innovative solutions to complex problems, and begin developing new tools with which they can seperate themselves from their competitors.

While the technology is still on the fringe, forward-thinking firms are actively investigating the technology, and ascertaining how they can begin implementing smart legal solutions for clients. The advantages of those solutions will only increase as the technology matures, and more users participate on the networks.

To achieve this, it will be necessary for firms to educate their staff about blockchain technology and equip them to build proactive legal solutions in concert with software developers and engineers. Firms who commit to becoming increasingly ‘blockchain native‘ will gradually separate themselves from their competition.

 

Deep Learning and AI

Not a day goes by where I don’t see some ‘expert‘ claiming that lawyers will be completely replaced by machines. It’s relevant that these claims are usually never made by a lawyer, or someone who deals with lawyers on a regular basis. That’s because law is primarily concerned with the relationship between people – and people are complicated.

 

picture of cortana

Microsoft Cortana – your future lawyer?

 

Artificial intelligence usually features heavily in any claim that legal representatives are not long for this world – and it’s an attractive premise. In reality, the kinds of algorithms charged with this subsumption of the legal fraternity are neither artificial or truly intelligent in the way we typically picture them. Rather, they are constructs designed to do some very specific tasks, and do those well.

Artificial intelligence programs excel in repetitive task management, binary or gated decision making and the interpretation of data. Importantly, the technology is only as powerful as the human engineers who built it. Take the recent machine learning algorithm developed by IBM for identification and diagnosis of skin cancer. In a scan of 3,000 images, the technology was able to correctly identify a melanoma with an accuracy of 95%, as opposed to the 75-85% of most general practitioners.

It’s important to understand that a program, independent of any human input, is useless. The melanoma algorithm first needed to be engineered and then ‘trained‘ by the feeding of data – photos which represented positive and negative melanomas. Only after being fed significant data could the program begin to analyse new images.

 

diagram of basic program

Machine learning is not magic – just another type of program.

 

The program itself is also very limited in scope. You could not, for example, feed the algorithm new images of brain scans and ask that it find tumors. Fresh ‘training‘ would be required, which could only be undertaken with considerable time and effort by qualified professionals. Nor does the algorithm have any ability to treat the cancer. Indeed, given the higher success rate, the net effect of this program would be to give medical professionals more substantial work in the way of treatment, while removing both the tedium of scrutinising patient’s bodies and the risk of a medical negligence claim if they were to incorrectly diagnose a patient.

This perspective can be applied to almost any industry, including law. A well built algorithm could be trained to analyse court databases and collate judicial rulings on a particular topic. An AI program could take limited data from an enquiry form and give a predicted success rate. Dispute resolution oracles could analyse small legal disagreements and provide basic guidance at a fraction of the cost of court proceedings.

Notice that these examples all occur on a ‘micro‘ level. They take place in controlled environments where parameters are well defined, and don’t stray from their chosen purpose. AI is still code, and code doesn’t handle unknown quantities well. Therefore, any successful algorithm will rely on strictly defined parameters and input control. Subjective judgments, nuanced drafting and the provision of holistic advice which contemplates the complexities of a client’s unique circumstances cannot be performed by code.

The bottom line with AI is that it’s only as good as those who build it, and building takes time. While firms and lawyers who begin developing AI solutions now may initially find the process slow and cumbersome, they will steadily reap benefits as their understanding of what the technology can (and can’t) do grows and their implementation becomes increasingly advanced.

Given the protectionist attitude of most firms, it’s unlikely that proprietary technology developed by other firms will be available on the open market, especially given the potential for disruptive ‘packaged‘ legal advice which could be offered in product form. It’s therefore imperative that firms begin investigating and harnessing the technology now.

 

DAOs and Digital Jurisdictions

 

Decentralised Autonomous Organisations

To fully understand the concept of digital jurisdictions and why this is an increasingly relevant topic, it’s first necessary to be familiar with Decentralised Autonomous Organisations (DAO).

At its most basic level, a DAO utilises blockchain and smart contract technology to create an organsation governed by code. Because the DAO and the rules which govern it exist on a blockchain, all DAO functions, rights and responsibilities are controlled by the programming, usually in concert with a detailed permissions system. A DAO can give members limited or full access to organisation financials, contracts, documents, business dealings and information. Because the smart contract code controlling the DAO is immutable and can be audited by all, it gives certainty that no one can break the rules.

 

Lines of code

An Ethereum DAO smart contract developed by slockit.

 

DAO’s are governed by consensus of members (often a defined sub-set of members) and are typically borderless. Because blockchain-based code actively governs typical corporate functions like the constitution, voting, shareholding, payroll and project management, they represent a lean, efficient and innovative way of doing business. Often, mechanisms such as company shares, dividends and equity can be handled far more effectively (and efficiently) by coding those mechanisms directly into the code of a DAO.

Foundations, joint ventures and large projects are just some of the traditional corporate instruments that may perform better under a DAO model, but the applications are truly limited by the imagination of the parties involved, and the professionals assisting in the establishment.

 

Online Jurisdictions

In any agreement between parties, it’s necessary to set the rules. When two parties are located in a particular state or country, it’s relatively easy for the parties to stipulate what authority they will appeal to if everything goes wrong. In formal contractual agreements, this is usually done by way of a ‘Jurisdiction’ clause towards the end of a contract.

As the world becomes increasingly connected, the task of choosing a jurisdiction is more challenging when parties are based in different countries or continents. Consideration is often given to the various restrictions, exemptions and protections afforded by the law of each jurisdiction, and in circumstances where the relationship is not based predominantly in one country, the parties will usually favour the jurisdiction least restrictive to their shared goals.

 

Maltese Canal

The Island of Malta has recently found favour with many blockchain companies due to a light regulatory stance.

 

There is, however, an increasing amount of business occurring online, without any easily-identifiable jurisdiction. From news aggregation websites to projects using freelancers as a development team, working out what the rules are and who to appeal to when things go wrong can be an exercise in futility. When you add decentralised organisations like DAOs and blockchain-based contracts into the mix, trying to assign a nation-based jurisdiction becomes almost impossible.

Conversations have been occurring regarding how to best tackle this issue. The most promising approach is the establishment of ‘digital’ jurisdictions, where parties can agree to be bound by mutually satisfactory rules not tied to any one land-based jurisdiction. Rulesets could feasibly be developed which are far less restrictive than legislative frameworks offered by traditional nation-states.

 

Courtli - The Digital Court

Maybe not as far away as you think.

 

Digital jurisdictions are in many ways tailor-made for use with blockchain technology, and indeed, initiatives like Aragon’s decentralised jurisdictions and EOS’s blockchain constitutions are beginning to provide practical solutions to these problems. It will be important for legal practitioners to assess whether they can provide value in this emerging sector. Be it collaborating on an open-source digital jurisdiction, providing dispute resolution services or simply alerting clients that new models are available, the intersection between emergent technologies and truly global business presents compelling opportunities.

 

Virtual Reality

The inclusion of virtual reality in a primer on future legal changes may seem strange, but it’s more relevant than most people realise. Not only is VR finally beginning to realise its potential, it’s already being harnessed in some very interesting ways. From virtual workspaces to immersive shopping experiences, the combination of high fidelity experiences and developer-friendly software is fostering rapid growth of innovative experiences.

 

Virtual Reality Shopping

Amazon recently debuted VR Kiosks which allowed users to shop the Prime Store in a VR Shopping Mall.

 

The most immediate benefit that traditional companies are deriving is shifting from expensive physical offices to inexpensive virtual workplaces. eXp Realty, a publicly-traded US real estate brokerage company, runs their entire company in virtual reality using Virtual Reality technology. They credit VR for allowing them to nearly double their staff from 6,500 to 12,000 agents since the start of the year, and reach over a $1 billion market capitalisation on the Nasdaq in the first day of trading. The virtual world allows everyone engaged at the company to attend team meetings, conferences, training and staff functions from anywhere in North America.

The brokers still meet with clients and sell houses in the physical world, but their entire corporate office is housed in VR, meaning no expensive corporate leases, cleaners, furniture and upkeep. Further, employees no longer need to commute to work, meaning less time spent in traffic and more time with their families.

 

A virtual auditorium full of people

The ‘Events Auditorium’ in eXp Realty’s virtual world. Credit – eXp Realty

 

Considering that many law firms spend up to 50% of the fee dollar on the expenses of running an office, the potential for drastic reductions in those fees cannot be overlooked. While some would prefer the more traditional ‘face-to-face‘ working environment, text-messaging, social media and video-conferencing has shown us that people are willing to embrace new technology for the sake of convenience and connectivity. When that technology could also significantly reduce fees, raise profits and give an advantage over the competition, it becomes incredibly compelling.

There is another, more indirect appeal of integrating virtual reality technology into legal practice. As userbases of VR experiences like Amazon’s Sumerian, Linden Lab’s Sansar and Philip Rosedale’s High Fidelity increase, it will also mean access to a new customer base, with their own unique needs and novel legal issues. It’s not so fantastic to imagine that many future customers may prefer to meet at a ‘virtual‘ firm rather than travelling to inner-city offices, especially if they are travelling or based internationally. Indeed, the implications for face-to-face meetings such as mediations, settlement conferences and interviews are well worth considering, especially in today’s crowded business environment.

 

Banked Up Traffic

An hour traveling in this each way, or working from home with a headset on?

 

Just like the other innovations touched on in this article, we’re still early in the piece – and there’s no telling what opportunities will present themselves as the technology matures. The only sure way to miss out is not to be involved.

 

Embrace the Opportunities

Digital disruption is a real issue, but it’s not a bogeyman out to make lawyers forever redundant. Technological developments like AI, blockchain and virtual reality are just new tools for the ever-expanding legal arsenal – tools which, when harnessed correctly, can be put to great use.

While legal professionals will always be necessary, what may change is the expectations of clients, the skills required and the method of delivery. The key is positioning oneself to take advantage of disruptive technologies, and put them into the ‘toolbox‘ in the same manner that a carpenter upgrades their equipment to increase efficiency and reduce cost.

As the old adage goes, knowing is half the battle. If you’re not familiar with the technologies mentioned, spend some time researching them. Get an expert with both a legal and technological background in to educate your firm, and help you develop an innovation strategy. Having a legitimate plan to deal with technological disruption will put you ahead of 95% of the competition.

The bottom line? Technology is a tool. Automation and disruption are only a threat for those who aren’t making use of it already. For those who are, it’s an unprecedented opportunity – and one to be tackled head on.

 

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Matthew Shearing

Matthew Shearing

Matt is a lawyer, consultant, podcast host and speaker. His passion is helping individuals and businesses understand, manage and overcome the challenges of doing business in the digital age.

He advises companies on many aspects of business and technology law, with a particular focus on commercial relationships, cyber security, risk management, compliance and brand protection. He also runs a podcast, hosts a meetup and consults in the area of blockchain technology.

If you’re looking for legal advice, please get in touch below.

* Note –  The views express here are my own and are opinion only. They don’t constitute legal advice, and shouldn’t be relied upon without first obtaining specific legal advice catered to your situation. Neither do they constitute the views of any other party, including any employer or company.

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