Legal Tech 3: Contextualising the Legal Industry

Research Technology


Recently, we had the chance to sit down for a chat with Stephen Wilcock, CTO of Legal Tech company Apperio. He shared insights on the Legal Industry as a whole; its stance on innovation and ways in which Legal Tech can supplement Law. Further, we also briefly talked about the skillset students keen on entering Legal Tech should possess.

To better understand Legal Tech, it is paramount to understand the context of the Legal Industry as a whole. Legal Tech is a nascent, emerging industry, still easily ten years behind its more prominent cousin Fin-Tech (Financial Tech). Stephen attributes this to the nature of Law, more specifically commercial Law, which makes up the vast majority of all legal spend in the UK. The two primary parties in commercial Law are the law firms on one side of the fence and in-house legal departments – headed up by a General Counsel (“GC”) – on the other. GCs pay Law Firms for Legal work and advice; they are cost centres and therefore “somewhat under-loved” in the corporations they are a part of. Accordingly, the costs they incur are often taken at face value and under scrutinised.

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Without this external pressure, Law Firms lack the incentive to innovate. With very few exceptions, they are run on a partnership model; historically prohibited from accepting capital from external shareholders that could compromise independence. Partners may be apathetic regarding technological innovation for several reasons. For one, innovation is expensive – this might be insignificant to a CEO, that spends shareholders money – partners spend their own money; although partners already earn tremendous sums, any investment comes out of their bottom line. Further, with the vast amounts they already earn, individual partners have little agency to change anything independently. In addition, the hourly-billing model, customary in the legal realm, can undercut the internal business case for making efficiency improvements. If a piece of legal work takes longer, the client can be billed more. This is the classic ‘innovator’s dilemma’ described by Clayton Christensen: can the firm bring itself to make expensive efficiency investments that cannibalise its revenues in the short term, to defend the competitiveness of the firm in the long term, before someone else disrupts them.

According to Stephen, the way out of this dilemma will be precipitated through a combination of ratcheting client pressure, the emergence of novel structures [1]; such as the Big Four consulting firms entering the legal market, and firms that offer lower costs “at a firm commercial edge”. This combination of factors is beginning to apply the external pressures necessary to change the calculus for partners at law firms, fostering more rapid technological innovation in the legal industry.

Innovation targets two facets of the Legal Industry; Stephen calls them: The Practice of Law and the Business of Law. The Practice of Law deals with the mechanics of actual legal work. Technological Solutions within this area often focus on research, evidence gathering, textual processing and in some cases evaluation and decision-making. These solutions often target automating repetitive activities using A.I. technologies, such as Natural Language Processing or Machine Learning. The Business of Law, on the other hand, has little to do with the legal work itself, focusing instead on the mechanics of how money changes hands in the legal realm, which involves workflow tools and analytics. Most Legal Tech companies operate within either one or the other. Apperio, which offers legal spend tracking, deals exclusively with the Business of Law.

The distinction between these two areas within Legal Tech is also relevant when evaluating the skillset beneficial to those keen on entering the field. In dealing primarily with the Business of Law, Stephen admitted that legal know-how wasn’t a prerequisite for him entering the industry. Although it might be more relevant for those entering the Practice of Law, domain knowledge is less important for engineers than employees in other functions. “When you get down to the detail of doing the data science […] you could be doing data science on any domain, in the same way, image recognition technology could look at mammograms or dents in cars”. Evaluating the importance of the two facets, Stephen states; “the tech bit is in font 60 and the legal bit in font 4”.

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The key domain knowledge technologists require is typically provided to them by experts, brought in for that specific task. The only group that really requires the synthesis of legal and Tech knowledge are those on the founding team. In aggregate, they need to possess the knowledge to identify and articulate the legal problem they intend to address as well as seeing and understanding the potential Tech solution.

Aiding those interested in Legal Tech, Stephen found that the distinction to academic data science is particularly important. “When people go to Uni […] much of it surrounds […] how to make decisions around data; you are given this nice data set; work out this path, correlation or pattern.” It's very different in an emerging industry like Legal Tech, most data is poorly structured and stored in legacy, on-prem technology. Ergo, the bigger initial challenge is concerned with retrieving, aggregating, cleaning, canonicalising and pruning the foundational datasets, before you even get to the actual data science.

Now that we have the necessary context, we can better comprehend the role Legal Tech companies can and do play in the Legal Industry, starting with Apperio. The next article in this series will elaborate on the product Apperio offers and how Apperio interacts with the Legal Industry.

[1] See the emergence of Alternative Business Structure in Law (ABS) after the Legal Services Act of 2007

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