An Investigation into Advanced AI Applications in Law

Artificial intelligence (AI) is transforming the legal industry, offering new ways to automate, analyse, and optimize various legal tasks and processes. From document review and contract drafting to legal research and due diligence, AI is enabling lawyers to work faster, smarter, and more efficiently. In this comprehensive investigation, we will explore the current state and future trends of AI investment in the legal sector, and how it is impacting the legal profession and the delivery of legal services.

So, without further ado, let’s get stuck in…

A Quantum Leap in AI Investments

The legal sector is one of the fastest-growing markets for AI, as more law firms and legal departments recognise the potential benefits of adopting AI solutions. According to a recent report by Mordor Intelligence, the AI software market in the legal industry is estimated at USD 1.98 billion in 2023, and is expected to reach USD 3.29 billion by 2028, growing at a compound annual growth rate (CAGR) of 10.70% during the forecast period (2023-2028).

The report offers a comprehensive analysis of the legal AI market, delineating key drivers, limitations, opportunities, and challenges while spotlighting major players and segments. Fuelling the market's growth are factors such as a surging demand for automation and efficiency in legal processes like e-discovery, contract management, and compliance. Concurrently, there's a burgeoning need for data-driven insights, particularly in legal domains such as litigation, intellectual property, and mergers and acquisitions.

Further propelling market expansion is the increasing accessibility and affordability of cloud-based and SaaS-based AI solutions, dismantling barriers for law firms and legal departments of diverse sizes and financial capacities. The intricate terrain of legal data and regulations, marked by expanding scope and complexity, necessitates advanced and scalable AI solutions for effective handling and processing. The evolving expectations of clients and consumers, seeking faster, cost-effective, and personalised legal services, contribute significantly to the market's dynamic growth.

However, several challenges hinder this growth trajectory. The lack of standardisation and interoperability among various AI solutions and platforms constrains seamless integration and collaboration across different legal stakeholders and systems. Ethical and legal risks linked to AI use in the legal sector, encompassing concerns about data privacy, security, bias, accountability, and liability, act as substantial inhibitors. Resistance and scepticism from certain legal professionals and organizations, hesitant to alter traditional methods and fully trust AI solutions, also impede market expansion.

Furthermore, a scarcity of skilled and qualified AI talent, coupled with high associated costs, curtails the development and adoption of AI solutions in the legal sector. The market experiences a confluence of opportunities and challenges, with the emergence of innovative AI applications like generative AI, natural language processing, and computer vision presenting novel possibilities and value propositions for legal services.

Additionally, the development and adoption of AI standards and best practices in the legal sector, as seen in initiatives like the Law Society's AI Toolkit, offer crucial guidance for legal professionals and organisations on ethical and responsible AI usage. The market landscape is characterised by escalating competition and collaboration among diverse AI providers and platforms, shaping an environment rife with both opportunities and threats for market players and stakeholders.

The impact of COVID-19 and the subsequent digital transformation in the legal sector is of notable significance, acting as a catalyst in accelerating the demand and adoption of AI solutions. This transformative period underscores the industry's imperative need for innovation and adaptation, further influencing the trajectory of AI within the legal landscape.

AI investments starting to deliver

One of the most significant investments in AI in the legal sector has been the USD 200 million strategic investment in Onit, a US-based company that provides enterprise workflow solutions for legal and contract management. This investment was led by K1 Investment Management, a private equity firm that focuses on high-growth software companies.

Onit’s AI solutions aim to streamline and automate various legal processes. Onit’s AI solutions use natural language processing, machine learning, and optical character recognition to extract, analyze, and classify data from legal documents, such as contracts, invoices, and emails. Onit’s AI solutions also use business process automation and workflow orchestration to manage and monitor the execution and performance of legal tasks and projects.

Onit’s AI solutions have the potential to change the legal industry by:

  • Improving the efficiency and productivity of legal professionals and organizations, by reducing the time and cost of manual and repetitive legal tasks and processes, and by enabling faster and more accurate data processing and analysis.

  • Enhancing the quality and consistency of legal services and outcomes, by reducing the risk of human error and oversight, and by ensuring compliance with legal standards and best practices.

  • Increasing the value and satisfaction of clients and consumers, by providing more transparent and collaborative legal services, and by delivering more personalized and tailored legal solutions.

Onit’s AI solutions are used by more than 400 global corporations and law firms, including 50 Fortune 500 companies and 200 corporate legal departments. Some of Onit’s notable clients include BP, Netflix, Salesforce, and Walmart. Onit’s AI solutions have also won several awards and recognitions, such as the 2020 Artificial Intelligence Excellence Award, the 2020 Legal Innovation Award, and the 2020 Legaltech Breakthrough Award. 

Onit’s product announcements throughout 2023, include the next generation of its platform in March to Legal Workflows for Matters and Contracts and a ground-breaking software application that intelligently transforms the contract lifecycle using Generative AI and Large Language Models (LLMs) to enhance pre-signature and post-signature contract activities.

The Velocity of AI integration

The speed of AI adoption in the legal sector is influenced by the level of regulation and innovation in different jurisdictions and markets. For example, the UK is considered to be one of the leading countries in terms of AI regulation and innovation in the legal sector, as it has established a flexible and adaptive regulatory framework for AI, as well as a vibrant and diverse AI ecosystem, which include various initiatives, programmes, and organisations, such as the Lawtech Delivery Panel, the Lawtech Sandbox, the LawtechUK Vision, and the Legal Innovation Centre. On the other hand, some countries may have more restrictive and conservative approaches to AI regulation and innovation in the legal sector, which may limit the speed and scope of AI adoption.

Navigating partner psychology

Delving into the intricacies of AI adoption within the legal sector unveils a complex landscape shaped by partner psychology. Partners, often holding a significant stake in a firm’s reputation, performance, and profitability, approach AI adoption with a nuanced perspective, balancing risk, innovation, and the traditional ethos of the legal profession.

  • Risk Aversion and Conservatism: Partners, as custodians of a firm's legacy, exhibit a natural inclination towards risk aversion and conservatism. They may perceive AI as a threat to their status, authority, and expertise, and may resist or reject AI solutions that challenge their established ways of working and decision-making.

  • Skepticism and Quality Standards: The legal profession, known for its high standards of quality and accuracy, sees partners exercising a healthy dose of skepticism towards AI solutions. Partners demand proof of reliability and effectiveness, requiring AI to meet the rigorous standards set for legal services. They may also worry about the ethical and legal implications of AI, such as data privacy, security, bias, accountability, and liability.

  • Partners are also often busy and overwhelmed, as they have a high workload and pressure to deliver and satisfy their clients and stakeholders. They may lack the time and resources to learn and adopt AI solutions, and may prefer to stick to their familiar and comfortable routines and processes. They may also lack the skills and knowledge to use and understand AI solutions, and may need training and support to overcome the learning curve and the technical barriers.

  • Time Constraints and Workload Pressures: Partners, typically juggling high workloads and client expectations, find themselves lacking the time to learn and adopt AI solutions. The reluctance to deviate from familiar routines and processes, compounded by potential gaps in AI-related skills and knowledge, presents a considerable barrier to widespread adoption.

The Firms Pioneering AI Excellence

There are many law firms and legal departments that are adopting AI solutions to enhance their legal services and operations, as well as to gain a competitive edge in the market. Some leading examples include:

  • Allen & Overy: More than 3,000 of its lawyers in 43 jurisdictions now use GPT-4-based tools in their day-to-day work. The magic circle law firm has been at the forefront of AI innovation in the legal sector, as it has developed and deployed various AI solutions, such as MarginMatrix, an automated derivatives contract negotiation platform that has processed over 200,000 contracts; Fuse, a tech innovation space that hosts and supports AI start-ups, such as Nivaura, a blockchain-based capital markets platform that uses AI to automate the issuance and administration of financial instruments; and Harvey, a generative AI tool that uses natural language processing, machine learning, and data analytics for various aspects of legal work, such as contract analysis, due diligence, litigation and regulatory compliance. 

  • Baker McKenzie: The global law firm has been investing heavily in AI solutions, as it has partnered and collaborated with various AI providers and platforms, such as Kira Systems, Luminance, eBrevia, and SparkBeyond, to automate and optimize various legal tasks and processes, such as due diligence, contract analysis, document review, and legal research.

  • Dentons: The world’s largest law firm has been embracing AI solutions, as it has launched and supported various AI initiatives and projects, such as in 2015 Nextlaw Labs, an innovation platform that incubates and accelerates AI start-ups; Nextlaw Referral Network, a smart referral platform that uses AI to match clients with the best lawyers.

  • Linklaters: The magic circle law firm has been adopting and implementing various AI solutions, such as Kira Systems, Luminance, and Eigen Technologies, to automate and enhance various legal tasks and processes, such as due diligence, contract review, and document extraction. The firm has also been exploring and experimenting with new and emerging AI applications and use cases, such as generative AI, natural language generation, and computer vision.

  • Clio: The leading provider of cloud-based legal technology has been leveraging AI solutions, such as GPT-3, to offer innovative and intelligent features and functions to its users, such as Clio Duo, is a proprietary generative AI legal technology that will be natively built into all of Clio's offerings, beginning with Clio Manage.

Influence on Reputational Capital

AI can also impact the brand value of legal firms, by enhancing their reputation, credibility, and trustworthiness. Brand value is the perceived worth of a brand according to its customers, stakeholders, and society. Brand value can influence the loyalty, satisfaction, and retention of clients, as well as the attraction and retention of talent and partners.

Some of the ways that AI can impact the brand value of legal firms are:

  • Demonstrating innovation and leadership: AI can help legal firms to showcase their innovation and leadership in the legal market, by adopting cutting-edge technology and offering novel and differentiated solutions. AI can also help legal firms to align themselves with the trends and expectations of the digital age, and to position themselves as forward-thinking and progressive. Allen & Overy has benefited from notable coverage in leading publications highlighting its AI leadership, including its use of Harvey AI in the Financial Times.

  • Improving quality and consistency: AI can help legal firms to improve the quality and consistency of their legal services, by reducing errors, omissions and biases, and by providing more accurate and reliable results and outputs. AI can also help legal firms to ensure compliance and adherence to ethical and professional standards, and to avoid legal risks and liabilities. For example, UK law firm Stephenson Harwood reported that by using Luminance, an AI platform for legal document analysis, they could identify key issues and risks faster and more accurately than before.

  • Enhancing client satisfaction and loyalty: AI can help legal firms to enhance their client satisfaction and loyalty, by providing faster and more convenient services, by offering personalised and tailored services, and by delivering more value and outcomes. AI can also help legal firms to improve their communication and interaction with their clients, by providing more transparency and feedback, and by building more rapport and trust.

An economic crossroads

The significance of macroeconomics in the decision-making process of partners in 2024 cannot be overstated, given its profound impact on various facets of the legal sector. As a pivotal determinant, economics shapes the dynamics of demand and supply within the realm of legal services, influences the cost-benefit analysis of AI adoption, and plays a crucial role in defining the competitive advantage and differentiation among law firms.

A comprehensive report by Bloomberg Law underscores the economic landscape that the legal industry is poised to navigate in 2024. This landscape is characterized by a multitude of challenges and opportunities, including the ongoing recovery from the COVID-19 pandemic, the uncertain outcome of Brexit, the ascendance of alternative legal service providers, and the emergence of novel AI applications and use cases. Against this backdrop, partners find themselves at the crossroads of strategic decision-making, compelled to weigh the economic implications of embracing AI in the legal sector.

Partners, armed with insights from prevailing market conditions, are tasked with contemplating how AI adoption can be a catalyst for enhancing efficiency and productivity. The economic lens prompts considerations on how AI can mitigate costs and risks, elevate the quality and consistency of legal services, and align with the evolving expectations and preferences of clients. In essence, the economic dimension becomes a guiding force for partners in 2024, steering them towards decisions that not only navigate challenges but also capitalise on the opportunities presented by the intersection of economics and AI in the legal landscape.

Ready for the future?

As we step into 2024, the legal sector is poised for a positive and transformative journey with the continued growth of AI. Witness the widespread adoption of AI, its evolution into sophisticated applications such as generative AI and computer vision, and the development of robust regulations guiding ethical AI use. The profound impact of AI is set to create a new landscape in the legal profession, introducing innovative roles, business models, and strategies. Speak to us to delve deeper into this transformative era and explore how AI can shape the future of legal services for you.