Welcome to your Law Tech briefing for Aug 4th, 2023, covering what happened in legal tech recently.
TLDR; Listen instead:
Have less than a 1 min? Three takeaways from yesterday
- Adapt to Innovations: With advancements in legal tech, like the integration of AI capabilities into mainstream software, professionals need to upskill and adapt. The trend towards cloud-based platforms also requires familiarization. Automation of lower-level tasks using generative AI not only means changes in work processes but can also impact profitability.
- Mitigate Cybersecurity Risks: Legal firms must dedicate resources to cybersecurity measures, even in the face of potential costs and operational disruptions. New cybersecurity rules by the U.S. Securities and Exchange Commission are an indicator of the pressing need to fortify defenses against increased industry-wide threats.
- Revisit Regulatory Compliance: Changes in legal teams, as exhibited by OpenAI, underline the importance of regulatory diligence in the field of AI. Law firms and tech companies alike must ensure they have strong in-house legal counsel to navigate the complex regulations surrounding emerging technologies.
Here's what happened in legal tech recently...
LawCatch, secured $3.5 million in a seed funding round for its BriefCatch legal editing software, aiming to expand its team and launch new products. OpenAI, after facing increased regulatory scrutiny over its data practices, appointed Amazon’s in-house lawyer, Che Chang, as its new general counsel. LexisNexis expanded its partnership with Microsoft by integrating its AI-powered solutions into Microsoft 365. Additionally, the acquisition of Lawyers On Demand (LOD) and legal tech consultancy SYKE by Consilio signified an expansion of its legal services globally.
A growing trend in legal tech suggests that firms are integrating their AI capabilities with mainstream software, as noticeable with the collaboration of LexisNexis and Microsoft. Furthermore, investments like the seed funding acquired by LawCatch accentuate the financial world's interest in legal tech. AI’s potential to automate almost 20% of legal tasks is a key point of interest. Meanwhile, a pivot toward cloud-based platforms was noticed in the transition of Worldox's clients to NetDocuments' cloud-based platform.
As legal tech evolves, firms must stay up-to-date while facing industry-wide challenges such as increasing cybersecurity threats. Despite the initial reluctance to upgrade security due to costs and operational disruptions, the new cybersecurity rules by the US SEC may push firms to strengthen their defensive strategies. The higher expected ROI in marketing should also prompt reconsideration of a firm's marketing strategies. Furthermore, as generative AI has the potential to impact profitability by automating lower-level tasks, it is critical for firms to adapt to this significant shift. The OpenAI legal team restructuring signifies that even pioneers in AI like OpenAI are not immune to legal trouble, serving as a reminder for other AI companies to ensure their regulatory diligence. Meanwhile, Consilio’s acquisition indicates an appreciation for the amalgamation of flexible legal talent and tech consulting, suggesting a new business model that other firms might follow. These developments are propelling legal tech toward promising advancements, making it an exciting time for professionals in the field.
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Consilio, a prominent eDiscovery vendor, is set to acquire Lawyers On Demand (LOD), and SYKE, a legal technology consultancy, in a move to augment its enterprise legal services and extend its reach into Europe, the Middle East, Africa, Asia, and Australia. Founded in 2007, LOD has built an extensive community of over 4,500 legal practitioners across 25 countries and boasts a clientele that includes members of the FTSE 100 and ASX 200. The acquisition not only expands Consilio's offerings and clientele but also addresses the talent concerns faced by legal teams due to high attrition rates and budgetary constraints. This strategic alignment of services is expected to cement Consilio’s position as a leader in legal consulting and make it one of the largest legal flexible talent and advisory entities. Upon transaction completion, Bowmark Capital will exit its five-year investment in LOD and SYKE.
LexisNexis announces its AI-powered solutions will soon integrate with Microsoft 365, offering legal professionals efficient workflow experiences via Microsoft Outlook, Word, and Teams. LexisNexis' AI initiatives, including generative AI incorporation into its product and its commitment to launch products enabled by GPT (Generative Pre-training Transformer), are being rolled out to customers via Lexis+, through the Microsoft Azure Open AI Service. The solutions set to integrate with Microsoft 365 include Lexis+®, Lexis ® Connect, Lexis ® Create, and Lexis ® Create Plugin. Commercially, Lexis Create and Lexis Connect will be available in Q3, with generative AI capabilities added by Q4.
LawCatch, Inc., a legal software developer, has secured $3.5 million in a seed funding round led by TIA Ventures for its BriefCatch legal editing software. The funds will be used to launch new products, expand training and development, double the team size, and establish a Legal Writing Advisory Board. BriefCatch, which operates on Microsoft Word, provides legal-specific writing suggestions and is used by many, including Supreme Court justices and various law firms.
The article discusses a rise in data breaches at law firms, citing cybercriminals targeting both large and small firms. It underscores the need for better cybersecurity measures amidst increasing class action lawsuits and regulatory actions. However, many firms are hesitant to upgrade their security due to cost, operational disruption, and a false belief of not being at risk of cyberattacks.
In the competitive legal industry, law firms must stay abreast of regulatory changes and maintain high performance. Crucial metrics include billing, cases per lawyer, case cost per lawyer, and open cases. To boost productivity, firms should streamline processes, optimize resource allocation, invest in technology, and consider outsourcing non-core processes and paralegal activities. This can enhance efficiency, reduce costs, improve client service, and strengthen reputation.
The article discusses the application of generative AI, particularly large language models (LLMs) like ChatGPT, in the legal sector. It outlines the three-step training process of LLMs, which includes Supervised Learning, Unsupervised Learning, and Reinforcement Learning, and emphasizes the high costs involved and the need for task-specific fine-tuning. The article also notes recent industry changes, such as acquisitions, product launches, and potential regulatory measures.
The October 2022 acquisition of Worldox by NetDocuments has resulted in a smooth transition for clients, with enhanced customer support and a streamlined migration process, according to Rebecca Sattin, Sr. Director of Partner Success at NetDocuments. The shift from Worldox's on-premises system to NetDocuments' cloud-based platform has improved data security and future-proofed law firms' technology. NetDocuments is also focusing on anticipating customer needs by offering advanced features such as automation, collaboration, and seamless integrations.
BigHand's reports reveal a growing staff attrition crisis in the legal industry, as law firms grapple with the cost of replacing support staff. The study, involving over 800 law firm leaders, found that lawyers are increasingly taking on administrative tasks. Additionally, nearly half of the firms reported an increase in associate attrition, and predict 20-40% of support staff will retire within the next five years.
ProSearch, a top provider of discovery and compliance solutions, will exhibit its services at ILTACON 2023, featuring its Microsoft 365 advisory and data identification and collection services. The firm's experts will also participate in two sessions, discussing the metaverse's impact on the legal industry and the challenges of short message collection. Additionally, ProSearch is co-sponsoring the ILTA Kickoff Thought Leadership Breakfast.
The California Department of Justice has cautioned employers against "employer-driven debt", where employees are obliged to pay back the company for training or work-related equipment if they leave before a specified date. This practice could lead to financial risk and predatory debt collection for workers, especially in industries like aviation, healthcare, retail, service, and trucking. It could potentially infringe on Labor Code section 2802, as California law forbids employers from requiring payment for training unless it is legally necessary or voluntarily pursued.
Holly Etlin, interim CFO at Bed Bath & Beyond, has been promoted to CFO and chief restructuring officer during the company's bankruptcy proceedings. She is also a full-time employee at AlixPartners, where she oversees business restructuring and lender negotiations. Etlin plans to finish liquidation sales and close hundreds of stores by September's end. She advises CFOs of distressed companies to prioritize liquidity maintenance.
OpenAI has appointed Che Chang, previously an Amazon in-house lawyer, as its new general counsel, succeeding Jason Kwon who is now the chief strategy officer. Chang's team comprises ex-Google litigation leader Renny Hwang, and former FTC lawyer Ben Rossen. The move comes as OpenAI, known for AI tools such as ChatGPT, faces increased regulatory scrutiny and legal challenges over its data practices, including allegations of unauthorized data scraping and a copyright infringement lawsuit involving comedian Sarah Silverman and other authors.
BNP Paribas has alerted investors to possible penalties from the SEC and CFTC due to record-keeping violations. The bank and its broker-dealer subsidiary are proposing solutions to investigations into their use of unapproved electronic messaging platforms for business communications. BNP Paribas has reserved €125 million ($137.4 million) for Q2 litigation. This follows similar penalties for banks such as Wells Fargo, BNY Mellon, and JPMorgan Chase.
The US Securities and Exchange Commission (SEC) has established new cybersecurity rules, obligating companies to reveal cyber risks and governance practices. The rules require firms to report significant cyber incidents within four days via a new Form 8-K Item 1.05 and to disclose their cyber risk protection strategies in their annual 10-K filings. The definition of significance is flexible, offering companies some leeway. The rules are expected to be implemented around September 1, with the four-day incident notification requirement beginning 90 days later.
LexisNexis has expanded its partnership with Microsoft, launching Lexis Create, a US-based intelligent drafting tool. This tool provides access to LexisLibrary, precedents, and drafting notes within the Microsoft ecosystem. LexisNexis will also roll out Azure OpenAI Service through Lexis+, providing customers access to OpenAI’s language models. The company's corporate legal matter management system, Lexis Connect, will be available commercially in Q3, with added AI capabilities in Q4.
Dallas-based company, Centerbase, is introducing a profitability reporting feature for mid-sized law firms. The software provides a comprehensive analysis of profitability by tracking key metrics such as revenue, expenses, billable hours, realization rates, and profit margins. It also calculates direct and indirect expenses associated with employees and overhead, offering a detailed view of net profit. The reporting can be segmented by client, matter, or practice area.
LexisNexis and Microsoft are partnering to provide AI-driven products for legal professionals within the Microsoft 365 ecosystem. This includes the integration of Azure OpenAI with Lexis+, the launch of Lexis Connect, and the US debut of Lexis Create. These tools aim to enhance legal research, document drafting, and workflow tasks by incorporating AI capabilities. The majority of these products are compatible with Microsoft Office versions from 2019 onwards.
Consilio, a global provider of legal technology solutions, plans to acquire Lawyers On Demand (LOD) and SYKE, expanding its services to Europe, the Middle East, Africa, Asia, and Australia. The acquisition will leverage LOD and SYKE's skills in flexible legal talent and legal technology consulting, enhancing Consilio's capabilities. The deal will also conclude UK-based Bowmark Capital's five-year investment in LOD and SYKE.
The article offers guidance for lawyers preparing for retirement, highlighting the necessity of early planning and forming a comprehensive advisory team. Key recommendations include maximizing 401(k) contributions, contemplating long-term care insurance, establishing limits for family financial assistance, and discussing financial plans with family. The piece stresses the importance of proactive retirement planning for financial security and a comfortable lifestyle.
The article underscores the significance of assessing the Return on Investment (ROI) in legal firms' marketing strategies. It advises limiting marketing expenditure to 10% of revenue, while targeting a tenfold return. It encourages identifying and removing less effective activities, calculating ROI by dividing revenue by marketing costs, and reallocating resources accordingly. The author also highlights the importance of taking calculated risks and utilizing data in decision-making processes.
Generative AI has the potential to automate 20% of legal tasks, potentially reducing law firm revenue by 23.5%, according to a study by LexisNexis CounselLink. While 39% of time entries could theoretically use AI, realistically only half of this could be automated. The technology is likely to have a greater impact on lower-level tasks performed by associates, potentially impacting firm profitability.
The article emphasizes the recent trend of "recession-proofing" in firms, resulting in enhanced efficiency and technology investment. It underscores the benefits of reassessing processes such as marketing, client intake, and billing systems to boost client service and profitability. The piece also advocates for the use of the latest Practice Management software to modernize firms and potentially provide a competitive advantage. A Practice Management Buyer’s Guide is available for download for more details.
LexisNexis Legal & Professional is partnering with Microsoft to integrate AI solutions into Microsoft 365 to provide more efficient workflows for legal professionals. The collaboration will also enhance LexisNexis' use of GPT-powered technology with Azure OpenAI Service. Products to be integrated include Lexis+, Lexis Connect, Lexis Create, and Lexis Create Plugin with Microsoft 365 Copilot. The company is also developing AI solutions with human oversight, in line with RELX Responsible AI Principles.
Ikaun, an AI-powered experience management platform, has introduced CV Automation to aid law firms and professional services organizations in finding accurate CVs. The tool can download and export large, consistent, and branded CV packages in different bid formats. It is designed to ease the process of identifying, verifying, and maintaining CV consistency for bid, proposal, and RFP packages, especially within large organizations.
Wolters Kluwer's Legal and Regulatory division reported a 4% organic growth in H1 2023, with revenues reaching €2,725 million, a 6% organic increase. The growth was largely driven by digital subscription revenues, with AI-leveraged products accounting for half of these revenues. The global information services technology company expects a rise in the group-level adjusted operating profit margin by Q4 2023.
James Barkley, a partner at McCarter & English, believes that the post-pandemic period could provide significant opportunities in commercial real estate for innovative companies and their legal teams. He suggests that transitional periods can lead to new opportunities, despite the challenges in the office property sector. Barkley aims to attract commercial real estate lawyers to assist smaller companies in growth without substantial in-house legal investment. He also emphasized the essential role of legal teams in managing property conversions and strategic moves in the evolving market.
The California Privacy Protection Agency (CPPA) is investigating data privacy practices of internet-connected vehicle manufacturers, marking its first public enforcement sweep. The probe is centered around the companies' compliance with the California Consumer Privacy Act during their collection and use of consumer data. Additionally, the CPPA is scrutinizing related connected vehicle technologies. This follows the agency's recent empowerment to enforce the Act.