The fusion of legal services and digital technology is rapidly changing commercial law and the pace of change is set to explode as technologies like blockchain, contract automation and smart forensic software take hold.
“We are in the midst of a revolution in technology and it’s in full swing,” says Adrian Chotar, a partner with PwC’s digital legal team.
“We are still in the early stages of that journey,” says Mr Chotar. “It’s an open question whether these technologies have fulfilled their full potential yet.”
Legal tech is a hot arena. Over the last five years the number of patents filed worldwide involving new legal services technology has jumped 484 percent, according to Thomson Reuters research.
The business news firm says 579 new legal services patents were filed globally in 2016, up from 99 in 2012. The US led with 38 percent of the 2016 patents, followed by China with 34 percent and South Korea with 15 percent.
At PwC, legal process automation work is well underway.
“We are looking to automate contractual processes and contract formation,” says Mr Chotar. “In procurement we are helping our clients with the status of where their contracts are at. Some of our clients have a deck of cards when it comes to their contracts
“We also have tools for monitoring contracts once they have been executed. There are dashboards and databases that help our clients manage their contracts and help out with things like when renewals are coming into play.”
Smart software is turbocharging the speed of commerce as well as cutting costs. Much of the grunt work in legal services that used to be done by hordes of clerks can now be handled by a smaller number of graduates armed with the right tools.
While software might be the turbo for 21st century law, Mr Chotar says legal practice must still be underpinned by the correct procedures and overseen by actual human beings.
“Whether it’s AI or a machine learning tool, ultimately it has to be taught with established rules and principles that you are putting in to the tool. In developing our machine learning tools at PwC, we are able to leverage a broad level of expertise across our firm and we believe that’s going to be a material competitive advantage.
“And we are finding significant efficiencies in the contract automation processes and due diligence.
Technology is changing the nature of a lawyer’s role in commercial law, Mr Chotar says.
“Rather than have lawyers churning through large volumes of material, (the tools) allow an initial assessment to be done (with automation), albeit with plenty of oversight and human input as well.”
“You don’t want to have an automated process that has to be duplicated by human effort just to check how accurate it is. It’s about finding the best combination of people and technology.”
The process of automating legal processes requires careful structuring and tuning of algorithms at the beginning to make sure the production tools give consistently good output.
An area where AI and machine learning tools are making impact is in the forensic analysis of procurement chains and accompanying contracts.
Smart software can sniff out ‘value leakage’ where a contract is skewing the wrong way for a PwC client.
“A lot of analysis is being done to search out where value leakage might be occurring across a contract. With large scale contracts sometimes what is being implemented does not necessarily reflect the terms of what has been agreed.”
PwC has been able to unearth major savings for some clients after analysing contracts for value leakage.
“The problem might be because an incorrect price has been put in or even small things like the timing of when invoices are issued,” says Mr Chotar.
The potential of machine learning systems, AI, blockchain and big data have had business buzzing in recent years and Mr Chotar sees there are new legal issues to weigh when taking these technologies on board.
“The use of AI raises a lot of challenging legal and ethical questions, such as who is responsible and liable for the output of decisions taken by systems,” he says.
There are ethical issues for lawyers using legal tech tools. We might be using tools within our own services but that doesn’t mean we can step aside from out professional obligations or our ethical duties.”
Another legal tech issue is intellectual property protection where AI systems are creating products .
“This can raise questions as to who owns the IP. When you have code that has been generated by computer software with no human input, Australian courts have held that the code it not protected by copyright. Because there is no human author there is unlikely to be any copyright protection.”
The entrance of blockchain systems into the Australian financial scene as well as the banking system opening up APIs and data sharing with FinTech applications promises unheard of innovation but also new legal issues.
“Anything that involves multiple transactions that require trust and where those transactions are looking to be verified through something other than a centralised authority.”
“One of the challenges is how to protect the confidentiality of information that has been distributed on a public ledger. While blockchain offers anonymity it doesn’t necessarily guarantee confidentiality.
On the plus side for new wave financial technologies, Mr Chotar sees the advent of smart contracts that can execute under their own coding.
The potential for legal tech is only just beginning and the rate of change is only going to ramp further as we head for 2020 and beyond.
“The intensity and the volume in which these changes come through is going to be huge, says Mr Chotar who believes we can expect to see further developments in how government and regulators handle the tricky balancing act between large scale financial data sharing, privacy and security.
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