Sizing up AI for in-house

At a time when in-house counsel and legal departments are facing operational challenges, contending with a more dynamic and complex legal landscape, grappling with tight budgets and staffing allocations while expected to deliver quality service in an efficient and timely manner, AI appears to be an attractive solution that holds the promise of providing intelligent problem-solving resources to transform the delivery of legal services. The technology is already being used for contract drafting and management, data handling and management, e-discovery, fraud detection, legal research, litigation and patent analysis and outcome prediction.

But while legal professionals are notoriously slow adopters of new technology, in-house counsel are beginning to explore ways to use technology. Controlling outside counsel costs remains the top priority for an overwhelming majority of legal departments, prompting them to move more work in-house while increasingly turning to technology and legal operations to drive efficiency, according to a report by Thomson Reuters entitled “2018 State of Corporate Law Departments.” A growing number of departments, large and small alike, are looking to leverage technology to simplify workflow and manual processes, slash costs, improve productivity and better manage risk and compliance. Organizations with legal operations staff, however, are more likely than the average legal department to develop systems in contract management, project management, e-billing and document management, adds the report.

But tech firms or startups aside, the adoption of AI tools appears at first glance to be the exclusive purview of large departments. More than 62 per cent of legal departments staffed with 10 or fewer lawyers indicated their departments are either not ready nor interested in AI technologies, while more than 70 per cent of legal departments with more than 11 lawyers believe their departments were receptive, revealed another report by Thomson Reuters. But for alleged technological luddites, those are still impressive figures. Looked at another way, that still means that more than one in three law departments view AI deployment as a priority, with an additional 20 per cent considering an initiative over the next several years, according to U.S.-based HBR Consulting.

“Where we’re at is that companies are increasingly turning their minds to the implications of AI integration,” says Carole Piovesan, partner and co-founder of INQ Data Law. In fact, legal departments, in a growing number of cases, are leading the charge. They are ideally positioned because they are “lead users,” to borrow a phrase from Eric von Hippel of MIT from his ground-breaking book The Sources of Innovation. They are the ones who have a strong incentive and who stand to profit the most by solving problems that they face, says Richard Brait, general counsel at Siemens Canada Ltd. Indeed, Brait says in-house departments are “prime candidates” to be the lead users in the legal industry by introducing process innovations that can solve problems for their departments, lawyers and business.

“An in-house department, when facing important problems, can innovate and do a much better job at innovating than legal technology providers or law firms because they are the ones who are going to profit from it,” he says. That is an observation shared by Piovesan, albeit with slight nuances. “The uptake in emerging technologies is really propelling the position of the general counsel to be more innovative because they really do have the knowledge and skills you need to permit innovation,” she says.

Artificial intelligence is not a panacea, however. In-house counsel cannot and should not expect to be able to install AI technology and expect it to weave its magic. “A lot of these AI tools are in their infancy, and they have certain limitations like any tool,” says James Kosa, an information technology and intellectual property lawyer with WeirFoulds LLP. “If not used properly or by people who are not trained, they can be misused in a way that doesn’t lead to an advantageous result.” In many cases, especially for small legal departments, simple process innovation is enough or, as Brait puts it, a strong process with the proper forms and appropriate knowledge management can work wonders. But in cases where the volume of work is copious, the problem is important enough and there is enough data to fuel the AI, then AI solutions are worth exploring.

Even then, the groundwork must be laid before implementing technologies that incorporate artificial intelligence, something that Demone is in the midst of doing. A comprehensive and disciplined effort should be undertaken to identify the pain points or problems that need to be resolved. “The other big realization, as we started looking at all the tools that were out there, AI-enabled or otherwise, was that the important thing for us was not so much to find a tool but to figure out what process it is we want in order to solve the needs we have,” says Brait, who underwent the exercise recently. “Unless it’s a very high-volume process for us, we probably don’t need a digital legal tool.”

Legal departments are no different than law firms, says Natalie Munroe, the head of Osler Works — Transactional. They have to think about the services they provide to clients and how they want to transform how they provide those services to clients, adds Munroe. “You actually have to take a step back and look at how you are providing legal services and how you want to transform it. And then figure from a people process and technology perspective what makes sense,” says Munroe.

In-house counsel also have to get a good handle on where the business is going and what its priorities are as well as strategically think about the data the organization has, all of which are key to develop an AI strategy, says Piovesan, who advises the Canadian government on AI policy issues. A legal assessment of the data in the organization’s possession is a necessary exercise to determine at the outset the legal issues that could arise from the use of the data. Data ownership has to be ascertained as does how the data could be used, if it can be used due to privacy considerations. On top of that, in-house counsel have to take steps to minimize exposure to liability for data use, cybersecurity and the use of AI systems. And, of course, they have to figure out whether AI can serve as a tool to support the business by making it more efficient, help reduce operational costs, streamline internal processes and identify new opportunities. “We’re not yet in the AI world,” says Piovesan. “We’re in a data monetization world. We are trying to understand and better get a handle on what data we have and [what] we can use it for. That’s where we are. Artificial intelligence is the system that benefits from all that use of data.”

But although AI applications and their impact are on the upswing, costs remain a concern. Even an e-signature tool can be expensive depending on the number of users and number of licences one has to obtain, says Munroe. “Any technology you’re adopting comes at a cost and, therefore, you have to weigh the cost benefit and the revenue you can generate or potentially the FTE [full-time equivalent] you can decrease to make sure it makes sense from a cost perspective,” says Munroe. AI-powered document automation and document management tools, such as the ones Demone is considering, are things many legal departments have either adopted or are considering procuring.

But many other legal departments are placing the onus on law firms to offer greater value for the legal services they provide. “As these AI tools become accepted in the marketplace, a natural corollary is that in-house counsel will also be expecting their outside counsel to use such tools,” says Kosa, president of the Canadian Technology Law Association and the chairman of the Canadian Bar Association’s Intellectual Property Section. “For two reasons. They would expect legal costs with respect to certain types of legal activities to drop, and they would also expect the quality to be maintained or improved.” Or, as Isi Caulder, co-leader of the AI practice group at Bereskin & Parr LLP, puts it: “Our clients are forcing us to be awake.” Many law firms are rising to the challenge. Caulder, for one, has a panoply of AI tools at her disposal, many of which are centred around patent analysis and outcome predictions to obtain insights over a patent examiner’s patterns and practices, which makes for a cheaper and smoother process for clients. Munroe’s OWT department, meanwhile, principally offers AI-enabled due diligence and e-discovery tools, as does McCarthy Tétrault in addition to contract management AI tools.

Partnering with a law firm to use AI solutions can reap rewards as Siemens discovered. The multinational engineering and electronics firm is often involved in mergers and acquisitions as well as reorganizations, and Brait was wondering whether the use of new legal technologies could increase the efficiency and accuracy of its process. Its law firm piloted four technologies, including two separate contract analysis tools that used AI and machine learning to identify contract terms as part of the due diligence. The trial compared a manual review with the AI-assisted one. While both achieved similar levels of accuracy, with both missing between 30 per cent and 40 per cent of clauses for which they were looking, the AI contract analysis tool took about half the time. This spurred Siemens to conclude that the use of such tools would be a requirement for its firms on future transactions. What’s more, the firm is now examining how it uses these tools internally. “I just don’t want to address our needs as a department,” says Brait. “What we created was intended to address the needs of our business. We need to create tools that allow us to make customers happy.”

In the meantime, Demone expects to implement multiple technology-based tools, some of which will be AI-powered. But she’s at the beginning of the process. She has begun identifying processes that she would like to automate and is beginning to explore her options. “In-house lawyers know the business really well, so the idea is to free up the lawyer’s time to do the things that the tools can’t do to add value in different ways,” says Demone.

Editor's Note: The online version of this article has been updated to clarify that Carole Piovesan is no longer with McCarthy Tétrault.