Experts say Canadian innovators are uniquely situated but still face things that limit growth
Canada’s legal technology sector has been steadily gaining traction, showcasing a unique capacity to innovate and expand despite its relatively small size. The market’s development is shaped by a combination of strategic positioning, regulatory challenges, and the gradual adoption of advanced technologies like AI.
Colin Lachance, principal at PGYA Consulting, says legal tech is still the “poor cousin” of the broader technology industry. According to Lachance, the success of legal tech products often hinges not on the novelty of the technology itself but on how well it integrates with existing business processes.
Colin Lachance
“Breakthrough products aren’t breakthroughs because of technology. They’re breakthrough because they’ve lined up well with the business process that everyone from solos to large firms may find a way to slide themselves into and appreciate the change,” he says.
One of the factors contributing to Canada’s success in legal tech is its ability to use its domestic market as a testing ground before expanding into larger markets like the United States. Lachance says that this strategic approach allows Canadian startups to refine their offerings and compete effectively against more mature markets, such as the UK. Lachance cites the example of a company like Goodfact, a tool that helps litigators build chronologies that grew through community support and word of mouth.
“It wasn’t launched as an AI company. It was launched from the perspective of a litigator who thought, ‘We can do this better,’” says Lachance.
Al Hounsell, director of strategic innovation and legal design at Norton Rose Fulbright Canada LLP, provides a statistical perspective on Canada’s impact in the global legal tech market. He notes that while Canada’s software market is only 6 percent of the size of the US market, the Canadian legal tech market represents 25 percent of the US market.
Al Hounsell
“These numbers are inescapable. Canada punches above its weight in this category,” Hounsell says.
He attributes this strength to the robust support from academic institutions and legal tech incubators such as the Legal Innovation Zone (LIZ) at Toronto Metropolitan University. These incubators play a critical role in fostering innovation and providing startups with the resources they need to develop and refine their products. Hounsell also highlights the slower pace of technology adoption within the Canadian legal market, which, combined with the supportive environment, allows startups more time to perfect their solutions before scaling up.
Generative AI has emerged as a key driver of disruption in the legal tech sector, particularly in Canada. Hounsell says AI is particularly well suited for tasks involving a limited scope of content, such as document review and due diligence, where it can significantly enhance efficiency and accuracy. However, he cautions the misapplication of AI can lead to suboptimal results.
“There are some specific things that generative AI is very good at, and that’s where we need to focus the technology for now,” he says.
Chris Bentley, managing director of the Legal Innovation Zone, says regulation is the “biggest barrier” to innovation in the legal sector, noting that the profession has been slow to embrace technology. Despite these challenges, Canada has developed a strong tech ecosystem, particularly in cities like Vancouver, Toronto, and Montreal, where companies like Clio have thrived by leveraging access to both the Canadian and US markets.
Yet Bentley says restrictions on outside investment in Canadian law firms are hampering innovation. This limitation, according to Bentley, means Canadian companies can’t innovate and scale as fast as they can in jurisdictions like the UK, where the legal tech ecosystem is more integrated and supported by government and industry collaboration.
“In Canada, we can’t have outside investment which would leverage our smarts and the smarts of others,” Bentley says.
The legal tech sector in Canada is still evolving, with significant developments expected in the coming years. Lachance says the initial hype cycle for generative AI may be dying down, but real change is happening behind the scenes. He draws a parallel with the development of Boston Dynamics robots, where initial advancements appeared modest but later became revolutionary.
“It’s easy to giggle at a robot that you could push over with a hockey stick, [but] then you stop paying attention, and suddenly, the next time you look, the robot is doing parkour-like backflips.”
Moving forward, Hounsell also says the integration of AI into legal processes may lead to an increased volume of cases, which could put pressure on the existing court system. “The courts are going to have to reckon with that,” he warns, referring to the legal system’s fixed capacity to handle a growing caseload.
6%: Canadian software market as portion of US market ($21B vs. $363B)
5%: Canadian legal market as portion of US market ($19B vs. $396B)
26%: Canadian legal tech market as portion of US market ($2.56B vs. $10.21B)
