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Understanding The Legal Tech Industry and Ethical Duties Related To Legal Technology

This article discusses two different types of legal tech solutions (B2B and B2C) as well as the size of the current legal tech market. This article also addresses changes to model ethical rules with respect to legal technology.

B2B versus B2C solutions

Legal tech is a mature enough industry where it is now possible to differentiate between B2B (business to business) and B2C (business to consumer) solutions. B2B legal tech solutions refer to products that are designed to serve law firms, legal departments of private and public companies, police departments, public defenders, and courts. Such solutions vary from contract management and automation platforms, legal operations software, and legal intake tools to more advanced database systems, robotic cameras, collaboration tools for contract drafting/reviewing, document and contract workflow management platforms, or electronic discovery software. For example JusticeText, a software company that recently announced the closing of a $2.2 million seed round, engages with public defenders and private criminal defense attorneys by developing legal tech solutions related to representation for low-income criminal defendants, thus providing a hybrid govtech / legal tech solution to the criminal justice system. As reported by the 2021 Wolters Kluwer Future Ready Lawyer Survey Report, 63% of law firms say they will increase their technology investment over the next three years.

By comparison, end-users of B2C products are usually consumers in direct need of legal services and, generally speaking, people are seeking alternatives to the use of lawyers. B2C legal tech products are often framed as “Do it by Yourself” solutions and are usually incentivized with lower prices than traditional legal services. Examples include web-based legal tech tools that help people with legal issues concerning business formations, small claims, divorce and child support, immigration, insurance, intellectual property, wills, and other such matters. For instance, Courtroom5 is a tech-enabled service that provides tools and training to people who represent themselves in civil court. Hello Divorce is an online platform providing tools and affordable legal services that help people get through divorce proceedings.

Size of the market

The global legal tech market is expected to experience significant growth in the next couple of years. In 2021, the legal tech industry generated revenues of $27.6 billion worldwide. The market is anticipated to grow annually by over 4% through 2027. Transactions in 2021 (including investment funding as well as mergers and acquisitions) exceeded $9.1 billion. Some of the earliest legal tech companies—LegalZoom (online legal document service), DISCO (AI-powered platform simplifying eDiscovery, legal document review, and case management processes), and Intapp (comprehensive, cloud-based software for law firms)—also went public in 2021. Two other companies—Clio (web-based management software for law firms) and Everlaw (a platform for document analysis for law firms, government, and corporations)—hit valuations exceeding $1 billion and achieved unicorn status.

The ethical duty of technology competence

In 2012, in response to the growth of the legal tech industry, the American Bar Association expanded Model Rule of Professional Conduct 1.1 to establish a duty of technology competence. Amended Comment 8 now requires that “a lawyer should keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology, engage in continuing study and education and comply with all continuing legal education requirements to which the lawyer is subject.” This change is a response to the ABA’s findings on the growing role of technology in delivering legal services and the understanding that such growth should be taken into account when determining the scope of lawyers’ skill sets. Currently, 40 states have adopted the duty of technology competence to their model rules of professional conduct verbatim or in a similar way to this model rule.

In James v. National Financial, LLC, CA no. 8931-VCL (Del. Ch. Dec. 5, 2014), the court stated that “deliberate ignorance of technology is inexcusable. … If a lawyer cannot master the technology suitable for that lawyer’s practice, the lawyer should either hire tech-savvy lawyers tasked with the responsibility to keep current, or hire an outside technology consultant who understands the practice of law and associated ethical constraints.” According to the 2021 Wolters Kluwer Future Ready Lawyer Survey Report, 35% of lawyers say that new technology is resisted in their law firms due to a “lack of technology understanding, knowledge, and skills” and less than one-third (31%) of lawyers say that they are very prepared when it comes to how well they understand the benefit of technology to the law firm. Although a breach of duty of technology competence by a lawyer could lead to possible regulatory sanctions or malpractice liability based on professional negligence, the ABA’s Comment 8 does not provide any guidance on the determination of such a breach. The scope of the required level of understanding of the technology remains ambiguous and further clarification from the courts and bar organizations and associations will play a crucial role in shaping this standard.

As of today, only a few states have implemented technology training as a part of a lawyer’s continuing legal education requirement (CLE). Florida was the first state to raise the minimum number of required CLE hours from 30 to 33 to include technology-related courses. Recently, New York added one hour of cybersecurity, privacy, and data protection training as part of its CLE requirement. Notably, an increasing number of law schools aim to prepare future generations of lawyers for the 21st-century practice of law by including technology-oriented courses, such as legal operations, regulation of emerging technologies, e-discovery, design thinking, and privacy and cybersecurity law, in their curricula. States and law schools are just now starting to recognize the importance of technology skills training through these changes in their curriculum and licensing requirements. Existing firms that invest in these technologies will have a competitive advantage over those slow to adapt.

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