Contract Review typically includes tasks like clarifying contract related facts, measuring the feasibility of a contract and forecasting contract risks – a tedious process which the development of Artificial Intelligence (AI) has significantly facilitated. We have a look at the benefits of AI Contract Review, its impact on law firms and the future in the legal market.
The use of AI contracting software has the potential to improve how all firms contract. AI contracting software can identify contract types based on pattern recognition in how the document is drafted and because it trains its algorithm on a set of data (contracts) to recognize patterns and extract key variables such as clauses, dates or parties, it allows for more efficient management of contracts.
AI Contract Review also offers simple prediction, which has implications for due diligence, a major legal task: it can quickly analyze a great number of contracts and flag individual contracts based on firm-specified criteria. Furthermore, it can quickly assess risk in contracts by identifying terms and clauses that are key to the contract and reduce the risk of human error in contract drafting and review. LegalTech startup LawGeex has published a study demonstrating their artificial intelligence software is able to identify issues in Non-Disclosure Agreements (NDAs) faster and more accurately than experienced lawyers.
The impact of AI contract review on the legal services market is enormous – but not necessarily negative, as many lawyers fear. In fact, having additional contract data can allow firms to update their contracts more regularly, and lawyers to focus more on client strategy, assessing risk or providing counsel, rather than on document review. This can also boost law firms’ revenue and produce better results for clients, without an increase in headcount.
Quoted in a Harvard Business Review article, Professor Gillian K. Hadfield, a professor at the University of Southern California who specializes in contract law, believes that AI in contracting will lead to better use of legal talent. “Lawyers will shift their focus from routine activities to much more high-value work involved in shaping strategies and navigating complex legal problems”, he said.
The expansion of AI Contract Review also responds to clients’ unwillingness to pay top law firm rates for routine contract work and law firms’ reluctance to portion off that work to another lower-cost firm. It highlights the fact that law firms are increasingly willing to keep ‘process level’ work inside the business if they can do it more efficiently themselves, rather than outsourcing it – notably to stop revenue leakage.
Turning to the AI contracting software market, some of the key vendors include eBrevia, Cortical.io and Kira Systems (used by some of the world’s largest firms like Clifford Chance and Allen & Overy). An important step for the industry was the recent announcement of global law firm White & Case to deploy legal AI contract review pioneer LawGeex’s software on a white label basis. The move is significant as LawGeex is mainly used by corporate legal teams, such as those at eBay and Office Depot, rather than within law firms and shows an increased willingness among major law firms to in effect ‘re-sell’ legal tech companies’ software that performs an ongoing service for the end client.
With the white label project launching within the global firm’s private equity group in London, and other law firms believed to being assessing similar arrangements with LawGeex, law firms are increasingly seizing the opportunity that AI contract review represents.
Lastly, while LegalTech sectors like e-discovery felt the pinch of COVID-19 related shutdowns, the AI Contracting industry has been resilient to the impact of the pandemic, as exemplified by LawGeex’s closing of a $20 million financing round led by Corner Ventures, highlighting the promising future of AI Contract Review and more generally of AI’s legal use.
Artificial Lawyer (2020). White & Case Whitelabels LawGeex For Client Contract Review Needs. [online] Available at: https://www.artificiallawyer.com/2020/01/28/white-case-whitelabels-lawgeex-for-client-contract-review-needs/ [Accessed 14 Sep. 2020].
Harvard Business Review. (2018). How AI Is Changing Contracts. [online] Available at: https://hbr.org/2018/02/how-ai-is-changing-contracts.
Harvard Journal of Law & Technology. (2018). A Primer on Using Artificial Intelligence in the Legal Profession. [online] Available at: https://jolt.law.harvard.edu/digest/a-primer-on-using-artificial-intelligence-in-the-legal-profession.
Law.com (2020). LawGeex Raises $20 Million, Underscoring Contract Tech’s Resilience in COVID-19 Economy. [online] Legaltech News. Available at: https://www.law.com/legaltechnews/2020/05/12/lawgeex-raises-20-million-underscoring-contract-techs-resilience-in-covid-19-economy/ [Accessed 14 Sep. 2020].
Omdia (2019). AI Can Optimize the Review and Analysis of Legal Contracts [online] Available at: https://tractica.omdia.com/artificial-intelligence/ai-can-optimize-the-review-and-analysis-of-legal-contracts/ [Accessed 14 Sep. 2020].
The Lawyer Mag (2017). Legal tech firm turns to AI for contract review. [online] Available at: https://www.thelawyermag.com/au/news/general/legal-tech-firm-turns-to-ai-for-contract-review/202489.
Top 500 (2020). AI Proves to Be the Best Legal Mind for Contract Reviews | TOP500. [online] Available at: https://www.top500.org/news/ai-proves-to-be-the-best-legal-mind-for-contract-reviews/ [Accessed 14 Sep. 2020].