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 and include contract management and automation platforms, legal operations software, legal intake tools, advanced database systems, collaboration tools, and electronic discovery (e-discovery) software. For example, JusticeText, a 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 of criminal defendants, thus providing a hybrid govtech / legal tech solution for 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, are people seeking alternatives to the use of lawyers. B2C legal tech products are often framed as “Do it Yourself” solutions and usually promise lower prices than traditional legal services. Examples include web-based 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 that helps people with divorce proceedings.
Size of the market
The global legal tech market is expected to significantly grow 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 e-discovery, 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 some version of a duty of technology competence in their model rules of professional conduct.
In James v. National Financial, LLC, C.A. 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 their law firm. Although a breach of the duty of technology competence 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 “relevant technology” remains ambiguous, and further clarification from the courts and bar organizations/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 training. Existing firms that similarly invest in technology training could have a competitive advantage over those slow to adapt.