In-house counsel have been forced to transform the way they work during the pandemic, and the experience has emboldened them to experiment with innovative LegalTech tools. General counsel share their experiences in this regard, while LegalTech service providers discuss what’s next on the horizon.
Corporate legal departments have significantly reshaped the way they work as a result of the COVID-19 pandemic, and some changes are expected to remain permanent features even in the post-pandemic world. In-house counsel are facing a shift toward more online communication in work processes as a result of remote working; also, they have to tackle an increasing number of complex risks. To that end, they are more ready to embrace technology tools that may reduce the need to spend their time on administrative tasks, so that they are able to deliver more value to their companies.
In the 2021 State of Corporate Law Departments Report recently published by Thomson Reuters, nearly a third of interviewed legal departments globally are upping their spend on technology in 2020, with 44 percent increasing their use of tech tools, and they are doing so against the background of “frozen or declining overall budgets and rising workloads.”
Legal departments of Chinese enterprises are not exceptions. Zhang Cuimei, general counsel of Haier Group Corporation, China’s largest household appliances manufacturer, tells ALB: “As the economic and legal landscape evolves in China and abroad, Haier’s legal department faces a growing number of challenges. How to resolve compliance and legal risks in broader and recurring scenarios with the least possible workforce and resources remains a pressing concern for all large companies.” In this regard, “legal + technology remains a strategic focus for us, the importance of which will only increase on the backdrop of the pandemic.”
As a matter of fact, China has fostered a world-leading position in terms of LegalTech development. China led the world in LegalTech patent filings in both 2018 and 2019, and filed 51 percent of all tech patents in 2018, according to a Thomson Reuters report.
As a Financial Times article points out, this may be a result of a critical shortage of legal professionals as opposed to the massive need for legal services in China. The article adds that “China’s dominance in LegalTech patents is likely to continue as its government encourages court innovation and artificial intelligence maintains a significant role in LegalTech software.”
As reported in the Financial Times article, “a growing number of lawtech start-ups are vying for business from companies’ in-house legal departments in an effort to take work away from traditional law firms.” Over the past year, players in this field find the game is increasingly interesting as the needs of the legal departments increase.
PowerLaw AI is a developer of artificial intelligence technology focusing on legal services. The company uses natural language processing, data mining and other artificial intelligence technologies to provide legal search, contract review, global information search, knowledge management, as well as other products and services. Tu Cunchao, PowerLaw AI’s founder and CEO, tells ALB that, over the past year, clients’ acceptance of its products has experienced “a visible leap up.”
Take MeCheck, PowerLaw AI’s core product of an AI-based contract analysis system, as an example. "When it is first launched, most people perceived it as a novel product and took a wait-and-see approach. As the growing megatrend of digitalization transformation among enterprises, increased awareness of legal/law business scenarios and emergence of benchmark cases, for now, we saw an obvious increase in the number of clients who are willing to know about the legal AI service, request a trial and express their interest in buying,” according to Tu.
Fadada, a LegalTech service provider backed by Tencent that is engaged in e-signature, cloud contract platform, credible evidence platform and electronic contract analysis platform, has also experienced this. According to Mei Zhen, Fadada’s co-founder and chief legal officer, enterprises decided to take up LegalTech “enjoyed huge benefits in the competitions even during the COVID-19 pandemic.”
Take financial institutions as an example. “Years ago, Fadata was approached by some financial institutions. Upon their request, we used information-driven solutions to restructure their operational processes, and installed the ‘hammer’ system for evidence preservation,” Mei says. After the pandemic broke out, “when all physical bank outlets were closed for business, such institutions shifted their business activities online, therefore 60 percent or more of their existing business operations remained unscathed – including contract signature when handling, say, credit cards or wealth management investments that could only be required handled over the counter.”
MORE DEMANDING REQUIREMENTS
Even as the need for technology tools has increased, legal departments are hardly rushing to adopt the first thing they see. They generally tend to develop clear-cut strategies before proceeding.
Zhang of Haier shares three factors to be considered when it comes to choosing LegalTech tools. The first is to ensure the company will pick LegalTech tools that fit with its business strategy and procedures. The second is to ensure the tools will guarantee the security and independence of the company’s data. And the third and final one is to ensure new tools fit with the existing business procedures and systems, and are, ideally, capable of being modularized upon system upgrade in the future and at a lower cost, if possible.
Given these considerations, Haier's legal department currently adopts the approach of "independently developing general tech tools with in-house resources or collating a combination of existing LegalTech products,” Zhang says.
Mei of Fadada also notes that over the past few years, legal departments have set increasingly clear-cut and demanding requirements from their LegalTech solutions. According to him, “in the area of database solution, for example, what is expected is a transformation from rendering massive primary data towards picking out the real hits and valid data from the human-machine conversation process; or from providing only professional legal information towards rendering practical information needed for companies and for use in their intellectual property right issues.”
“Clients expect vendors to build a sophisticated system platform as opposed to purchasing individual software tools. Chinese clients prefer a broader application of LegalTech solutions to corporate business systems to improve efficiency.”
—Mei Zhen, Fadada
As far as artificial intelligence is concerned, enterprise legal departments now expect a “shift toward providing a train of thoughts on how to deal with particular issues rather than providing search results; shift towards providing foundational results rather than providing general advice,” Mei adds.
As regards practical applications, Mei notes that “nowadays, clients expect vendors to build a sophisticated system platform as opposed to purchasing individual software tools. Chinese clients prefer a broader application of LegalTech solutions to corporate business systems to improve efficiency.”
As the development of LegalTech solutions is still in nascent stage clients and vendors need to align with what is needed and what is available. Tu Cunchao knows this very well. Over the recent years, he has been educating clients on the functioning principles behind the tech tools, and in the meantime has continued to tailor products in order to meet clients’ needs and solve their pain points.
For instance, “many customers intend to use machines to resolve issues which are difficult even to human beings, and this is indeed a misunderstanding of the intelligent technologies.” he says. “We use intelligent technologies for the fundamental purpose of freeing human beings from repetitive and dreary paperwork or tasks. In this sense, tech tools should be used to take some repetitive, trivial and mundane tasks.”
The values provided in such cases is by no means low. In a contract-review scenario, for example, "legal counsel have very little time to assess the deal structure, or to contemplate better contractual terms or deal structure. Rather, they spend more time dealing with the errors and omissions in the contract. These tasks are trivial and repetitive but time-consuming, and there is no room for negligence," he says.
PowerLaw AI’s electronic contract analysis tool is designed to solve this pain point. As Tu puts it, “with annotations of vast contract data, the database contains hundreds, or even thousands of exemplary expressions for each term or clause. When the need arises to construct a new contract, the product scans and understands what the contract reads, helps legal counsel to quickly spot all potential risk points contained in the contract, and proposes amendments with reference to the relevant regulations, thus improving the productivity and accuracy in contract review tasks.”
Tu also works with clients on their need for customized tech tools. “Many law firms and legal departments are in need of customized tools to meet their unique management requirements.” But as he admits, “a higher customization level leads to higher costs in purchase and system development/maintenance. In other words, this may result in poorer quality, lower reliability and maintainability, and may also jeopardize functional optimization or upgrades in consequent releases. To conclude, higher customization may not be an ideal solution for meeting personalized needs.”
In this regard, he advises that "clients may resort to configuration or product integration as much as possible to meet their personalized needs...... For example, DingTalk, an all-in-one mobile workplace, is capable of flexible configurations on personalized approval flows; MeCheck smart contract review tool developed by PowerLaw AI is also capable of personalized configurations on review checklist, review alerts and alteration suggestions.”
Interestingly, in addition to leveraging third-party technology tools, legal departments in some established companies have started to employ in-house solutions and adopt such tools in their subsidiaries and even the entire industry. Haier is one of them. Zhang Cuimei tells ALB that Haier’s legal department has developed multiple products, including contract + AI + IoT application, corporate credit +AI, contract performance monitoring, litigation prediction + AI, intelligent corporate system, and equity investment management.
“Take the intelligent corporate system for instance. Haier provides an automatic document generation tool, with which the full set of business registration documents will be generated for purpose of corporate establishment as long as the user provides basic information. In the AI-based contract system, we embed e-signature, blockchain, OCR, AI and other new technologies for increased contract signing efficiency, better compliance level and sound risk management.” Zhang says.
As legal departments constantly raise the bar in the LegalTech area, companies in the sector are upbeat about the growth prospects. As Tu Cunchao points out, for now only a very small number of legal departments are capable of developing in-house solutions. Taken as a whole, “enterprise legal departments are barely information technology equipped,” whilst the AI-backed market in which PowerLaw AI is a player is still in its infancy, “now we are only exploring single point scenarios for which no economies of scale is created, so the market is far from saturated.”
“In the years to come, the LegalTech sector will continue to meet the fundamental needs such as the needs for contract/case management systems, and solutions to meet the need for corporate contract scenarios may become a tipping point… LegalTech firms are expected to face a shift in their offerings from tools and contents toward service-oriented products.”
—Tu Cunchao, PowerLaw AI
Tu then shares his predictions for the LegalTech market. According to him, “in the years to come, the LegalTech sector will continue to meet the fundamental needs such as the needs for contract/case management systems, and solutions to meet the need for corporate contract scenarios may become a tipping point… LegalTech firms are expected to face a shift in their offerings from tools and contents toward service-oriented products, that is, offering legal services straightforward or offering products + services.”
Mei of Fadada argues that LegalTech is expected to play an increasingly important role going forward as compliance has become a key concern to businesses in 2021. “Every enterprise must build a well-structured compliance model and needs to adopt technology products that may identify and control risks relating to their business before they officially launch a business online,” he says. “Such technology products shall be able to record all information flows of online business generated from each process, and nail down the electronic evidence chain.” Fadada’s e-signature and “hammer” product are the very kinds of support needed by legal departments to ensure compliance and sound risk control.
When being asked for advice to aid legal departments in exploiting LegalTech tools, Tu suggests legal departments shall act quickly and with balanced mind. He says, “in case of single-function tech tools, enterprises may get involved in the early-stage development of such products and product feedback process. They may make joint efforts with the stakeholders to create the LegalTech products that most cater for their unique needs, and become a forerunner in such applications.”
In addition, the legal departments should "maintain a long-term mentality. Each product has a life cycle. In developing a product, we should not expect an all-in-one perfect product but focus more on the core functions and core values in the first place. Further, we better not value a product at its earliest stage of growth. It is only after product iterations and algorithm tests will the efficacy get improved,” Tu points out.
Mei agrees. He says, “changes in the LegalTech sector do not leapfrog into the digitalized era, and they are never accomplished at one stroke. When someday when people perceive plenty of new things and new technologies in their life and work, then they surprisingly find out that huge changes have long happened.”
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