2018年，吕立山 (Robert Lewis) 律师参与成立了合通机器人。他在中国有近30年代理跨境交易的经历，认为“合同或法律文书是非诉律师最主要的作品”，因此将合同自动化作为法律科技创业方向。合通机器人目前提供智能起草、审核合同两大功能，并且推广“动态化合同”概念：“例如想起草一份经销协议，可以通过10分钟在线问答，利用系统生成超过1500万亿份不同版本。”
Digital transformation has become a key goal of many in-house teams in China that are hoping to better tackle risks, and also become more efficient. ALB speaks to LegalTech service providers on how they have solved clients' pain points in the past year and what they see as future trends in this field.
With all the headaches caused by the pandemic, in-house legal teams now find themselves facing a whole new set of challenges, which, broadly speaking, rely on increasingly limited resources to manage growing workloads.
A number of recent reports have revealed the plight of in-house teams in the post-pandemic era. For example, 50 percent of the in-house teams surveyed by Thomson Reuter's 2021 State of the Corporate Legal Department report have seen workloads growing, while 29 percent have experienced budget cuts at the same time.
Turning to technological tools seems to be the most natural solution to this dilemma. According to the same report, 30 percent of the in-house teams have increased spending on technology, while 44 percent reported greater reliance on technology tools. In addition, according to Deloitte's 2021 State of Legal Operations Survey, 76 percent of the in-house teams surveyed have adopted new technology tools, while 54 percent have defined their LegalTech roadmaps for the next phase.
In-house teams of Chinese enterprises are no exception. Wu Fei, head of the legal team of Nanjing Iron & Steel Co., Ltd and co-director of its risk control department, tells ALB that his team, with a "technology-driven focus," has launched two updates to its contract management system since 2017.
In particular, the team leveraged the e-signature function on BestSign's e-signature platform during the early days of the pandemic, showcasing the role of technology tools in helping the team cope with crisis and improve efficiency. "Although express delivery was halted during that time, using the e-signature system has helped us avoid adverse effects and guarantee continued production and product supply,” Wu recalls, "at that time we signed contracts with clients on mobile phones, and the executed electronic contracts were immediately uploaded to the accounting system, enabling payment to be made after verification. In this way we managed to maintain the smooth operation of the procurement process.”
Over the past years, LegalTech service providers have been committed to partially automating labour-intensive legal processes in response to the inevitable "age of efficiency.”
In 2018, Robert Lewis co-founded docQbot. With nearly 30 years of experience representing clients in cross-border transactions in China, Lewis believes "contracts or legal documents are the primary work products of non-litigation lawyers.” That is why he selected contract automation as the focus of his LegalTech venture. DocQbot currently features two main functions: Contract auto-drafting and contract auto-review. It also promotes the concept of "dynamic contracts.” "For example, if you want to draft a distribution agreement, you can use the system to generate more than 1500 trillion different versions after only a 10-minute online Q&A," he notes.
Contract automation can greatly improve the productivity of in-house teams. "Many corporate counsel say 80 percent of their time is spent reviewing contracts. Therefore, having tools to improve efficiency will allow them to make more strategic contributions," says Lewis. At present, docQbot provides English-language contract review powered by artificial intelligence, and has been constantly training the robots to identify new risks to review.
Sometimes, improved efficiency also enables in-house teams to perform functions that were not possible before.
BestSign, China's leading e-signature cloud platform, cites a real-life example of one of its clients. Zhang Jianjun, General Counsel of Orion Group China, once wanted to retrieve the company's distributor data but found that the existing system was unable to turn up accurate search results. As a result, data still needed to be sorted manually.
Adopting the BestSign platform solved this issue. With BestSign, data about distributors that have gone through real name authentication are gathered automatically in the SAP system, thereby maintaining the accuracy of the company's basic data. In addition, the platform "goes the extra mile" by completing real-time notarization at the same time when a real-name-authenticated distributor signs an agreement, reducing the potential burden of proof for the in-house team subsequently.
“Tens of millions of Chinese enterprises are interconnected in multiple points, and need to 'speak to each other' in a big network, and the e-signature platform is exactly this a big network.”
To BestSign, tens of millions of Chinese enterprises "are interconnected in multiple points, and need to 'speak to each other' in a big network,” and the e-signature platform is exactly this a big network. It also provides conditions precedents for "better business relationship,” such as good faith and trust. "Many BestSign clients have upstream and downstream vendors and suppliers who are also BestSign clients, and this makes instant review and approval of e-signatures between them possible. As an independent third-party platform, BestSign is the natural solution to trust issues between business counterparties."
In addition, in-house teams can leverage the BestSign platform to improve the implementation efficiency of in-house teams. To answer the question of "how can the rules made by the in-house team be effectively enforced in the business process,” BestSign provides compliance data analysis of business partners, guarantees contracts are tamper-resistant, and strictly segregates the power of different roles in the contracting process, thus improving the tangible impact of the work of in-house teams in a true sense.
ADDRESSING NEW ISSUES
Apart from improving efficiency, in-house teams also need to leverage technology tools to enable faster functional innovation in the face of changing regulatory and business climates. This has been an area attracting the attention of LegalTech providers over the past year.
Lewis cites docQbot's "FIE-conversion" function as an example. In early 2020, China promulgated the new Foreign Investment Law, which requires foreign-invested enterprises established before the enforcement of the new law to amend their existing articles of association (for wholly foreign-owned enterprises) and joint venture contracts and articles of association (for Sino-foreign joint ventures) by the end of 2024. "With more than 520,000 foreign-invested enterprises in China, this poses a huge workload far beyond the then available working capacity of the market. LegalTech tools are thus indispensable to achieve better efficiency," Lewis points out.
The organizational instrument amendment work is more complicated for joint ventures. However, the "FIE-conversion" function guides users to automatically generate a roadmap for amending existing joint venture contracts and articles of association in a few steps, enabling lawyers to complete "the last mile" amendments based on the system-generated version, thus "saving 80 percent of time.” In Lewis' opinion, this product reflects the future working model of LegalTech tools: the machine automates the boring process, while the human brain makes an ultimate judgment and optimizes the final output.
Another focus area of innovation for LegalTech firms is to provide affordable technology tools for small and medium-sized enterprises (SMEs). China has more than 40 million enterprises, 95 percent of which are SMEs. Such enterprises often lack internal and external legal support and are financially strained to afford costly technology tools.
In addition to insufficient budget, Lewis believes another pain point facing SMEs is their fragmented needs for legal services. He says, "I am thinking whether we can adopt the model of ‘community legal counsel’ for a number of SMEs. For example, for some enterprises in China’s special economic development zones, their legal demands for cross-border transactions are infrequent, and the fees they are willing to pay are not acceptable to lawyers. This has created a disconnection between demand and supply. The technology-plus-lawyer approach may bridge this disconnection: preliminary supporting tasks can be left to machines, lawyers can then dedicate their time to decision making and communication, and enterprises can procure such services collectively."
While in-house teams generally acknowledge the role of technology, finding the "right tool" involves a trial-and-error process with many different considerations. The Deloitte report above, for example, notes that 46 percent of the surveyed teams have not yet found the right tools, 76 percent admit they still need to do extra work outside of the tools, and 57 percent cite the lack of customization of technology tools as the biggest concern.
Wu admits "enterprise information security" is the primary consideration before adopting technology tools. As such, "the compatibility of the new tools with the existing system environment and functions, their interoperability with other business systems, and the security of the technology tools" are the most important factors to be examined.
BestSign has observed that more and more "in-house teams have taken the lead in introducing electronic signature services in enterprises" over the past few years. Therefore, "legal compliance is the base, while security is another very important factor. In particular, foreign-invested enterprises usually include security in their client audits.” In a nutshell, areas of concern for enterprises may be summarized as: centralized management and control of seals and contracts for large group companies; segregation of data and power in multiple e-signature scenarios; prevention of legal risks in contract signing; data security and protection of personal privacy and data.
As BestSign points out, the pandemic that has lasted nearly two years continues to drive wider acceptance of technology tools among in-house teams. At the same time, it is critical to provide prompt follow-up services for clients. "BestSign would look into client needs to tackle issues that hinder business development, whether in the implementation phase or in the business roll-out /go-live stage.” One BestSign client provides the following feedback: "BestSign would visit clients some time after a new function has gone live to ask for feedback, and collect issues reported by clients related to their use of the function. It continuously optimizes system functions in light of the actual business situations to help clients better carry out their business."
Talking about the technology tools on the team's radar, Wu shares that "one of the pain points is the inadequate exploitation of data... The system generates massive data during usage, but existing data has not been adequately exploited to predict future trends or to serve as reference for future decision making. This should be one area for our future upgrading."
Another challenge facing in-house teams is the lack of skilled personnel. According to the Deloitte report, only 35 percent of the teams surveyed believe their team members have adequate technology skills, and only 30 percent think that team members are effectively leveraging technology tools.
"Who stands in between? Who can combine legal expertise and technological functions? I think this is the most important issue facing the LegalTech sector,” says Lewis. As a matter of fact, both in-house teams and LegalTech firms have urgent needs of talents who can integrate legal expertise and technological know-how. "This is particularly important when it comes to developing AI-powered contract review products. Without legal expertise, it is difficult to identify the right risk factors, as technology experts are not capable of doing the judgments," says Lewis, "In China, few people are both legally and technologically competent, and it has taken us years of study and training to groom such resources in our team."
"LegalTech tools must ultimately be lawyer-centered to serve legal needs.”
Robert Lewis, docQbot
Just as Lewis says, "LegalTech tools must ultimately be lawyer-centered to serve legal needs.” As first-hand users of technology tools, in-house teams are also attempting to integrate legal expertise and technological know-how. Over recent years, many in-house teams have launched proprietary technology tools, Wu's team being one of them. Wu tells ALB that this June, his team launched "a tailored litigation management system that incorporates Nanjing Iron & Steel's 42-step litigation approach, and integrates management and specialized needs.” Going forward, the team will "try to standardize the dispute resolution management system, and share the product with other group companies that need to handle cases on their own."
LegalTech has become a hot investment target in recent years in Europe and the United States. In July, LegalZoom, a US online legal services website, went public on NASDAQ, raising $535 million. Several LegalTech service providers also raised capital from multiple rounds of financing this year. However, the LegalTech sector is still in its infancy in China despite two decades of exploration. Where do market insiders think the industry will be in terms of R&D and financing prospects in the next phase?
"We have seen successes and failures in financing in recent years," Lewis admits. "The LegalTech sector witnessed a financing craze about four, five years ago, but entered a financing winter three years ago... I believe many investors are more technology-focused and are not necessarily legally competent. For example, the application of AI is limited in the LegalTech field, but investors value AI the most. This will also lead to gaps."
But he remains optimistic about the future prospect of LegalTech companies in China, as there is definitely demand. "Both law firms and lawyers want to automate the processes for solutions, and in-house counsel want to improve productivity and create better values... We really welcome more people to join force with us," he says.
To contact the editorial team, please email ALBEditor@thomsonreuters.com.