The arms race – City rivals ramp up AI tech for the battles ahead

After a 2016 inflection point for automation, which City players are going beyond the hype and pushing ahead in the use of AI?

It is like 1999 all over again. That year, the legal tech bubble reached bursting point as law firms fell over themselves to demonstrate their commitment to cutting-edge tech. And things started to feel familiar in 2016 as the Magic Circle took its first substantive steps into the sphere of artificial intelligence (AI). But while the investment and hype has expanded, so has the scepticism. Will this be the start of the long-anticipated automation revolution or another false dawn?

Last year saw a raft of legal tech specialists become boardroom names at law firms: Kira Systems, RAVN Systems, Neota Logic and Luminance were the start-ups being touted by legal technology officers. Machine learning, contract robots, natural language processing and advanced automation became buzzwords for law firm marketing.

Senior partners took note of the speed of developments. Meetings between then Slaughter and May M&A head, now senior partner, Steve Cooke and tech leader Mike Lynch in late 2015 preceded the public arrival of AI due diligence tool Luminance at the Magic Circle firm in September 2016. Meanwhile, Linklaters was investing in banking AI for ring-fencing work as Clifford Chance (CC) hailed the arrival of Kira for M&A support. Legal tech was moving from the Cambridge digs and PhD labs and into the hands of deal teams.

The City elite are all now openly embracing AI suppliers, but how much of an impact is the tech making at the highest level? Legal Business surveyed the UK’s top 25 firms to find out.

 

The results

Legal Business‘s survey set out to gauge the current levels of usage of some of the headline AI and advanced automation systems, in a broad sense, and uncover which firms were making their own plays and developing bespoke tools.

The biggest moves in recent years come in the use of tech in the contract analysis and due diligence space. According to one estimate from Luminance chief executive Emily Foges, initial time savings from using its M&A due diligence technology were up to 50% – with similar estimates from other providers. The main player in this area is Kira – a package created by Canadian developers with the help of former Weil, Gotshal & Manges lawyer Noah Waisberg.

Kira’s package is being used at ten of the 25 firms surveyed (see box, ‘The AI survey’, below) and has significant recognition among the Magic Circle, with four confirming collaboration with the tech company. Says Freshfields Bruckhaus Deringer director of legal services innovation Isabel Parker: ‘We like Kira a lot. We are learning where it performs best and we will use it where its sweet spot is.’

 

‘There’s no price transparency, it’s really about how strongly you negotiate.’
Nick West, Mishcon de Reya

 

 

Six firms reported the use of RAVN, whose ACE (applied cognitive engine) is used for extraction and analysis platforms, taking on board unstructured data and summarising it for users. Beyond those six firms that reported making use of the platform officially, a large number have trialled the platform or make use of the tech company’s consulting services for eDiscovery, with Freshfields, Norton Rose Fulbright and Hogan Lovells all understood to be working with RAVN to some extent.

Another key provider is Neota, which operates a decision tree-based automation platform. Six firms reported partnerships with Neota, with CC and Freshfields both signing new deals early this year.

Within eDiscovery, a number of firms make use of Relativity from kCura and have done for several years, with Simmons & Simmons the first UK firm to launch the product in 2008.

Another platform rarely covered in the press is Leverton. Born out of the German real estate market, the technology is used for lease analysis, and has already made its way into the real estate departments of Freshfields, CC, Berwin Leighton Paisner (BLP), CMS Cameron McKenna, Taylor Wessing and Gowling WLG.

Our survey reveals a degree of variance in the providers used and pulls out a handful of new projects being launched at firms. It also shows several firms failing to present an obvious strategy for AI or advanced automation.

Firms in the top 25 that failed to provide any information include DAC Beachcroft, Irwin Mitchell and Withers. DAC’s reticence is perhaps understandable, given the firm’s £4.4m write down of an IT project across 2014 and 2015. Others, such as Clyde & Co, responded to the survey, but are not among the pacesetters working with any of the major new AI providers.

Beyond the core providers, several firms have begun new ventures with outlier products. DWF has made use of Kim – the virtual assistant from Riverview Law – while Gowlings is working to develop its own tool with provider Purple Frog. Linklaters, meanwhile, has developed its own tool in-house with small London tech firm Eigen Technologies.

In fact, the number of products returned in the survey barely scratches the surface of legal tech start-ups. A recent Law Society report estimated there were as many as 600 start-ups on the market in 2015. Says CC chief information officer Paul Greenwood: ‘It’s almost a full-time job keeping on top of it.’

Amid the hype and the jargon it can be hard to pull out key examples of firms making progress above the rest, yet something has made the traditionalists within the Magic Circle take notice. Adds Greenwood: ‘It’s inevitable that legal is not always a trailblazer of new technology, but most larger firms are looking at similar advanced solutions and pulling in one direction.’

 

Magic Circle approved

Of the City elite, few would have expected Slaughters to publicly announce its embrace of legal tech. The conservative firm became the last of the Magic Circle to confirm it was partnering with an AI provider, and its launch came with much fanfare as Invoke Capital founder Mike Lynch, the man behind Autonomy, appeared on Sky News to announce his backing for Luminance.

Luminance’s journey began, like many start-ups, in the minds of PhD students in Cambridge. Founded by James Loxam, now chief technology officer of the company, Lynch took an interest after a recommendation from his former PhD tutor in September 2015. Lynch brought the fledgling AI tool to former adviser Cooke at Slaughters. Cooke had worked with Lynch previously, advising on Autonomy’s $10.2bn takeover by Hewlett Packard in 2011.

The Luminance initiative was led by corporate partner Sally Wokes with corporate partner Murray Cox and IP and IT partner Rob Sumroy, working opposite Luminance chief executive Foges. The team, nicknamed ‘Luminance champions’, worked to implement and train the AI technology to make it suitable for document-heavy due diligence work throughout the summer of 2016.

Says Wokes: ‘We did look at competitor products, but Mike came to us with the proposition we would be involved with development. It was a unique opportunity in shaping how the software would look and feel. Over the last 14 months we have worked on a product that ticks all the boxes for us.’

Slaughters has around 40 lawyers and support staff collaborating with Luminance, with Wokes working alongside knowledge and information (K&I) head Jane Bradbury and several other K&I staff on the implementation. The tech is for now solely focused on the firm’s M&A team, using software to analyse data rooms to sort and extract information and flag up irregularities or outlier data for the lawyer to check.

The first major Magic Circle announcement in the UK market came from Linklaters, which began working with RAVN in May 2016. Linklaters was only the second firm reported to be experimenting with the AI company, after BLP had used RAVN to conduct real estate work in an initiative organised by its former head of legal risk Matthew Whalley.

‘We are much less grandiose. We have tried to be tightly focused on a specific set of tasks. Our product is as good as it gets for extracting text.’
Noah Waisberg, Kira Systems

Linklaters estimates it has saved more than 4,000 hours through legal document automation. Chief information officer Matt Peers says the firm is regularly on the lookout for new technology, working with its three-partner global innovation team made up of London partner Paul Lewis, Sophie Mathur in Singapore and Christian Storck in Frankfurt. As well as the innovation team, Linklaters has tasked star banking partner Edward Chan with heading up its response to AI.

Recent investment has included the development of an AI-assisted bank ring-fencing tool. The product, originally called Verifi, which has been rebranded as LinkRFI, is set to be licensed to The Royal Bank of Scotland (RBS) and has also been used in work with Lloyds Banking Group. The product was developed in conjunction with key banking partner Benedict James, who manages the firm’s ring-fencing relationship with RBS, as well as banking partners Chan and Tom Wells.

Chan says: ‘It allows banks subject to the UK ring-fencing regime to classify thousands of customer names in a fraction of the time it would take a human to do. A lot of legal logic had to be coded into that particular system.’

Linklaters has also developed its own AI platform, Nakhoda, with London AI start-up Eigen Technologies. In its response to our survey, Linklaters makes the bold claim that: ‘Nakhoda’s ability to go beyond data extraction to actually analysing documents using legal logic goes further than anything currently available in the market.’

Despite progress in legal AI, Chan notes the space remains fragmented. While the past year has seen renewed focus on due diligence, deployment is still nascent. ‘Last year there was a spotlight on and excitement about these products,’ says Chan. ‘The day-to-day use is still quite limited, there is still divergence between the talk of it and its actual use.’

CC has been investing in Kira’s due diligence tool, while it more recently announced it had formed a partnership with logic-tree software Neota. Innovation head Greenwood is confident about the usefulness of Kira, but is more reserved on the capability of current technologies available. He says: ‘Kira is one of the biggest names out there, but it is only one of a growing number of tools. They are all doing different tasks and no-one is yet close to a comprehensive solution.’

In addition to Kira, CC was one of the early adopters of Leverton, a tool for analysing leases that has made a major impact in the German real estate market and is used by other firms including Freshfields. CC used the tech on a major real estate transaction in Berlin, advising Brookfield Property Partners on its acquisition of the Potsdamer Platz portfolio of 267,000 sq m. The $1.4bn deal in January last year saw 17 buildings bought by the Canadian property firm.

CC real estate partner Cornelia Thaler says the package had been regularly employed by the firm, forming a basis for a due diligence report. ‘You still have to look over it and it does make mistakes,’ she says. ‘It is different from some other AI machines as it has already collected loads more data and is quite a bit more intelligent.’

It is also value for money, according to users, with the company charging as little as €150 per lease file, or up to €250 for its advanced package.

Freshfields is also working with Kira, which is utilised heavily in the firm’s Manchester Legal Services Centre. It also uses Leverton for real estate, again primarily in Germany, and Neota following a recent deal announced in January. ‘Kira is used here in the context of M&A due diligence,’ says Parker, ‘but we are teaching the engine to take it one step further and use it for contract analysis at scale, in derivatives due diligence for instance.’

Freshfields has been cautious in its deployment of tech, keeping it mostly limited to work handled by the legal services centre. It has trialled RAVN and Luminance, and is now looking at the former again. ‘What you use now may not be what you use 18 months later,’ Parker notes.

Allen & Overy (A&O), meanwhile, is often considered the bellwether for tech innovation in the Magic Circle thanks to the development of pioneering work with online service aosphere, which brings in a reported £10m annually.

The firm also broke new ground last summer, launching its MarginMatrix derivatives compliance tool. The project is supported in a joint venture with Deloitte, a first for a Magic Circle law firm with a Big Four practice, and it is able to handle a document that would take a lawyer three hours to analyse in just three minutes. Clients, including Goldman Sachs, have already signed up. In addition to its own services, the survey reveals A&O has started working with Neota as well as Kira.

 

‘There is some stagnation at the moment; I haven’t seen anything particularly fresh come on to the market recently.’
Isabel Parker, Freshfields

 

 

While the Magic Circle has made a sustained move into AI, the firms concede that these early efforts remain exploratory. Slaughters’ partnership with Luminance sees the firm only using the technology on deals where it backs up the AI tool by doing the same amount of work with associates. Luminance itself has only been used on ten data room projects as of December last year.

 

Start-up wars

Among tech providers, competition is fierce and the battle for recognition is key.

Between the more common names there is intense rivalry as the key players fight for recognition. Most companies are similar in size – RAVN has around 50 employees, turning over about £3m in 2016, experiencing around 80% turnover growth each year. Luminance, the challenger M&A due diligence platform, has 25 employees, based between London and Cambridge, and currently boasts a $20m valuation following backing from Talis Capital and Lynch’s Invoke Capital. But some rivals are still unconvinced by the newcomer. One law firm technology officer comments: ‘The general view is it is not as accurate as Kira and RAVN, but that comes from training.’

While both RAVN and Luminance are London-based, Kira is headquartered in Toronto. The firm has grown since 2010 from four people working at home to around 40 working in the US and the UK. Founder Waisberg plays down any rivalries, adding that companies like Neota would be ‘a friend of ours’ – with the potential to build Kira’s M&A platform onto a logic tree from Neota.

Kira has set out with a narrow goal in mind: ‘We are much less grandiose,’ says Waisberg. ‘We have tried to be tightly focused on a specific set of tasks. Our product is as good as it gets for extracting text.’

Also over the Atlantic, ROSS Intelligence has gained recognition in firms such as Baker & Hostetler, Dentons and Latham & Watkins. The legal research tool uses natural language processing and is currently specialised for US bankruptcy and intellectual property law. Says co-founder Andrew Arruda: ‘Our goal has always been to have ROSS on the legal team of every lawyer in the world and, as such, we see ourselves making our way over the pond eventually.’

As for pricing, even those using the products are unsure about how competitive they are, although no partners or technologists interviewed for this feature felt they were overpriced. Compared to mainstream tech and knowledge management providers, legal AI is cheap. Several providers operate different pricing models: RAVN can offer a basic extract and analysis product, RAVN ACE, and, for a greater investment, build on top of this software further tools and adaptions. Kira runs on an annual subscription basis with an agreement as to how many documents will be processed. Says one legal technologist: ‘RAVN is currently a black box, you have to go and tell them what you want and they have to go away and do it.’

According to Mishcon de Reya chief strategy officer Nick West: ‘There’s no price transparency, it’s really about how strongly you negotiate.’ He adds that some firms obtain a discount in return for a PR push of the product, such as 10% for a press release campaign. ‘Honestly, “Law firm uses Kira” isn’t really news, let’s be brutally honest.’

One tech product more tailored to in-house teams is Riverview Law’s Kim – a virtual assistant platform. Basic pricing varies from £10,000 for ten legal team users, while integrating the system with a firm’s existing system costs from £20,000 and up. Among the top 25 firms, only DWF reported making use of Kim in its automation developments.

While the core platforms are gaining ground in signing up the key law firms to their services, some are cautious not to overstate the AI revolution. Commenting on a recent visit to the LegalTech conference in New York, Freshfields’ Parker says: ‘There is some stagnation at the moment; I haven’t seen anything particularly fresh come on to the market recently.’

A long-time advocate of efficiency and innovation, Linklaters managing partner Gideon Moore comments: ‘We have found that AI tools have different strengths and weaknesses. There is no single solution for each client or matter.’

 

‘AI tools have different strengths and weaknesses. There is no single solution.’
Gideon Moore, Linklaters

 

 

There are a number of tools out there, but many are geared to solving the same problem. An alternative view is that law firms are not pushing the capability of the technologies to their full potential. Says RAVN’s chief strategy officer Peter Wallqvist: ‘It’s early days; in terms of actual impact they are only scratching the surface.’

 

Boom years?

It is a good time to be a legal technologist. Products face rising demand and marketing campaigns are out in force. Only a handful of the top firms surveyed by Legal Business are failing to invest in legal AI and many more said they were busy trailing ventures.

Beyond the Magic Circle, Hogan Lovells’ US-based partner David London says the firm is investigating a range of solutions, including RAVN, Kira, Luminance, Leverton, Neota, and ProFinda.

Eversheds Sutherland is also making steps to invest in legal tech, working with RAVN and developing its own legal automation ventures, according to global litigation head Paul Worth. The firm was currently developing a ‘Lawbot’ virtual assistant and a joint venture to create an in-house eDiscovery and document review platform.

The challenge is not the nature of the technology, with advanced systems for automation and contract analysis already in existence, but rather their implementation. New Law provider Axiom offers the advice of ‘not yet’ on legal AI. According to UK general manager Sara Morgan: ‘Most within legal are not ready for AI because they haven’t built the services and processes needed to deploy the technology.’

Adds Mischon’s West: ‘Lawyers are still using Word documents! How come nothing’s moved on from 1997 to 2017? This is a conversation about using technology in an enlightened way to serve clients better and give them value.’

But the mood is changing. Says Dan Jansen, chief executive of Dentons’ tech play Nextlaw Labs: ‘2016 is an inflection point. The mindset is coming to bear.’

Many of the tech players are utopian in what they argue their technology could achieve. Says ROSS Intelligence’s Arruda: ‘I see legal AI allowing for better penetration of the legal market, as the majority of individuals who need legal representation currently cannot afford it.’

The sentiment is echoed by Neota’s European managing director Richard Seabrook, whose company has created a range of AI logic tree tools, such as EmploymentLawHQ, which provides advice for free on US law.

But selling to major law firms is no easy task and while now start-ups are experiencing a rush of activity, some expect the market to cool down. Jansen says: ‘Selling into BigLaw is slow and painful. You have to convince a room full of millionaires that they need to change. Some legal tech will fail as they cannot get large law firms to change. There’s been an explosion, now a dip, and only those with real business models will succeed.’

For the present, the law firms are readying their arsenals, experimenting to find the best tech to fight the battles of tomorrow. ‘The single message is the technology piece is growing even faster, it’s changing the supply chain’, says Riverview Law’s chief executive Karl Chapman. ‘There’s an arms race going on.’ LB

matthew.field@legalease.co.uk

madeleine.farman@legalease.co.uk

See The last word: Machines and myths for more comment.