{Law, Tech, Design, Delivery} Observations Regarding Innovation in the Legal Industry - Professor Daniel Martin Katz

law+tech+design+delivery
by daniel martin katz
edu | illinois tech - chicago kent college of law
blog | ComputationalLegalStudies.com
corp | LexPredict.com
observations regarding innovation in the legal industry
page | DanielMartinKatz.com

three faces of innovation in legal

(1) lawyers for innovators / entrepreneurs

what many lawyers and law schools think of as “Innovation Law"
(1) lawyers for innovators / entrepreneurs

(2) lawyers as innovators - substance

poison pill - “the most important innovation in corporate law
since Samuel Calvin Tate Dodd invented the trust
for John D. Rockefeller and Standard Oil in 1879”

emerging areas - 3D Printing, Driverless Cars, Augmented Reality,
Data Breach, Crypto/Blockchain, Future of Work,
Big Data+Privacy, etc.
Drones, Internet of Things, CyberSecurity,

(3) lawyers as innovators - business/process

innovation directed toward transforming the practice of law
(3) lawyers as innovators - business/process

today I want to talk about
emerging innovations on
this third face
lawyers as innovators
substance
business/process

Four Pillars of Innovation
in Law

{Law + Tech + Design
TM
+ Delivery}

{Law
Substantive
Legal
Expertise
+ Tech + Design
TM
+ Delivery}

{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
KM
+ Tech + Design
TM
+ Delivery}

{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
KM
Process Improvement
User Experience
Design Thinking
Project Mgmt
+ Tech + Design
TM
+ Delivery}

{Law
Substantive
Legal
Expertise
Analytics
Platform
AI
Computing
KM
Process Improvement
User Experience
Design Thinking
Project Mgmt
Business Models
Regulation
Marketing
+ Tech + Design
TM
+ Delivery}

labor
arbitrage
process/tech
arbitrage
regulatory
arbitrage
a.i. / predictive
analytics
the ﬂavors of arbitrage

At the outset, I should note
there are several distinct markets
for legal services

Enterprise Law
Small and
Medium
Enterprises
Retail
Government
Criminal
ﬁve legal sub-sectors

My Friend
Bill Henderson ...
has some basic data on
these markets

Enterprise Law
statistics via Bill Henderson
Entities with (>50+Million)
Fortune 1000 other large entities

Enterprise Law
Size of Market $150 billion
Number of Potential Clients 40,000

Small/Medium Enterprises
Number of Potential Clients 6 million

Retail / Main Street
Number of Potential Clients 318 million
(with huge potential upside)

What is the hallmark of the
bespoke legal work?

Social, Economic and
Political Complexity

Which for our
purposes manifests
in legal complexity

In the face of ever
growing legal complexity
we have applied greater
and greater numbers of
human experts to solve
the underlying problem

and so has total expenditures
on legal services

Legal Expenditures as
a function of GDP
(some disagreement between these
plots but they project a similar trend)

Cobb Douglas is
the traditional way
to describe a
production
function

LaborCapital
Cobb Douglas is
the traditional way
to describe a
production
function

LaborCapital
Cobb Douglas is
the traditional way
to describe a
production
function
historically we have
turned this dial

~1984 - 2009
Returns to Legal Experts (Big Law)

~1984 - 2009 ~2009 - Present
Returns to Legal Experts (Big Law)

~1984 - Present
Returns to Legal Experts (Retail)

~1984 - 2009 ~2009 - Future
Returns to Legal Technology (Capital)

and in mature markets
efﬁciency trumps growth

What does the change in
the return structure imply?

Far greater returns in
process improvement
substitution of capital for labor

What is one major historic
barrier to legal innovation?

The Sophisticated
General Counsel

Although many of pieces
were already in place ...

The Financial Crisis Placed
Signiﬁcant Pressure on GC’s

Legal was brought
in line with
the Other C Level
Ofﬁcers/Divisions

“I am not running your
training program ...”

(i.e. Don’t Put
1st and 2nd Year
Associates
on our work)

“If you want our work -
you are going to work
with other providers”

The General Counsel
as Legal Supply Chain Manager

Blended
Teams
of
Providers
Law Firm
+
E-Discovery Firm
+
Legal Process Outsourcing
+
Law Division Insourcing
+
Software/Analytics Firm

Legal Supply
Chain Mgmt.
Data and Logistics =
General Counsels
as the Maestros

Client Sophistication is
Critical to this Story ...

Client Sophistication
has reset historic
relationships ...

all of the above is a
necessary precondition
for legal entrepreneurs

Lex.Startup
is beginning to take hold

15 500+
2009 2015
Law or Legal Related Companies
as highlighted by Josh Kubicki @ ReInventLaw London 2013
Lex.Startup

The VC Community
Is Turning to Legal

R e p o r t e d s a l e
price between $35
million and $40
million.
Final Number was
likely between
$80 - $100 million
A n u m b e r o f
venture capitalists
have invested in
t h e c o m p a n y ,
including Silicon
Valley’s Sequoia
C a p i t a l w h i c h
invested $7 million
in 2007 ....

And There is
Lots More in this Space ...

So what are these
folks doing?

R + D Function in the
Legal Industry

the path of legal(tech)
has in part followed
developments
in artiﬁcial intelligence

data driven AI rules based AI
Competing Orientations in
Artiﬁcial Intelligence

expert
systems
Computational Law
Data Driven Rules Based
prediction
models
and
methods
network
analytic
methods
natural
language
processing
self
executing
law
visual
law
computable
codes

we see a decent amount of
rules based AI
in legal industry

that is actually pretty consistent
with path of A.I. in general

lots of issues
with expert systems
and/or
rules based A.I.
(without data or an evolutionary dynamic)

rules based A.I. data driven A.I.
1980’s, 1990’s, Early 2000’s
>

1980’s, 1990’s, Early 2000’s
2005 - Present
<
>

1980’s, 1990’s, Early 2000’s
2005 - Present
<
>
as usual law lags other sectors of the economy

A.I. State of the Art
purely data centric

purely data centric
augment expert forecasts w/ data

iterative data < > rules
purely data centric
augment expert forecasts w/ data

The Rise of
Quantitative
Legal
Prediction

implication is that
every organization in legal
needs a data strategy

Every organization needs
relevant human capital
(and in law such human capital is in limited supply)

Quantitative Methods for Lawyers
Professor Daniel Martin Katz

Legal Analytics
Professor Daniel Martin Katz
Professor Michael J Bommarito II

legalanalyticscourse.com
free
course
material!
(more coming soon)

2011
The Age of
Quantitative Legal Prediction

2012
The Age of

2013
The Age of

- or -
How I Learned to Stop Worrying and Start
Preparing for the Data Driven Future of the
Legal Services Industry
Daniel Martin Katz
Assistant Professor of Law
Michigan State University
2013

Predictive
Coding
in
E-Discovery

“The software
identiﬁes standard
and terms in
contracts, and its
benchmarking
tools show
lawyers how their
current document
compares to the
standard.”

http://www.noticeandcomment.com/

General Counsels as Legal
Procurement Specialists
TyMetrix -
Using $50 billion+ in Legal
Spend Data to Help GC’s
Look for Arbitrage
Opportunities, Value
Propositions in Hiring Law
Firms
Legal Procurement
(High End of Market)

There are 3 Known Ways
to Predict Something

predicting the decisions of the
Supreme Court of the United States

Black
Reed
Frankfurter
Douglas
Jackson
Burton
Clark
Minton
Warren
Harlan
Brennan
Whittaker
Stewart
White
Goldberg
Fortas
Marshall
Burger
Blackmun
Powell
Rehnquist
Stevens
OConnor
Scalia
Kennedy
Souter
Thomas
Ginsburg
Breyer
Roberts
Alito
Sotomayor
Kagan
1953 1963 1973 1983 1993 2003 2013
9-0 Reverse
8-1, 7-2, 6-3
19 19 19 19 19 20 20
0.00
0.25
0.50
0.75
1.00
0.00
0.25
0.50
0.75
1.00
0.00
0.25
0.50
0.75
1.00
- Reverse
0.00
0.25
0.50
0.75
1.00
0.00
0.25
0.50
0.75
1.00
0.00
0.25
0.50
0.75
1.00
-
8-1, 7-2, 6-3
9-0
19 19 19 19 19 20 20
algorithms

For most problems ...
ensembles of these streams
outperform any single stream

Humans
+
Machines
Humans
or
Machines
>

non-trivial question is how to
assemble such streams for
particular problems

so that we are not required to
rely exclusively on experts

law is a ﬁeld dominated by
individual human experts

in most ﬁelds - signiﬁcant quality
improvements have been made by
moving from experts to ensembles

law < > finance
many elements in law look like
finance did 25-35 years ago

Paper Released
August 24, 2015

lots of investment decisions in law
are just a version of this basic idea
law = ﬁnance

except its is implicit underwriting
with no real underwriting standards
law != ﬁnance
(but it should)

we expand on this theme in this presentation
http://computationallegalstudies.com/2015/10/ﬁn-legal-tech-laws-future-from-ﬁnances-past-katz-bommartio/

the discovery + compliance convergence

the goal is
near real time monitoring

challenge is that
80%+ of the world’s data
is unstructured

defect w/5 ‘airbag’
version 1.0
backdate w/5 ‘option’
etc.

near real time monitoring of
version 2.0
a large volume of
corporate communications
employee behavior
etc.

Behavior Change will change
But Behavior Change will lag
(i.e. rogue action will be done ofﬂine)
(i.e. folks will craft incriminating communications
at least for a while)
Corp Security Starts to
mirror today’s NSA

thus, discovery (in part)
becomes compliance and some
(only some) litigation is avoided
legal standards will still shift
real time monitoring will generate
lots of false positives

‘do less law’
https://vimeo.com/98606908

Three Types of Lawyers
(as described by paul lippe)

play “whack-a-mole”, reacting to
problems by creating fear and
friction within organizations and
the impression that there is a legal
disaster around every corner.
Mediocre Lawyers

can help clients shape
(perhaps distort)
external perception of risk.
Merely Clever Lawyers

design systems that
balance risk and improve
transparency, helping clients
correctly price risk internally
Great Lawyers

Information Management
is a signiﬁcant problem in legal

data that could inform
operations is not collected /
or not regularized

Dodd-Frank RRP*
for SIFI’s
(Systemically Important Financial Institution)
EXAMPLE:
*(the UK version is called ‘ring fencing’)

information necessary to
undertake due diligence or
other regulatory exercises is
locked in an antiquated format
(i.e. pdf, word, tif ﬁle)

Resolution & Recovery Plans
are Living Wills for Banks

“The living will is effectively a
roadmap and simulation
of the largest possible series of
transactions in a bank’s lifetime,
the type of analytical exercise that is
common in electronic systems design
or software testing,
but unprecedented in law.”

Ideal RRP is a
‘War Game’ whereby a
SIFI demonstrates it is
robust to failure of
various counterparties

but requires review and
understanding of the set
of agreements across all
business lines (p&l’s)

problem is
legal work product is not a
pointable data object

horizontal integration
of legal work product in the
broader corporate technology
ecosystem represents a source
of immediate value creation

“Watson [and related machine
learning technologies] will catalyze
b e t t e r o r g a n i z a t i o n o f l e g a l
information and legal data, forcing
organizations to better manage their
current data and delivering substantial
re t u r n s f ro m t h i s i n f o r m a t i o n
management step alone....”

for example -
contracts should be born
(or processed) as computational
to point straight into ﬁnance/acct
and other relevant IT systems
stored
legal
work
product

sensor data
+
contracts talking to other contracts

#InternetofContracts
This is the

#InternetofContracts
which is a special case of the

#InternetofLegalThings

#InternetofThings
#IOT

we are starting a
decade(s) long process of
overhauling the
global ﬁnancial infrastructure

it is a massive friction
reduction exercise

Big 4 vs. Big Law
who will get to drive this agenda?

EXECUTIVE SUMMARY
but blockchain is important
bitcoin is probably not that important

recently met with the general
counsel of a large publicly traded
company who has reduced the
legal expenditures of the company
by nearly 50% using the lean
methodology over past decade

Lean, Six Sigma
and other
process improvement methodologies

can help improve almost
every subsector in law

the toyota
production system
lean ideas
lean for
enterprises
(white collar, etc.)

The Life Cycle
(Rinse and Repeat)

http://
www.seyfarth.com/
dir_docs/
publications/
LITDecJan2014LeanS
ixSigma.pdf

Remove Waste (friction)
Increase predictability

convert high volatility process

convert high volatility process
into a lower volatility process

Knowledge Mgmt (KM)
is a start

Goal is for KM system
to integrate into lawyers
actual behavior

Most Legal Organizations use
Email System as your DMS
(in reality)

Workers are looking back through
old emails to see last version of
something akin to this new doc

Or Emailing the
whole organization
“does anyone have a good
version of X,Y,Z document”
that they could share ?

Stop Wasting Time
on Document
Taxonomies

Intelligent Detailed
Taxonomy
>(user guided)
Search

KM is about
more than
just documents

knowledge lawyers possess
includes processes

That is why folks start
with KM and move to
process engineering

the rise of legal r + d operations

intelligent monetization of expertise
beyond just selling hours

making $ while
you sleep >
billing 2500+
hours

each of these entities
(as well as others)
are doing some sort of R+D operation

partnership is a real barrier to r + d

requires the foregoing to proﬁts
that would otherwise be paid out

might need to create a
separate
capital funded
r+d operation

We are all (in part) Media Companies

Implication is you
need to build
your personal brand

need build your own
lead generation operation

auditioning for the next job
while in your current job

Portfolios Resumes>
observable evidence noisy signaling

http://about.me/
karenfrancismcwhite

http://patellis.wordpress.com/

Retail Legal Services
+
Technology Aided Access to Justice

70%+ of US does not
have meaningful access
to legal services

in part, this is a
business model
problem ...

existing offering are
far too expensive for
main street consumer

but alternative models are
being developed ...

Large Scale
Retail Facing Legal Services

more technology
continuous process improvement

two examples of
major retail innovations

Reducing complexity through user interface
(even though law is getting more complex)

lots of opportunities to serve
more probono/lowbono clients

every time you remove waste is
a chance to serve more clients

I would like to share one tool
developed by
IIT Chicago-Kent College of Law

IIT Chicago-Kent College of Law
has done more to further
access to justice
than any law school in the U.S.
(and it is not even close)

used by a variety of
legal aid organizations

What is A2J Author?
An online tool
from Chicago-Kent &
CALI to build
graphical interfaces
for low-income,
self-represented
individuals.

A2J Author Gathers Data
Authoring tool in the Cloud End User A2J Guided Interview

“Learn More” bubbles, definition pop-ups, audio, graphic and video capabilities.
A2J Author “just in time” Learning

Connects to National Server - LawHelpInteractive.org

Completed Documents Delivered to Local Computer

Uses for A2J Author
Document
Assembly
Online Intake
Benefits
EligibilityScreen
&Calculators
E-FilingTriage
Stand-Alone
Info Guides

2,524,639
1,529,205
A2J Guided Interviews

A2J Author 5.0-
Cloud app &
Mobile viewer!

Goal for Version 6.0 of A2J Author
we want to reinvent delivery of
legal services using mobile

we are about to have the largest
generational transfer in human history

this is a MAJOR
challenge to
every
organization

your organization(s) needs
information systems that can help
support critical knowledge transfer

information regularization
information representation
process mapping
etc.

organizations need different
(better) human capital in order
to support these trends

and this should be reﬂected in
the content of legal education

Liberal Arts Legal .Edu
Polytechnic Legal .Edu

Daniel Martin Katz, The MIT School of Law? A Perspective on Legal
Education in the 21st Century, University of Illinois Law Review (2014)

I outline in this paper my vision
for what law.edu could be ...

lots of the current and future
innovation in law
started outside of law

the distinction between
lawyers and non-lawyers
is blurring at the margins

big picture idea is to have a less
law centric view of the world

big picture idea is to have a less
law centric view of the world
law + tech + design + delivery

ComputationalLegalStudies.com
BLOG

Daniel Martin Katz
@ computational
computationallegalstudies.com
lexpredict.com
danielmartinkatz.com
illinois tech - chicago kent college of law@

{Law, Tech, Design, Delivery} Observations Regarding Innovation in the Legal Industry - Professor Daniel Martin Katz

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