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article imageQ&A: How technology is shaking up legal firms Special

By Tim Sandle     Jun 25, 2018 in Business
Digital technology is changing the way the legal profession operates. Casey Kuhlman, who is the CEO of Monax Industries, discusses with Digital Journal the main trends shaping the sector, especially for small businesses. This includes smart contracts.
New technologies are disrupting legal services and making it easier for small businesses to operate. An example is with smart contracts, a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract.. These can help small businesses to exchange money, property, shares, or anything else of value in a transparent way while negating the services of a middleman.
To discover more about the trends shaking up the sector, Digital Journal caught up with Casey Kuhlman, the CEO of Monax. The monax platform is an open platform for small businesses to create, prove, and operate their legal agreements.
Casey is Monax Industries  CEO. Casey has been a lot of things: open data evangelist  international ...
Casey is Monax Industries' CEO. Casey has been a lot of things: open data evangelist, international development practitioner, lawyer, hippy, and Marine.
Casey Kuhlman
Digital Journal: How is technology disrupting the legal profession?
Casey Kuhlman: The legal profession is in a state of flux and has been for nearly a decade. There are a range of reasons and diagnoses for why this is happening, but they largely boil down to three major factors.
The first factor is a macro change in the global economy. We see this across a range of verticals, but the trends are clearly away from centralized large enterprises and in the direction of smaller, more networked companies or individuals. This diffusion of the traditional market base for legal services providers has disrupted much of how they do business.
The second factor is that within large companies, the legal purchasing function is no longer viewed as something extraneous to traditional budget pressures. This has forced purchasers of legal services within these companies to challenge legal services providers to move in the direction of more value-driven delivery of their services in line with what is driving purchasing decisions in other areas of the business.
The third factor is largely a lifestyle driven trend. The "traditional" law firm model is beginning to constrict in terms of how many new people are given equity partnership stakes within the firm. This is somewhat due to an aging population within big law firms which is worsened by revenue growth opportunities that are constrained. The result is that many younger lawyers are leaving the "traditional" law firm tracks sooner than their predecessors. Usually they are taking their customers with them, further worsening the revenue trends.
DJ: What do the sum of these factors mean?
Kuhlman:The result of these factors -- to date -- has largely evidenced in two predominant areas. First lawyers are increasingly focused on the value of the services they deliver. Increasingly legal services providers are required by their customers to deliver value rather than simply focusing on hours billed to the customer. The result of this trend is an increase in use of a range of tools that makes lawyers do the same type and level of work in less time. Examples of these tools include assisted search mechanisms for case law, electronic discovery schemes that categorize data during large scale litigation, and an emergent category of tools focused on leveraging deep natural language processing and machine learning to help lawyers build early warning and triage systems for transactional documents such as contracts.
The second major result of this trend is an increase of technology to enable scale within the delivery of legal services as a mechanism to increase revenue without expending more time. This trend is where Monax is focused and we can generalize the development as the movement away from bespoke legal services toward the delivery of legal products which gain leverage via the use of technology to make customers' lives better.
DJ: How about legal transactions for businesses?
Kuhlman:Business transactions are changing dramatically and are a result of the trends outlined above. We see the scope and nature of transactions changing in two predominant ways.
Firstly is the change in the nature and types of legal transactions that businesses are engaging in. We at Monax tend to think of contracts by building a mental graph based upon the complexity and time required for a contract to be agreed and executed by the participants to the contract. This would formulate the x-axis of the graph and on the y-axis we would think about the volume of contracts that a company would be engaged in. Historically this graph would formulate a "U" where the company would have a huge bulk of contracts which were very low complexity and were basically take it or leave it pro formas.
These types of contracts could be insurance policies or they could be your electricity supplier’s terms and conditions, whatever the subject matter of the business, there would be a huge quantity of these contracts. On the opposite end of the spectrum would be most of the other contracts which would be highly bespoke, carefully negotiated, and very expensive agreements. In the case of insurance, examples of these types of contracts would be between an insurance company and a large chain of a hospital, or in the case of energy, the contracts between a network operator and a wholesale energy suppler would be another example.
Macro changes in the economy point toward an eventual inversion of this "U" graph where we have a bulk of contracts that is centered around a modest amount of complexity. These are the types of contracts that lend themselves well to legal-ized products. The reason for the trend toward inversion of the "U" graph are being driven by a variety of factors that largely can be bundled under the heading of "big is out and small is in." And we see this across numerous domains such as energy where smaller, more distributed producers are starting to sell back to the grid in substantial enough quantities to be players in the market. We see it in insurance where smarter, more dynamic insurance instruments require a more active engagement by both the insured and the insurance company that simply "call us when you have an accident." We see it in manufacturing where just-in-time delivery requires a more distributed base of suppliers than was possible in previous generations. All these factors point toward contracts which need to have some level of scalability but also have a modest amount of complexity such that they are not simply "pull them out of a forms library".
DJ: And the second way?
Kuhlman: Secondly, and perhaps more interestingly, we see an increase in dynamism within business transactions. This dynamism is built into contracts. In some domains, this is not particularly new. In finance, there have long been contracts which require, as an example, that when the price of an asset drops below a certain threshold one of the parties needs to post more capital with some intermediary as leverage against the asset price decline. In this domain, which has huge actors and numerous intermediaries between them, a certain amount of dynamism with contracts was achievable in previous generations of technology because there was usually a single intermediary between the parties who could ensure that when sufficient capital needed to be allocated, that it was actually posted as collateral.
In other domains, this was not previously achievable. And yet parties within these domains are increasingly seeking to implement more dynamism in their agreements. Insurance providers are seeking to implement insurance policies where the premium moves up or down based upon the driver's habits. Energy providers are allowing customers to become suppliers under certain conditions. There are also a range of emergent business models that absolutely require a level of dynamism within their agreements. Robotics companies, autonomous car companies, industrial drone companies, and companies in the space sector almost exclusively pursue business models of leasing of fleets of their hardware. These deals are inherently dynamic and require a technical backbone that can adjust to the various factors of dynamism.
DJ: Is there are lack of services for small businesses?
Kuhlman:In terms of quality services and reasonable prices that reflect value delivered, absolutely. There are a range of services available to small business within the legal context but for the most part these break down into two categories along the lines of the "U" model discussed above.
On the one hand are forms libraries which provide "off the shelf" contracts with no guidance or dynamism. These forms typically are built to provide a modicum of legal protection for the broadest range of uses. As such, they have a lowest common denominator tendency. If one were to talk to commercial litigation lawyers about such form libraries, the resounding answer would be that these litigation lawyers have billed a lot of hours cleaning up messes created by wanton use of such forms.
On the other side of the spectrum are contractual deals which are very expensive, indeed as a proportion of the deal size are exorbitantly expensive. This happens habitually to technology startups where each funding round requires legal fees in the order of $30,000 to $100,000 even when the previous set of documents should provide a good baseline for a quick deal amongst parties that all have aligned interests.
DJ: Are there other cases?
Kuhlman:Another example of this dichotomy is found with content creators. If you are a YouTuber (just to pick one of the big platforms) with over, say, a million followers, you will have sufficient revenue to pay an attorney to craft bespoke licenses and distribution contents for your highly sought-after content. However, if you are in the same position but have, say, 10,000 followers, you are unlikely to have sufficient revenue to be able to afford bespoke agreements and as such will have to default to pro forma licenses and distribution agreements that are the defaults on the big platforms or in the big distribution channels.
This lack of a middle route is exacerbated by the commercial and macroeconomic trends that are happening in modern commerce. Not only is there a lack of quality in this middle bracket, but that middle bracket is where there is growth in commercial activity. And not linear growth, but exponential growth. And for smart legal services providers this is the big opportunity that is available to them if they are able to begin providing products with technical leverage and commercial resonance to a global, networked market of customers.
DJ: What is ‘smart contract’ technology?
Kuhlman:Smart contracts are, frankly, one of the worst named piece of technology to come along in a great long while. Smart contracts, as used by blockchain technologists are neither smart, nor are they contracts. They are simply scripts that run deterministically across the nodes of the blockchain network. These nodes run the scripts and ensure that they all have the same exact result of the computation (which is what we mean by run deterministically).
This doesn't mean to denigrate the technology, as a piece of technology they certainly can (and are) being used to build smarter contractual agreements that provide businesses with the interconnectivity, dynamism, and evidentiary benefits discussed above. But a bit of architecture and experience is required to turn what blockchain technologists refer to as smart contracts into usable things that can be the basis of smarter contractual agreements.
What one can get from a value proposition by deterministic scripts operated at a network level is process assurance across individual entities within an ecosystem. This is a huge boon in a whole variety of sectors that have hard problems coordinating across corporate and technological boundaries. This is largely why we see such a huge interest in the base technology across many sectors.
In a follow-up interview, Kuhlman explain how his new platform can assist small businesses. See: "Q&A: Open platform for small business legal agreements".
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