AI: A closer look at AI impact on the legal industry. RTZ #995

After last week’s tumultuous AI catalyzed ‘Software Apocalypse’ in the public markets, thought it’d be useful to dive into the Anthropic legal AI software moves that kicked it all off.

This is as AI native legal firms like Harvey are raising an additional $200 million on an $11 billion valuation, up from raising $160 million on $8 billion last year.

It’s a trend we’ll continue to see in this AI Tech Wave going forward, and the legal domain is just the latest getting closer attention.

And it’s a double-edged sword, impacting both sides of legal disputes.

Axios provides more context in “AI legal advice is driving lawyers bananas”:

“AI promises to make work more productive for lawyers, but there’s a problem: Their clients are using it, too.”

“Why it matters: The rise of AI is creating new headaches for attorneys: They’re worried about the fate of the billable hour, a reliable profit center for aeons, and are perturbed by clients getting bad legal advice from chatbots.”

And there are learning and ramping pains:

“Zoom in: “It’s like the WebMD effect on steroids,” says Dave Jochnowitz, a partner at the law firm Outten & Golden, referring to how medical websites can give people a misguided understanding of their condition.”

• “ChatGPT is telling them ‘You got a killer case,’” Jochnowitz says.”

• “But the models don’t understand the full context, the actual laws that apply or the full history of certain types of cases. They often give clients a false impression of what’s possible, lawyers tell Axios.”

• “The disconnect “makes people not believe what you’re saying,” says S. Randall Hood, a personal injury lawyer and founder of McGowan, Hood, Felder & Phillips in South Carolina.”

“The big picture: AI is shaking up the legal world, but it’s still early stages.”

• “Firms are just beginning to use AI to more efficiently sort through and draft documents — the latest evolution in legal technology that’s revolutionized the practice going back decades.”

• “Lawyers are also learning quickly — after many were sanctioned by courts for using AI to write documents that turn up with false information, the practice has died down.”

Workflows are changing and old habits being impacted with the new Anthropic software:

“There’s been a lot of experimentation,” particularly around document work, says Aubrey Bishai, chief innovation officer at Vinson & Elkins.”

• “Staying up all night and copying provisions into a master Excel doesn’t need to happen anymore.”

• “Bishai says she hasn’t noticed anyone working less, however, just switching their focus to more substantive issues.”

“State of play: The potential impact of AI on the industry was evident recently when shares of companies that sell legal software, like LegalZoom.com and Thomson Reuters, fell sharply after AI company Anthropic released a new legal product.”

“Reality check: The market’s reaction was probably a bit over the top, says Elliott Rush, a law professor and economist at ETH Zurich who studies AI.”

And there’s a lot lacking in the new AI software from Anthropic and its peers:

“Anthropic’s new product is good for document analysis, he says, but it’s not a substitute for Westlaw or LexisNexis — it’s not connected to databases of case law and statutes.”

• “There isn’t yet a new product that’s all of a sudden going to replace a lot of legal software.”

A bigger question surround how the core legal business model could change around ‘billable hours’ in the legal and other industries:

“Friction point: As AI makes much of the work more productive, a big source of worry for firm lawyers is the fate of the billable hour.”

• “If tech speeds up tasks, that would mean fewer hours worked. Lawyers can’t bill for more time than they actually spend on a task, the American Bar Association said in recent AI guidance.”

“Reality check: Don’t expect the legal world to be disrupted quickly. Adoption will take time, observers say.”

• “There are going to be some big claims about what can be done. A lot of them will turn out to be vaporware,” says J.H. “Rip” Verkerke, a law professor at the University of Virginia.”That’s what a lot of firms have discovered.”

So despite the initial impact and industry wide pricing concerns, we’re in early days here of course.

And of coruse the AI software from Anthropic and others will get better with AI ‘first principles’ in this AI Tech Wave going forward.

But that can provide new opportunities as well as new risks to old models. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)