Back in 2015, the Legal Innovation Zone opened its doors right in the heart of Toronto and made a bold statement to the legal market as a whole – welcome to the world’s first legal technology incubator! Just a short 4 years later, legal tech is booming in all facets of the legal market.
Toronto currently houses over 50 legal tech giants, including the likes of Kira Systems, Thompson Reuters and Ross Intelligence. Large international law firms have also jumped on the train. Dentons’ opened its prestigious NextLaw Labs, whereas other large international firms such as Osler have partnered with already established incubators in the market.
In fact, it is not uncommon to see many law firms putting up job ads for in-house document automation specialists or other software programming-type of positions in today’s legal market. Five years ago, these types of jobs were unheard of. Indeed, the legal tech boom is highly reminiscent of the dot-com bubble. But how sustainable is this boom?
The Legal Tech Investment Boom
According to a study commissioned by Tracxn1, global legal tech investments have surged by at least 439%from 2017 to 2019. In 2017, global legal tech investments totalled an estimated $273 million. This year, already $782 million have been invested in legal technology with conservative estimates predicting that global investments could easily total $1.2 billion by the end the year.
Notably, Canada lags significantly behind other countries in legal tech funding. From 2014 to 2018, only $108 million has been invested in the Canadian market, whereas the United States and European markets have boasted figures of $3.4 billion and $569 million in the same period.
However, things are quickly changing in the Great White North. 2019 has been a year of record-breaking highs for investments in the Canadian tech sector and the legal tech wave has reaped the benefits as well. For example, the Burnaby, BC-based Clio, a legal practice management software company, recently set the record for largest investment in a private Canadian tech firm with $333 million CAD ($250 million USD) in venture capital funding.
Bursting Bubbles: A Journey Between Fear and Hype
Comparing the legal market from a decade ago in 2009 to today, it is hard to deny the significant pressures faced by todays lawyers. Between clients demands for the death of the billable hour and law firms being increasingly pressured by alternative service providers, there are certainly signs that the legal landscape is going through a big change.
Richard Susskind in Tomorrow’s Lawyer says that “the legal world will change more in the next 20 years than it has in the past two centuries”. Susskind makes a rather strong argument for his claim by pointing to three key drivers of change:
- Clients demand for more value at a lower cost – this is driven by increased competition and pressure from clients to reduce prices.
- Liberalization in the way law is practices – they say you can’t teach an old dog new tricks. This has never been truer than with the legal profession. For decades the profession has evolved at a snail’s pace, relentlessly sticking to the tried and true rules. In Toronto, for example, it was only about 2 years ago that you could finally sue in small claims court by filing online. It seems things are changing, however slowly they might be.
- Proliferation of technology – Look at the impact Docusign has had on transactional lawyers. Gone are the days of physically signing an endless pile of contracts. Docusign and other e-signature tools have become standard practice in many legal markets.
In the 2018 Report on the State of the Legal Market, Thompson Reuters and Georgetown University in the United States earnestly warned that “flat demand for law firm services, declining profit margins, weakening collections, falling productivity, and loss of market share to alternative legal service providers and others are gradually undermining the foundations of firm profitability”.
While some hear legal tech and find it hard to get over the fear mongering narrative that ‘technology will steal your jobs’, others are quick to show that legal tech modernizes the practice of law.
“I am asked that question almost every week,” legal automation and innovation consultant Kathleen Killin told a Toronto gathering of the World Legal Summit in August.
“My response to them is that technology is here to enhance, not replace. I really do not think we will have ‘robot lawyers’ doing legal work in the future; but rather, lawyers will be forced to be more innovative (either via technology or ways of thinking, billing, etc.),” she later explained.
1. Note that the figures differ from source to source. Some sources include or do not include several sectors of the broader legal tech market, such as blockchain-based companies. On the other hand, some sources and statistical analyses include initial coin offerings as part of their funding figures. The main point is not the exact figures but rather to demonstrate that legal tech is in fact growing.