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Exploring the Impact of AI on the legal Landscape

Introduction: legal Technology in Action

In the second installment of a two-part series on the adoption of legal technology, Brian Yap delves deeper into the burgeoning role of artificial intelligence (AI) within the legal sector. As legal professionals navigate the evolving landscape, AI presents both opportunities and significant uncertainties.

The Dual Perspective: Adoption and Disclosure

As private practice and in-house lawyers across Asia increasingly adopt AI technologies, varying opinions regarding the need for disclosure are emerging. Additionally, these shifts are prompting gradual alterations in how corporate legal teams collaborate with their external counsel within the traditional billable-hour framework.

In Singapore, where both the legal industry and governmental bodies are making substantial investments in AI, many in-house lawyers have begun to demand transparency from external counsel regarding their use of AI in client work. They expect law firms to not only disclose their use of AI tools but also provide verifiable assurances about the accuracy and reliability of the AI-generated results.

Jasmine Karimi, general counsel for FMC Corporation in Singapore, succinctly captures the sentiment in the industry: "Data security, transparency, and disclosure and verification are what companies expect their external counsel to perform, at the very least." This statement reflects a growing trend where the integration of AI technologies necessitates a higher standard of accountability.

Catching Up with Technology: A Comparative Perspective

The eagerness for transparency and disclosure is echoed by in-house lawyers in India. Despite the fact that many law firms there have yet to aggressively implement AI solutions, the Bar Council of India’s market-opening announcement last year has created urgency among legal practitioners to integrate advanced technologies into their practice.

Karan Kalia, founder and CEO of LegitQuest in New Delhi, points out that the pressure to adopt AI technologies is stemming from the robust utilization by foreign law firms, compelling their Indian counterparts to follow suit. This highlights a significant dynamic where local firms feel compelled to enhance their technological capabilities to remain competitive.

In Bangalore, Vardaan Ahluwalia—general counsel at Premji Invest, a private equity firm—places importance on safeguarding his company’s confidential data. He articulates concerns about the potential risks involved when external legal advisors utilize shared technological platforms that may compromise data integrity and confidentiality.

Ahluwalia is keen on understanding the safety measures implemented by law firms to ensure that sensitive information is protected—specifically interested in knowing which AI models are employed to train their teams for security and accuracy.

A Different Approach in Japan

Conversely, in Japan, the perspective among some in-house lawyers is markedly different. They do not feel that law firms are obligated to disclose their usage of AI technology in client work. Hideyuki Sakamoto, chief legal officer at Gibraltar Life Insurance, notes a longstanding practice of utilizing legal research tools without client disclosure, emphasizing that the ultimate responsibility for legal advice rests with law firms.

Sakamoto, who is also the president of the Japan In-House Lawyers Association, believes that this expectation stems from traditional practices where law firms have successfully utilized technology for years without necessitating transparency.

The Call for Verification and Security Measures

Targets for verification of AI-generated outputs remain a significant concern among legal professionals. Representatives from law firms emphasize the importance of verifying AI results and advocate for strict limitations on using AI for work that encompasses sensitive client information.

Rajesh Sreenivasan, partner at Rajah & Tann Asia in Singapore, asserts the need for clients to be informed about the use of AI solutions and the protections in place for their data. His firm conducted thorough due diligence on AI tools such as Microsoft Copilot to ensure compliance with data security standards.

Sreenivasan elaborates, stating that they have secured specific contractual protections from AI service providers, ensuring client data is not misappropriated for model training purposes. This is crucial in building trust with clients navigating the complex waters of AI in legal practices.

Ethical Considerations in South Korea

In South Korea, although there are no explicit regulations mandating disclosure of AI usage, transparency around AI applications is deemed an ethical necessity. Hee Woong Yoon, co-managing partner at Yulchon, insists on properly informing clients regarding technology utilization to maintain robust relationships founded on trust.

Yoon recognizes that if law firms expand their reliance on AI, full disclosure is imperative to uphold client confidence and trust. This sentiment is echoed by Hiroo Atsumi, managing partner of Atsumi & Sakai, whose firm has encountered client demands for guarantees on confidentiality when using AI technology for due diligence tasks, primarily from large foreign entities in the M&A landscape.

The Evolution of the Billable Hour

While the debate surrounding AI disclosure is developing, many experts spotlight the substantial implications of AI technology on the conventional billable-hour model prevalent in law firms.

Karimi emphasizes that despite being in the early dialogues regarding potential amendments to hourly billing frameworks, rising frustration among in-house counsel regarding time-based billing practices is apparent. She illustrates this frustration with a practical example involving NDAs, questioning whether the legal fees should correspond to the actual time taken for negotiations.

Echoing this sentiment, Sreenivasan states that the traditional hourly billing system could become detrimental in light of advancing AI capabilities. He advocates for a radical shift towards value-based pricing, which accurately reflects the value delivered to clients rather than simply time spent on tasks.

By employing benchmarks from previous transactional experiences of similar size and complexity, law firms can offer clients a more transparent and objective understanding of their potential legal fees.

The Shift Towards In-House Work

In the context of increasing efficiency through AI, senior in-house legal professionals in countries such as South Korea and India are reporting a noticeable shift toward handling more legal work internally. Ahluwalia indicates that his firm has transitioned away from depending on external counsel for routine NDA tasks, propelled by the efficiency achieved through AI tools.

In South Korea, many legal teams are leveraging AI to conduct preliminary checks internally before seeking external counsel for further review, resulting in reduced reliance on law firms and lowered billable hours. Jaehwan Lee, general counsel at MUSINSA, observes this trend as a reorientation of law firm dynamics, where legal teams prioritize initial internal reviews to streamline processes.

However, the need for external expertise remains in high-stakes situations, highlighting the balance between in-house capabilities and external legal support.

The Filipino Perspective on AI Integration

In the Philippines, the integration of technology tools is still making waves, with some law firms hesitant to embrace AI due to fears of inaccuracies. For instance, Marlon Valderama, founder and CEO of LexMeet, notes slow adoption rates due to intellectual property concerns. In contrast, Miguel Mendoza, a partner at Puyat Jacinto and Santos Law, shares a different story.

Mendoza has successfully integrated contract-review software into his firm’s operations, easing the pressure to comply with clients’ demands for lower fees without compromising efficiency. The adoption of this software has become a vital part of their business model, allowing for better cost management while enhancing legal service delivery.

Conclusion: Navigating Legaltech’s Challenges

As the discussions on AI in legal practices evolve, tools like AI legalese decoder can play a crucial role in bridging gaps related to the comprehension and interpretation of legal jargon. Ensuring transparency about AI utilization, especially in compliance and confidentiality contexts, will be pivotal for legal practitioners navigating this transformative landscape.

By providing clarity on legal terms and facilitating meaningful dialogue about AI’s implications, the AI legalese decoder empowers legal professionals and clients alike to make informed decisions. This not only fosters trust but also promotes ethical practices within the rapidly changing legal environment.

Related Article: Legaltech Take-off?

legal technology companies in Asia face concerns within law firms and corporations regarding AI and other technological needs. Regulatory changes, however, are among the key factors prompting a shift in mindset, as explored by Brian Yap.

For more stories about Legaltech, visit law.asia.

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