All Aboard the Legal Tech Train

Holger Zscheyge, President of the European Legal Technology Association (ELTA), discusses the current state and limitations of legal technologies against the backdrop of inflationary pressures and the push for a better work-life balance.

What were the reasons behind the establishment of ELTA?

Back in summer 2016, one of the founders of ELTA came back from ILTACon, the annual conference of the International Legal Technology Association. Legal tech was on the agenda of European legal professionals back then, but there was no European association that they could join. So, a group of forward-thinking legal tech enthusiasts founded ELTA in December 2016 in Berlin. ELTA quickly grew from a German operation into a genuine pan-European association.


What is ELTA’s role and mission?

We see two general roles for ELTA. Firstly, ELTA provides information and training on technologies in the legal domain, shares best practices for integrating these technologies into the workflow of legal professionals and keeps its members up to date on current trends and developments in legal innovation. Secondly, ELTA provides a platform for all legal tech enthusiasts and professionals in the region to communicate and collaborate, to share their experiences and encourage dialogue among all stakeholders of the legal tech ecosystem.


In terms of current challenges, the inflationary environment will undoubtedly affect the ability of law firms to raise their rates, among other things. So, how can technology help firms remain competitive in an inflationary economy?

The legal industry is quite resistant to economic downturns. Demand may shift to different practice groups during a crisis (i.e. from banking and M&A to bankruptcy) but rates are still stable or even rising, at least at the top law firms. But, of course, the pressure from corporate clients to become more efficient and to lower rates for standard legal work is growing. It started during the financial crisis in 2008 and, since then, around US$13 billion of legal work has moved from law firms to in-house departments. Technology can substantially improve efficiency, giving law firms the opportunity to lower their rates and keep their margins. Certain low-margin high-volume services can be turned into products where customers provide the input and algorithms do the work.


What other challenges are firms currently facing and how can technology provide solutions?

Apart from the pressure on the business model of the billable hour, law firms are experiencing growing demand for talent and, since the pandemic, something that the industry calls the ‘Great Resignation’ – younger lawyers leaving their law firms, disillusioned with the work reality there. Most of them leave for another law firm but, in general, younger generations of lawyers are not ready to work 10-12 hours per day and bill 2,000+ hours per year. To attract and retain them, law firms are paying exorbitant salaries to first-year associates. Technology helps to reduce the workload of lawyers, especially for repetitive work. Another challenge comes from competitors outside the traditional legal industry. The Big Four auditors are the most prominent example of so-called ‘alternative legal service providers’. Alternative Legal Service Providers are usually much better positioned in terms of technology than traditional law firms are. So, law firms must catch up with them in adopting automation.


As far as trends go, where do you see the legal tech sector moving in the next few years?

Legal tech, like every other industry, follows the money. Demand for technologies will be highest where the legal industry spends the largest amounts of money or where potential risks for financial penalties are the highest. Contracting and compliance are such segments. Corporate clients are concentrating more and more on conflict prevention instead of conflict resolution because prevention is cheaper. According to the World Commerce and Contracting Association, corporations are losing up to 9.2% of revenues annually due to bad contract management; fines for violations of regulations, sanctions, etc., have reached record amounts. Technology can substantially improve contract management and compliance. In 2021-2022, there was a record of investments into contract lifecycle management and GRC (Governance, Risk management, Compliance) tools, and this trend will continue. Another segment with huge potential concerns L2C (legal to consumer) platforms. A large percentage of the population, even in the most economically developed nations, is without proper access to legal services due to the high costs of such services. Technology can bring down the cost for standard legal services substantially, opening the legal market to new customers.


How are AI-enabled technologies being used in the legal industry? What are their limitations and why?

Artificial intelligence is probably the most oversold and underdelivered technology in the legal industry. The technology itself is not the culprit – it is the unfounded expectations of lawyers towards AI, as well as the fear associated with the technology. AI can be a perfect solution for narrowly focused, repetitive legal work, like contract review or legal research. But at the current stage of development, AI cannot replace a human lawyer when it comes to legal reasoning. Simply put, what’s hard for humans is easy for AI, and vice versa. AI is a powerful tool but no replacement for a human lawyer.


Finally, which technology, that has yet to become mainstream in the industry, excites you the most?

Frankly, most of legal tech has yet to become mainstream in the legal industry. One technology I would like to see used by more lawyers concerns tools that analyse data to improve the operational aspect of law firms. Many law firms do not have a concise understanding of where they make and lose money, and how they compare to the competition. There are business intelligence tools available that are developed specifically for lawyers – it’s time to use them. And, of course, there is the ‘Holy Grail’ of legal tech that almost every lawyer is looking for: a unified legal management platform. Today, many point solutions on the market usually do not work very smoothly with each other due to a lack of data exchange via API.