March of the robots: The rise of artificial intelligence in the legal profession

Artificial intelligence (AI) support is already accepted within the financial industry but law firms are only just starting to invest in disruptive technologies such as machine learning and automated document review.

The situation is starting to change quickly because of the need to reduce costs by speeding up processes, namely by replacing long hours of document reviewing with automated and smart workflows. AI is about to change the way we execute due diligence forever, for example.

Farewell to outdated models

Many law firms are already outsourcing low cost and low specialised tasks to outside services that can deliver high quality results. Accordingly, traditional fee arrangements such as the billable hour across all activities are becoming outdated. Corporates are simply unwilling to pay highly trained lawyers to spend hours on lower level activities such as document review.

Over the past decade, renowned technology consultant and Oxford Professor Richard Susskind has been claiming that the legal profession should confront the changes technology is bringing: ‘Legal technologists will become vital, genuinely dual-qualified people who can build computer systems for use in law.’

AI in the legal profession

New legal services start-ups are already using machine learning to revolutionise the traditional ways of doing business with clients. AI is slowly replacing the most time-consuming tasks performed manually up to now, such as reading, classifying documents, or extracting information in cases of litigation.

US firm Cooley leveraged predictive algorithms to process meanings, synonyms, and clusters of words within 29 million documents for a dispute. Several law firms embracing technology are exploring the options offered by AI and its potential to disrupt well-rehearsed business processes and optimise procedures.

Generating business value

Structured data is highly organised, and constitutes approximately 20 per cent of the overall knowledge of a company. The remaining 80 per cent is made up of text documents, images, email, social media posts, audio, and PDF files. Not being formalised, this information – known as unstructured data – is difficult for machines to put into context or fully understand. This is interesting, for instance, for companies finding content within vast amounts of contracts in a changing commercial environment. Instead of working through each contract one at a time, it is possible to look for the same specific detail within a large number of different contracts.

Structuring non-formalised data means making it quickly readable and accessible for analysis, as in the case of legal due diligence. This allows for significant savings of time and money for law firms that need to process large volumes of data uploaded in data rooms, for instance, in real estate.

Increasingly interested in the potential disclosure of this data, companies across industries are turning to natural language processing (NLP), the sub-field of AI aiming to make this mine of information readable. NLP is a technology that allows computers to explore, analyse, and understand patterns of human language, both written and spoken.

NLP in due diligence data rooms

Almost all the documentation uploaded into a data room for due diligence is technically unstructured. The analysis and categorisation of such information is done effectively with NLP and the more sophisticated the technology, the more specific the categorisation of the information.

Drooms NXG uses NLP as the smart search function which allows for the detection of words, word patterns, and synonyms in the entire data room’s documentation no matter the format, thereby enabling a more qualified exploration of the data room material. Similarly, the translation feature permits the rendering of the content of documents from a foreign language in real time.

If one thinks that everything is about language, grasping the immense potential of NLP applications for data analysis is almost self-explanatory: it is already providing a competitive advantage to businesses in the fields of digital ad services, legal, and media.

Data Room’s algorithms will perform critical due diligence tasks

Drooms has created a roadmap that will deliver an intelligent and automated due diligence experience by bringing NLP and AI algorithms into the process. Months of research and collaboration with international legal experts resulted in setting the ground for a fully automated and self-learning data room, permitting for instance the assessment of risks and opportunities inherent to a deal.

Red flag reports are at the core of an informed legal due diligence process. In most cases, they require hundreds of hours of analysis performed by legal consultants and end up generating high costs. With the ‘findings manager’ feature, Drooms NXG supports the manual work behind red flag reporting with AI technology.

AI technology implemented in the data room will analyse the content of documents and will be able to assess autonomously risks and opportunities within a transaction, as well as its potential financial value. With Drooms NXG, we are working on replacing time-demanding manual work with AI technology that allows analysts, sellers, and buyers – and their lawyers – to focus on executing more strategic tasks.

Jan Hoffmeister is managing director of Drooms, the leading provider of Virtual Data Rooms in Europe, which allows companies controlled access to confidential corporate data across company boundaries. Confidential business processes such as commercial real estate sales, mergers, and acquisitions, non-performing loans (NPL) transactions, and board communications are handled securely, transparently, and efficiently by Drooms. More than 25,000 companies around the world currently use Drooms including leading global real estate companies, consultancy firms, law firms, and corporations such as METRO GROUP, Evonik, Morgan Stanley, JLL, JP Morgan, CBRE, Rewe, and UBS. Over 10,000 complex transactions amounting to a total of over €300bn have been handled by the software specialist.