The Big Read

How Canada’s law firms are embracing innovation—on their own terms

Eric Lee for The Logic

On the sixth floor of Google’s former downtown Toronto office, Chris Bentley spent nine months developing a new way for aspiring lawyers to get their licence in Ontario. The endeavour, called the Law Practice Program, would train recent grads in a virtual law firm that simulated meetings with partners and clients online. Legal professionals considered it a major reform for the industry that had scarcely changed since Bentley, a former attorney general of Ontario, graduated from law school in 1979.

But while working alongside startups from Ryerson’s DMZ incubator in the Google offices, Bentley had an urge to find more ways to innovate around law. “I asked the [DMZ] executive director one day, ‘How many of these companies—and there were 80 at the time—are doing something in law?’ And she said none.” Bentley thought that was unacceptable, so in 2015, he co-founded the Legal Innovation Zone (LIZ) at Ryerson, Canada’s first legal tech incubator.

The legal sector has so far held off the barrage of disruption once expected to upend the industry. Law firms—run and regulated by senior partners, for whom the old system has worked—have had little incentive to change. But there are emerging signs that the incumbents’ advantage may not be secure. AI-driven software is already predicting outcomes of cases and taking over time-consuming tasks like document review, once the work of articling students and associates. In 2018, global funding in law tech reached more than US$825 million, up from US$305 million the year before, according to market monitor Crunchbase, as investors rush to get in on the flurry of startup activity in the space. And, jurisdictions in Canada and the U.S. are considering new regulations to let non-lawyers take on certain aspects of the job, like family law and small claims.

According to a 2018 report from the Law Society of British Columbia, only 15 per cent of people facing legal challenges consult a lawyer, and upwards of 70 per cent of them don’t seek any help at all. Cost is considered a major barrier to access, with “everyday legal problems” costing Canadians $6,100 on average per case, according to a 2018 report from the Canadian Forum on Civil Justice.

There’s a new generation of lawyers, however, joining developers to streamline the monotony of legal work to make it more accessible and less expensive.

“There is a kind of false confidence associated with our prosperity,” says Mark Tamminga, a partner at Gowling WLG’s Canadian branch and the law firm’s leader of innovation initiatives, tasked with keeping disruptive startups at bay.

For the most part, it’s business as usual for legacy law firms in Canada, according to industry analysts and partners at large firms who spoke to The Logic. But Tamminga cautions against complacency. “That doesn’t get us off the hook. In fact, it scares me,” he says. “I live with the pervasive sense of foreboding, and mainly because there are better ways to do many of the things law firms do.”

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Talking Point

Law firms have so far held off the barrage of disruption once expected to upend the sector. But the rise of machine learning, a fledgling law tech ecosystem and impending regulatory reforms are placing new pressure on incumbents to adapt.

Many big law firms began worrying about disruption during the 2007 to 2008 financial recession, says Tamminga, who describes the period as “existence-threatening” for firms. Lawyers were suddenly dealing with an onslaught of clients with complicated legal crises and fewer resources to tackle them with. Tamminga says the period catalyzed a shift in power between lawyer and client, giving the latter more control over what services they engage and how they pay for them—it launched the push to improve access by making legal services cheaper, more efficient and transparent.

One way firms are now responding to that pressure is by amending the business model that equates hours billed to productivity.

“There’s a bit more emphasis on price certainty,” says Robert Garmaise, chief innovation officer at Fasken. “They [clients] want to know at the beginning of a matter what it’s going to cost them.”

More firms are introducing fixed-fee services that provide clarity on pricing. In the last year, for example, Fasken rolled out a suite of subscription products—some for startups and others for standard clients—that offer services like document review, corporate registration and consultations with a lawyer for a fixed monthly rate. Clients can also log on to the firm’s client portal to get real-time updates on the status of their case and what it’s costing them.

Similarly, Gowling has set up a project management office in Toronto to deal with scheduling, risks and costs associated with complex cases—especially those using alternative fee structures to hourly rates—aspects of which are visible to the client. Torys LLP launched a legal services centre in Halifax in 2014 to offer fixed-fee billing for some services. And, Mediate BC, a non-profit law firm, uses a sliding payment scale to bill clients based on their income and ability to pay.

Such tools may seem like minor additions to a firm’s workflow, but their introduction represents a culture shift inside the notoriously conservative industry.

“It’s becoming table stakes,” says Tamminga, “although it’s still culturally very difficult for large law firms because it’s not how most of the senior lawyers grew up. Sometimes they don’t like clients to see how the sausage is made.”

The smaller margins are creating opportunities for firms with lower cost structures.

At Toronto-based Caravel Law—which spun out of Cognition LLP in 2016—seasoned lawyers offer small- and mid-sized businesses legal services at below-average rates. Caravel (whose services The Logic has used) can charge clients lower fees because they work from home and independently, without the overhead of office space and support staff that comes with running a large firm. “Just because a company is relatively small doesn’t mean that it’s legal needs are always simple,” says Stuart Wood, CEO of Caravel.

Traditional firms embracing change are the exceptions, says Jordan Furlong, a legal industry analyst and principal at Ottawa-based Law 21, who estimates about 80 to 90 per cent of legal professionals are maintaining the status quo—opting out of automated document review, predictive outcomes tools and alternative fee structures.

That doesn’t mean the space isn’t transforming, just that its evolution will follow a more measured path compared to the disruption that has upended, for example, the taxi or movie industries, says Furlong. He believes regulators, rather than entrepreneurs, will be the ones to drive sweeping changes in law.

“There’s a better chance now than there has been, I think, for several years for regulatory reform to actually take hold and bring about some change.”

In Canada, British Columbia is leading the way. In late 2014, a Law Society of B.C. task force recommended non-lawyers, such as paralegals, be allowed to practice in areas like family law, employment law, small claims and traffic court. “There is a risk that creating new categories of legal service providers will create competition for legal services,” the report reads, adding, “If an expansion of legal services to non-lawyer legal services providers is in the public interest, the fact that it creates competition with existing legal services providers is extraneous to the consideration.”

Five years later, the recommendations—deemed “controversial” by Justice Robert Bauman, the province’s top judge—are still being reviewed for adoption.

The Law Society of Ontario, meanwhile, passed the Family Law Action Plan in December 2017, which laid the groundwork for paralegals to be able to practice family law in the province.

But the biggest regulatory changes are taking shape in California, which Furlong says could have a ripple effect that reaches Canada. “California has long been a harbinger of regulatory change,” he says.

The state is considering letting non-lawyers own law firms, and examining how firms can integrate more tech into their businesses, including through automation and online services. In October 2018, the California State Bar launched a task force—which includes the co-founder of Toronto-founded Ross Intelligence and other Silicon Valley legal, tech and government leaders—to study the matter.

Disruptors aren’t sitting idle, however, as they await new regulations. The LIZ is a testament to that. The Ryerson program has incubated 26 startups since launching in 2015; those companies have attracted $2.6 million in investments and generated close to $2.3 million in revenue from nearly 3,000 customers, according to LIZ’s most recent annual report. (Canada’s top seven law firms, meanwhile, generated more than $4 billion in revenue in 2017.)

Its alumni include ParDone, an app developed by recent law graduate Geevith Rubakumar to ease the record-suspension process for people with criminal records by walking them through the paperwork they need to fill out. ParDone is meant to help vulnerable people with limited access to legal representation, especially those in northern and rural communities; it won the Ontario Access to Justice Challenge in 2016, securing $25,000 in seed money as part of the prize.

Evichat, another LIZ alumnus, uses AI to help lawyers collect evidence from clients’ mobile devices and the cloud, including by scanning emails and social media for relevant information. “Today, 90 per cent of lawsuits require some type of evidence, either from a mobile device or a chat or text message,” says Puneet Tiwari, the company’s co-founder and CEO. When Tiwari, who’s also a lawyer, couldn’t find a better solution for managing the influx of mobile information from his own clients, he decided to build one himself.

Puneet Tiwari, co-founder and CEO of Evichat, an e-discovery tool, presents at the Legal Innovation Zone industry night in November 2018. Legal Innovation Zone

The technology fills a niche under the umbrella of document review—a main target of disruption. A 2015 paper from the North Carolina School of Law noted that many large firms are already leveraging this kind of technology, with lawyers now spending just four per cent of their time on document review.

Diligen is another LIZ graduate disrupting the space. The company uses machine learning to review legal contracts and extract key information for lawyers. The company claims its technology can review documents at least twice as fast as human lawyers. “It’s being used right now by companies all around the world, from small legal teams, really big law firms, to Fortune 500 companies in the U.S. and Canada and accounting firms,” says Laura van Wyngaarden, the company’s co-founder and COO.

Beyond Ryerson’s campus, Kira Systems and Blue J Legal are two Toronto-based legal tech startups whose services law firms are beginning to adopt. Kira, a document review platform, raised $65 million in its Series A funding round in September 2018, and counts top Bay Street law firms among its clients, including Bennett Jones LLP, Cassels Brock & Blackwell LLP and Osler, Hoskin & Harcourt LLP. Blue J Legal, meanwhile, uses AI to predict how courts will rule in tax, employment and HR law based on previous fact patterns; its clients include Fasken, Gowling and Miller Thomson LL, among others.

Monica Goyal, a lawyer and legal entrepreneur, is trying to get more young law students to think about innovation before they start practising. She recently developed two tech-focused courses at Osgoode Hall Law School in Toronto. One teaches students how to integrate available technologies into their practices; the other shows students how to build their own legal tech products like an app for online dispute resolution or the automated review of legal documents.  “It’s about educating them on what’s out there and how they can actually implement that in the practice of law,” she says. “I call it 21st [century] lawyering.”

Goyal is also the director for Toronto’s chapter of the Institute of Future Law Practice, a joint initiative between 16 U.S. law schools and two Canadian—Osgoode and the University of Calgary—which grew out of the Tech Lawyer Accelerator program at the University of Colorado. The program is structured as a multi-week boot camp followed by a work placement either in-house at a company or with a law firm. “It’s about giving the students practical skills around data analytics, data and computation and coding,” says Goyal.

At this point, there’s no Uber of legal services—the profession simply isn’t designed to allow for disruption of that scale, says Garmaise of Fasken. Instead, he believes there will be many winners and some that will ultimately get left behind. “I think you’ll have certain tech firms that come out with killer solutions that are going to become brand names,” he says, adding that big law firms with the resources to adopt new tech early might also be able to pull away from the competition and grow even bigger, while mid-sized firms with fewer resources may struggle to keep up.

Tamminga of Gowling, meanwhile, hesitates to predict too far into the future of the legal landscape. “There will be huge new players,” he says. “The rise of machine learning and AI will become real after five years, and that will be the inflection point. There will be lots to do for lawyers, but what they do, I think, will be substantially different. Going past five years is anybody’s game,” he adds. “For all I know, we won’t survive it.”