The new legal economy

For several years now, I have been talking about the concept of a “legal market.” When I first began using the term, it wasn’t in wide circulation — when discussing big-picture issues that affected everyone in the law, lawyers tended to talk about the “legal profession,” which neatly excluded everyone who wasn’t a lawyer. Sometimes, I would see a reference to the “legal industry,” a term I didn’t much care for either — “industry” summons images of factories and smokestacks and a degree of sophistication in production methods that did not describe legal services at all.

I preferred “legal market,” so much so that I named my book after it. I liked “market” because it communicated something that many lawyers didn’t seem to fully appreciate: there are both buyers and sellers in legal services. There are, in fact, hundreds of times as many buyers as there are sellers — lawyers are vastly outnumbered by clients — and they are the reason the profession exists. But as I wrote in my book, law is effectively “a seller’s market whose sellers don’t even know they’re in a market. They’re like fish that don’t know they’re in water.”

I do think that has changed for the better over the last several years. “Legal market” is increasingly ubiquitous in legal media articles and in conversations among law firm leaders. And without any doubt, this market has experienced a great deal of change over the last decade, including:

• the rise of legal process improvement and outsourcing;
• the emergence of competing or substitute service providers;
• the technology-driven commoditization of legal work;
• the growing sophistication of large law firms and law departments; and
• the slow but steady liberalization of legal regulation.

Today’s legal market features increasingly knowledgeable and assertive clients choosing among a growing array of diverse service providers. In the result, sellers have more incentives to compete on price or quality (or both), and more tools with which to do so, thereby delivering greater value to buyers. By no means has the power imbalance in favour of lawyers been entirely rectified, and I doubt that it ever will, but we are in a better place than we were, and we can be reasonably confident that the market can improve further still.

But now I think we are coming up on a new issue. Throughout all of this amazing market change, one thing has remained largely constant: what lawyers do. Market evolution is changing the “how” of lawyer work, and to some degree the “who” as well. But thus far it has had relatively little impact on the “what.”

Here is what I mean: a client who retains a lawyer in 2019 to defend against a litigation claim might require that, say, the work be done on a fixed-fee basis, or that an e-discovery company be employed, or that the entire retainer be subject to project management. But the lawyer is still being hired to handle the litigation: to assess the claim and its likely outcomes, negotiate a settlement if appropriate, and proceed to trial if not. The essence of the relationship remains the lawyer’s agreement to defend the litigation on behalf of the client.

But suppose, in the example above, that there was no litigation. Suppose that, for a variety of reasons, the client never approached the lawyer in the first place to inquire about their litigation services. All the project management and fixed pricing in the world are irrelevant in the absence of the retainer. That’s not a matter of how lawyers do their work. That’s a matter of what lawyers are actually doing — or not being asked to do — inside the market.

Why might there have been no litigation in the foregoing example? Some possibilities:

• The client improved its internal risk-monitoring mechanisms and caught a problem in its early stages before it metastasized into a statement of claim.
• The client implemented new workplace standards that changed the behaviour of an employee who otherwise would have done something to cause litigation.
• The client hired a Big Four accounting firm to build compliance requirements directly into its contracts and business processes, reducing the risk of violations.
• The client consulted data showing that claims of this type succeed 89 per cent of the time, and ordered the in-house department to settle it quickly at the outset.
• The client is based in a jurisdiction that offers a robust online dispute resolution process that disposed of the litigation twice as quickly for one-tenth the cost.

Some of these examples remain speculative, while others are already commonplace. But what they have in common is that the traditional application by lawyers of their knowledge, skills and time is not a factor in any of them. These examples, and more like them to come, are going to change the “what” in “what lawyers do.”

There is a substantial portion of the practicing bar that makes its living primarily by managing, fighting and winning (or losing) litigation. But from the client’s perspective, litigation is an entirely negative experience, one that the client is strongly incentivized to minimize, avoid or eliminate. Fifteen years ago, it didn’t matter whether the client liked litigation or not; it was an unavoidable fact of life that required a lawyer to resolve. Today, however, clients have access to tools, procedures, and third-party options that enable them to fulfill their desire that litigation either never occurs, or disappears quickly and easily.

What happens to litigators when clients find ways not to litigate?

This effect is likely to be more dramatic on the commercial and transactional side. “Today I watched a demo of two AI products electronically mediate and draft a Purchase Agreement, in plain language,” said Twitter user willnme2014 in a recent discussion of this topic. “It took about 35 seconds. That is the future of commercial lawyering.” I think he’s right, and I’m not alone in thinking that. “Everything that can be taken out of the hands of subject-matter experts and handed over to the process experts and technologists will be,” said Orrick, Herrington & Sutcliffe Chairman and CEO Mitch Zuklie in an interview with The American Lawyer.

This is not about “computers are coming to take our jobs.” That is the wrong angle. This is about something deeper and more significant: the nature of what is being bought and sold within the legal market is changing. That is not a market phenomenon. It is an economic one.

Clients used to ask lawyers for certain types of services, such as document preparation, contract review, transactional due diligence and dispute litigation, to name just a few. These services still constitute the bulk of many lawyers’ annual sales inventory. Today, clients are asking lawyers for these services less frequently, and in the future they will ask for them less often still. Clients sometimes ask other providers to supply these services, but in the big picture, systems, software and structures are emerging that will either perform these services automatically or eliminate the need for them in the first place.

And if technology delivers on some of its more outlandish promises, soon enough we will see clients asking lawyers less frequently to answer complex legal questions, and more frequently to provide “machine learning-enabled judgment.” Sure, much of this talk could turn out to be AI puffery, but think about where we were 15 years ago, when few people seriously thought machines could carry out millions of hours of billable lawyer work. Technology invariably arrives at the party later than expected, but it always shows up eventually.

The truly disruptive impact of advanced technology in the law will be the reduction of the incidence and volume of traditional legal work given by clients to lawyers. This is not just a market change; it is the emergence of a new legal economy. That is a term we must start thinking about, developing more fully, and changing our strategies to reflect.

The old legal economy consisted of paying lawyers by the hour to do every legal task that needed to be done. In the new legal economy, systems, software and structures are going to integrate, automate, delegate and eliminate countless legal tasks by which lawyers once made a living. It is possible that new tasks could arise to replace them — if such tasks can be envisioned, if clients are amenable to giving them to lawyers, and if, as Susan Hackett and Karl Chapman urge, lawyers stop practicing to the bottom of their licenses. But by no means is it certain that any of these conditions will be met, let alone all of them.

We are not just entering a new legal market; we are experiencing the rise of a new legal economy. This will require a thorough review of our assumptions about what legal work consists of and, ultimately, what purpose it serves. In the result, everyone in legal services, buyers and sellers alike, will need to rethink their possibilities, interests and opportunities. We must consider, and come up with answers to, three important questions:

1. What now constitutes “legal work”?
2. How will legal work be done?
3. What will lawyers do?