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Bad for Business? Firms Diverge Over Entering Legal Tech Market



 



As the boundaries delineating law firms and legal tech providers begin to blur, a debate is swirling over how much mingling is good for business. Or, as some believe, bad for business.

Over the past few years, a growing number of law firms in the U.S. and U.K. have been helping legal tech startups design their tools, making equity investments in those startups, or even spinning off their own legal tech subsidiaries. Yet while many believe legal tech plays a vital role in the delivery of legal services and the future of the legal market, some are questioning just how close is too close when it comes to law firms supporting technology businesses.

Among the handful of law firms who have launched legal tech incubators, Allen & Overy stands out. Its incubator Fuse is the only one that forgoes equity investment in the tech companies it supports (though the law firm did make a rare exception with blockchain fintech startup Nivaura).

Allen & Overy has said that Fuse’s focus is on supporting the development of its legal tech startups’ technology, which in turn is leveraged by the firm's attorneys to improve client services.

“This is really about delivering solutions for the clients,” David Lucking, a partner and head of the firm’s U.S.-based International Capital Markets Group, told Legaltech News in January. “If your focus is more self-interested … it takes away from what we want to do with Fuse.”

Shruti Ajitsaria, head of Fuse and counsel at Allen & Overy, also does not believe it does legal tech companies any good for law firms to take equity. She told Legaltech News in January that law firm investment in AI contract review platform Luminance, for example, “really hampered them. I haven’t seen them get the same traction as RAVN and Kira. Other law firms don’t want to use technology that is in part held by another law firm.”

Ajitsaria declined to update her comments for this article. The “law firm investment” to which she was referring, however, was likely from U.K.-based Slaughter and May, which took a 5 percent equity stake in Luminance in 2017 and participated in the AI company’s latest $10 million funding round in February 2019.

Luminance CEO Emily Foges pushed back on the idea that Slaughter and May’s investment has hindered her company’s business in the legal market. “Definitely doesn’t chime with our experience at all,” she said, adding that the company has 140 customers, “including very big law firms around the world, some of which may consider themselves competitors of Slaughter and May.”

Foges said that if anything, Slaughter and May’s support was beneficial to the company's growth. “In terms of providing a point of reference for new clients, it has been nothing but helpful,” she explained.

Still, others say there is some truth that law firm-backed technology can face certain resistance. “We have encountered this, where a law firm was a little hesitant to adopt our solutions because of that affiliation, but it’s been in the minority,” said Bryon Bratcher, managing director of GravityStack, a legal tech subsidiary of Reed Smith that develops its own proprietary legal technology and offers managed legal and IT services.

Bratcher noted that such resistance has come from a variety of potential law firm clients. “It’s been a mix. We’ve had apprehension from firms that Reed Smith, our parent company, does not compete with whatsoever, and we’ve had resistance with a couple that do compete with them for legal services. But we have clients right now that adopt our products that Reed Smith competes with on the pitch table every day for litigating and transactional work.”

Firms do business with GravityStack, Bratcher said, because they appreciate that a law firm-owned legal tech company will have a deeper understanding of their needs. “We’ve literally had our law firm customers tell us one of the main reasons they want our solutions is that we get it, we get their business.”

And this understanding drives how the subsidiary designs its platforms, he added. GravityStack products have “been battle tested internally with Reed Smith. … It’s an advantage over other providers and other technology companies  because they would have to spend six or seven figures to get that type of research and development.”

But moving into the tech business may come at a price. After all, law firms that develop or support certain specific technology may be reluctant to think outside of their own investments.

“Where I think there is sort of a fly in the ointment is that … it dissuades those firms from investing in other technologies that might be better than the technology that they have been developing or investing in,” said Etan Mark, a partner at Mark Migdal & Hayden.

Still, while it can hinder a firm’s ability to think outside of their own boundaries, Mark doesn’t believe supporting or becoming a legal technology provider will ultimately be that detrimental to a law firm's business. After all, a law firm’s main focus at the end of the day is on serving its clients.

“There are some instances where I might not invest in the tech created by the law firm, but I think generally the right answer is to purchase or invest in the technology that is going to be most beneficial for your case and client at that moment,” Mark said.