For ContractWorks co-founder Albert Oaten, AI is not an abstract future; it is the concrete means to help law departments save money, save time and mitigate risk – right now.
CCBJ: Artificial intelligence (AI) is a widely used term. What does it really mean, and how is it being deployed in the legal industry?
Albert Oaten: Say you write a program so that if it sees 3 x 7, the program will return a value of 21. But what if the program sees 4 x 8? If you haven’t given it every single possible variation, it doesn’t know what to do, and it won’t return anything. The difference with artificial intelligence is that it learns through examples. It learns the concept of multiplication itself, so that any combination of X times Y can return a value, not just the one that you wrote in the program.
The range of applications for the legal industry is broadening. In the short run, these are focused on simple, repetitive tasks – most relevantly, the increasing use in contract reviews, due diligence and e-discovery. The key criteria are wherever you find routine tasks – like identifying contract end dates, or other parties or anomalies, like unlimited liability – in a key term of thousands of contracts. How many contracts have out clauses? Does every document in our system have signatures on it? Any of those things would have to be reviewed by a lawyer. That’s where you might find increasing uptake of artificial intelligence.
Verifying that all of the signatures are on every single contract, or verifying the end date, for example, is extraordinarily mind-numbing and painful, but things like that have to be done, and they have to be done right. One of the advantages that AI offers is it’s not expensive, it doesn’t get tired and it can work all night. Where it doesn’t make sense to deploy AI is when there is more nuanced decision-making involved. The consequences of getting it wrong are high, and it is still best done with lawyers.
What are the greatest benefits the legal industry is realizing from these continued developments in AI?
Cost reduction, revenue optimization and risk mitigation. AI can help general counsel save their company money by simply knowing the end dates and the carve outs of all vendor and client contracts. Until now, the time expense of getting all that information gathered together to be able to take action on it was just too high. AI eliminates that time expense, because now it’s not a lawyer or a paralegal. AI can automate the process of identifying these things, providing opportunities for general counsel and their companies to renegotiate, say, real estate contracts before they renew or, for healthcare general counsel, insurance payor contracts that can help the company save and make money.
The same notion can also help mitigate risk. By going through that process and identifying anomalies or variations – things like limitations on liability, indemnification – general counsel can also identify contracts that they need to amend going forward, depending on the changing legal landscape.
The key is that you have to know, and AI can help you identify which contracts you may want to amend to mitigate risk or limit the consequences of something going sideways in an agreement with another organization.
Why should general counsel, legal operations professionals and others in the industry follow new developments in AI?
Everybody tends to focus on new developments, but I would focus on the challenges we’re having now: revenue challenges, compliance challenges, time-saving problems. Those are all relevant reasons to look at artificial intelligence and identify where it can impact your company in terms of helping to eliminate or reduce cost, optimize revenue or amend agreements to limit risk going forward.
I wouldn’t necessarily focus on AI technology for technology’s sake. Focus on the business problem that you and your company are trying to solve, and know that AI provides an affordable path to solve that problem in a way that it wasn’t cost-effective to solve before. Simple tasks, like automatically tagging end dates for all contracts; automatically creating monthly reports for all contracts ending in 90 days so you can renegotiate, terminate, or extend contracts deliberately, instead of by accident because they roll over; or purposely identifying all contracts you may want to amend on the next renewal, because those agreements contain a liability clause that you simply can’t abide by anymore. These are super time-consuming, and previously would potentially cost hundreds of thousands of dollars, so typically, they’re not done. But the consequences can be high. Missing an intellectual property assignment signature can be brutal during due diligence. Real estate escalation cost clauses can lock companies into long-term, expensive commitments that don’t work for them. Overlooking an opportunity to renegotiate a fee agreement with a healthcare payor can be a big missed benefit to a company. Those have real cost, revenue and risk implications.
What are some AI trends impacting law departments, specifically contract management?
Contract management is one of the places where AI is being used most. Again, I would look at AI for the simpler things it can do to help your company either save money or make money, or limit risk.
First, tag and report on all vendor contracts so you can terminate or amend agreements on terms favorable and helpful to your company. Same goes for client agreements to ensure you are not missing opportunities that benefit both the client and your company. Second, identify anomalies in key terms, like limitation of liability clauses, or indemnification clauses, that might be problematic. Over time, companies can accrue thousands upon thousands of client agreements. You have to teach the AI what your standard liability or exception clauses are, but after that, it can review and return with something like “80 percent of your contract liability clauses look like your normal liability clauses, but 20 percent look like this.” If you started with 5,000 documents, then you are down to actually looking at 1,000 documents to see which are problematic. These things typically come up after the fact. After a company’s been successfully sued, for example, they may decide that they need to look at all of their contracts to see how many of them have clauses that are similar to the one in that matter.
Another example where AI can save a ton of money and help a company avoid risk might be due diligence, validating the basics. What are the end dates of every agreement? Are there signatures in every agreement? That includes employee agreements, intellectual property assignments and so on. Lawyers may not enjoy that type of work, but the consequences of getting it wrong are pretty high, so they do it. If you could get AI to pull up all of the different signature blocks and validate all of the end dates automatically, it’s not very expensive and it frees lawyers for other work, which optimizes the value their skills bring to the transaction.
What is the business case for in-house law departments to invest in AI?
I wouldn’t buy artificial intelligence and then try to figure out where to possibly use it. I would invest in identifying a problem that you’d like to solve and that artificial intelligence may be able to do for you. Look at routine tasks that up until this point have been so expensive, time-consuming, management-consuming that you didn’t go through them. AI might be able to remove all those barriers and create opportunity.
General counsel and legal officers can unfortunately be looked at as a necessary business expense to the company – or worse, a bottleneck to getting things done. When general counsel can help their companies identify areas to increase revenue, eliminate or reduce costs, and mitigate risk by cost-efficiently using artificial intelligence to surface information that lies within those contracts, it can change the perception of general counsel and their legal department to business partners that help the company achieve its goals.
Published March 14, 2019.