How AI is Transforming Corporate Law

Thoughts about digital transformation and AI for enterprise leaders and their legal & compliance advisors

These posts represent my personal views on enterprise governance, regulatory compliance, and legal or ethical issues that arise in digital transformation projects powered by the cloud and artificial intelligence. Unless otherwise indicated, they do not represent the official views of Microsoft.

If you follow enterprise legal and compliance issues as I do, you have surely heard the claim that AI is transforming the way corporate legal departments and the law firms that serve them operate. I’m certainly not going to contradict this claim. In fact, I see new evidence for it nearly every week. But I’d like to use today’s post to explain briefly why AI is having this transformative impact on corporate law.

The basis for AI’s impact on law is this simple fact: words and language are the raw material of law. Until now, software couldn’t understand language. Now with AI it can. All of the remarkable new applications of AI to the practice of law follow from this starting point.

But what does it mean to say that AI software can now understand language? This isn’t a technical blog, but a few quick words on this topic will be helpful. Think of the way pre-AI software handles language. For example, consider an eDiscovery application that a legal team might use to sift through voluminous files, emails, and other records to identify material responsive to discovery requests. The eDiscovery app really has only one way to identify relevant items, and that is to search for certain keywords and combinations of keywords selected by the users.

As anyone who has worked on a large eDiscovery or similar text sifting project knows, the keyword method of search, even when enhanced by advanced techniques such as Boolean search, is extremely crude. It turns up many false positives that have to be laboriously culled out of the final results set. And yet it will still almost certainly fail to find many true positives that should have been found, because it is often misled by such linguistic subtleties as paraphrase and ambiguity. It is also easily tricked by human authors practicing deliberate obfuscation to hide what they are really up to.

Modern AI approaches the task of working with language in a completely different way. Instead of treating a document as a string of meaningless tokens to be blindly sifted and compared, AI seeks to represent the actual meaning of the individual words and expressions that compose a document. It does this by representing each word not with a few arbitrary bytes in some fixed code (like ASCII or Unicode), but as adjustable vectors in a high-dimensional vector space.

That’s a mouthful, I know. But don’t worry. All it means is that AI will represent each word by anywhere from several hundred to a thousand distinct numbers in some definite order. And now for the crucial detail: the exact sequence of numbers for some particular word will reflect how close the word is to other words in meaning, sentiment, grammatical usage, and other attributes. Words whose meaning or other attributes are similar will end up having neighboring vectors in vector space, and the opposite will be true for dissimilar words. Getting these vector representations right for tens or hundreds of thousands of words at a time is a challenging task and is the business of sophisticated AI natural language training methods that we needn’t go into here.

Example of an AI language processing model developed by Microsoft Research

Now let’s see how language-aware AI is being applied to practical problems of corporate law. I mentioned eDiscovery, and Microsoft’s own Advanced eDiscovery application in Office 365 (part of the Microsoft 365 E5 suite) is rapidly incorporating the new AI methods. But that’s a topic for a blog post in its own right. Today I’d like to focus on an application from a Microsoft partner, a remarkable cloud-based contract management solution from Icertis.

Contracts are in many ways the archetypal legal document. They are highly structured and codified verbal constructions that seek to enumerate and define the commitments that the parties to a business transaction make to each other. Their importance to the smooth functioning of the global economy cannot be overstated. A global corporation will easily have hundreds of thousands of contracts of all types, perhaps in many languages. It will have contracts with customers, suppliers, distribution partners, financial institutions, and others. It’s easy to see how managing such a vast body of legal documents of critical importance to the business would be impossible without some form of automation.

Icertis has pioneered a revolutionary approach to contract management that goes beyond earlier approaches that were essentially limited to document management and keyword searches. The Icertis approach says put all the contracts of a large enterprise into a single cloud repository, then use software to parse out the key components of each contract in such a way that they can all be understood in a global manner and managed intelligently.

Icertis has been in this business for a decade and has accumulated a tremendous amount of detailed knowledge about how its customer base of global multinationals structure their contracts. It has built out a rich portfolio of software-as-a-service (SaaS) applications, all based on Microsoft’s Azure cloud. But last year it made a leap forward and embraced AI in the form of a new Microsoft cloud service called Azure Cognitive Search.

This technology lets Icertis automatically pull apart and identify the linguistic pieces of contracts down to the level of key clauses, while flagging significant phrases and named entities. Using AI to represent the meaning of these elements in their legal context, Icertis can spot and track the obligations that a company and its partners have committed themselves to. It can recognize when a company might incur a penalty for not meeting its obligations, or when a partner’s commitment represents a revenue opportunity that can be capitalized on. It can warn when a contract uses a non-standard clause or incorporates subtle but important changes that human reviewers might have missed. AI also makes it possible for Icertis to help companies comply with regulatory requirements such as those of the EU’s General Data Protection Regulation (GDPR), by spotting clauses in contracts that either fulfill or violate these requirements.

This short example illustrates how profoundly AI can reshape the practice of corporate law. When vital legal documents such as contracts evolve from inert objects to living entities that can be managed intelligently and at the vast scale of a global corporation, the potential to optimize business operations is immense. Costly errors and unnecessary risks can be avoided, while overlooked or new opportunities can be seized and developed. This is what digital transformation is all about.

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