Legal Analytics: The New Frontier in Australian Legal Tech?

As legal technologies have steamrolled across legal industries around the world, Australian firms have typically been quick to adopt them. However, one major exception where it seems to lag behind in is the adoption of legal analytics. In order to catch up to its Chinese and American counterparts, legal analytics in Australia will need to overcome major regulatory hurdles and market pressures in order to become a viable solution in the Australian market.

What is Legal Analytics?

Legal analytics has been described by some as the “Moneyball for lawyers”, a reference to the book about the real-life use of statistics to hire members for a winning baseball team. It is an offshoot of Big Data analytics that has been used in the business world for quite some time. Having already cemented its place in US and Chinese legal practice, its proliferation is surprisingly sparse in Australia, particularly considering how useful it can be.

Lex Machina, a subsidiary of LexisNexis, is a prominent legal analytics firm based in the US. Its software trawls through IP databases, cataloguing IP cases and reports and uses Natural Language Processing and Machine Learning to clean and tag the data. The specific practice area of IP is also categorized, as well as data such as length of proceedings, outcomes, damages and even the individual opinions of the judges. The platform then visualizes the data in the form of graphs, tables, and timelines for ease of consumption.

Silicon Valley isn’t the only one revolutionizing legal analysis. China, a relatively new innovator in the legal tech space, has been doing this for a number of years. Beijing based company IPHOUSE has been operating since 2013, doing the similar work to Lex Machina, but exclusively in the field of Chinese IP Law; a notoriously tricky area for western companies to navigate. The company’s tech has seen rapid development since its inception 4 years ago. “When we started 4 years ago, the data that the system initially produced was not very useful,” says IPHOUSE Chief Operating Officer Kevin Wang, “but as technology and our systems improved, so did our results. Right now we have about a 95% accuracy when running cases through our systems.”

IPHOUSE’s platform is especially beneficial to western companies seeking to protect their intellectual property in China. “Typically, western lawyers have a lot of trouble getting anything done in China,” says Mr Wang. “Our platform helps them navigate IP law in China, as well as see which firms and lawyers to approach to get the best results possible. Like a ranked directory.”

“What you need in commercial law is a known, predictable, stable system.”

China’s Market Need

IPHOUSE Managing Director John Wang believes that IPHOUSE’s technology has considerable utility within Chinese IP. This is especially true when considering the history and development of Chinese law, especially in the last five years.

Fundamentally, China’s burgeoning system of civil law means that judgments outside of a given court can never be more than persuasive, and each individual judge still has a large berth of discretion for making their decision. This makes the statistical analysis of judicial behaviour much more useful and assists potential litigants to understand the discretionary tendencies exercised by each judge.

“This has created problems in China’s IP laws, as the rules and regulations cannot keep up with technology,” says Mr John Wang, “IPHOUSE was started to try and help the Supreme Court to create a database of guiding international principles, as well as a database of local cases and regulations.”

Compare this to Australia’s system of common law, where precedent is significantly more binding upon judges. This means that a lawyer seeking to pursue a case in a particular court can rely more heavily upon how similar cases are treated by all courts, instead of relying on the discretion of the single presiding judge of his or her case.

This means that there is a fundamentally different mechanism to following the direction of the law in Australia. This may mean that a similar application of legal analytics as is being adopted in China will likely not carry the same benefits.

The United States

The United States is perhaps a more useful jurisdiction to consider as an analogous environment for the success of legal technology.

Certainty is a valuable commodity in the practice of commercial law. “What you need in commercial law is a known, predictable, stable system”, says US Judge William A Fletcher, at a recent public seminar at Stanford University on Chinese IP case law guidance system. “You don’t want to invest in conditions of uncertainty.”

Unlike China, Australia and the United States can both rely on an existing and strong emphasis on the principle of the rule of law in their respective legal systems. For the Chinese legal sphere, this may mean that there is a wider scope for technology to play in supplying certainty to the system.

However, the rapid genesis of many legal tech platforms in the United States suggests that such countries are not necessarily restricted by this aspect of market need alone. It may be that the need for certainty is amplified in the United States by the presence of large legal databases like LexisNexis and Westlaw, which make it easier for market proliferation of this kind of technology.

While Australia does not exhibit as much of a need for the technology’s ability to predict judicial opinion, due to our more predictable system, the tech could be used by government bodies to gauge Australian performance in Chinese IP, as well as by companies to gauge their own, and their competitor’s performance.

A lack of Australian adoption

The US and China have already embraced data analytics with open arms. So then why hasn’t Australia, despite having adopted tech like e-discovery and contract review AI?

For one thing, as explained above, the Australian approach to the law does not share US and Chinese concerns, and this would strongly affect the utility of the technology in these areas. One considerable bar to the proliferation of the tech in Australia might even be a lack of case law to use as data to fuel the system. Machine learning requires an immense volume of data in order to effectively teach the machine; Australia might simply not have the same volume of cases as the US or China to satisfy this need. Australia’s legal system, with its deeply entrenched reliance on precedent, does not exhibit as much of a need for the technology’s ability to predict judicial opinion. As such, these benefits may not even be missed.

Another reason may come down to a prevailing concern across the industry that the introduction of legal analytics would be likely to further disrupt the business model used by organised law firms.

“There is a huge operational change that needs to be made to incubate these technologies into a system that hasn’t changed since the billable hour.”

Organisational disruption is inevitable

On its face, the changes brought about by technology are clear in the implications that come with a more efficient handling of tasks. “Applying this type of advanced data analytics to the legal sector definitely adds value to Australian firms, however, it can also be seen as a threat to existing structures,” says ADAPT Ventures Advisory Services Manager, Anthony Saba. “Yes, these technologies do have clear cost benefits; faster research times, which leads to faster case turnover, and a better customer experience. But a faster research time can also mean less billing.”

However, an even more immediate concern for law firms in the adoption of any assistive technologies for basic, repetitive tasks, is that they are expected to replace a significant portion of the work traditionally reserved for junior roles. “Technologies like natural language processing are able to perform information retrieval, extraction, etc much more effectively than people,” says Mr Saba.

This is problematic, according to Mr Saba, because these roles are currently essential to how new lawyers learn the ropes of their profession. This means that one of the major challenges for firms is to re-evaluate their business model to ensure that there is a sustainable supply of experienced and well-trained lawyers coming up through the industry.

Regulatory Restrictions

“There is a huge operational change that needs to be made to incubate these technologies into a system that hasn’t changed since the billable hour,” says Mr Saba, “Australian law firm innovation is [also] restricted by compliance. Compliance to customers; to external regulation.” When dealing with data, it is important for new innovators to consider regulations like the Australian Privacy Principles (APPs), which regulate the treatment of personal data by companies. However, it can be noted that in the case of APPs, services like IPHOUSE’s and Lex Machina’s would likely not violate Australian Privacy Principles, assuming all their data is gathered from public sources. This would, however, be a more pertinent concern for future venturists that wish to catalogue more private data for the other potential uses of legal analytics, such as for examining contracts.

Regulations and consumer attitudes have been known to adapt to the market. “10 years ago consumers weren’t comfortable getting into a random person’s car, so the regulation forbade it”, explains Mr Saba, “People don’t care now. Uber breached regulations and went to market with a solution, and the regulation caught up eventually.”

The Big Picture

Across the world, larger forces continue to force the legal market to evolve into one that is increasingly fragmented and consolidated in its different areas. Catalysed by the exponential growth of technologies, this change is also driven by an increasing democratisation of the means of production, rising expectations for customised services, and an emerging reliance on trusted advisors. For many firms, the adoption of technologies is essential to survival and success in this transition.

In anticipation of this new reality, Australian law firms are beginning to roll into action. As Mr Saba states, huge operational changes need to be made. For many companies, this could mean taking steps to completely re-evaluate their organisational models.

As for adopting legal analytics technologies, if the disruption in China and the US is to be any indication of its importance, then Australian firms would be wise to pay attention.

Jazz and Josh are UTS Law students, who have an acute interest in Intellectual Property Law and Legal Technologies. For any business inquiries please contact them at [email protected] and [email protected].