Proctor : April 2019
26 PROCTOR | April 2019 Emergent technologies are changing the practice of law in unique ways. This article is by no means exhaustive, but demonstrates some of the major changes about to wash over the profession. It’s worth stating at the outset that technological disruption isn’t to be feared, but embraced – and will provide astute lawyers, firms and entrepreneurs with unprecedented opportunities to separate themselves and build truly innovative practices in the coming years. Blockchain and smart contract technology Distributed ledger technology, colloquially referred to as ‘blockchain’, allows the transfer of money and information on an open, shared, transparent, auditable and decentralised platform, free of third-party intermediaries. Using a blockchain like Bitcoin, capital exchange can occur near- instantly without the need for banks, agents, payment processors or settlement services. On newer platforms like Ethereum and Cardano, complex code can be written to interact directly with blockchain transactions. Referred to as ‘smart contracts’, they make it possible to automate business logic and the transfer of money and information in a manner that is transparent, consistent and auditable. This will have applications in almost every industry as the technology matures, but the innovation is particularly relevant to the practice of law. Take, for example, the simple trust. Currently, trust deeds require extensive documentation to establish the trustee’s obligations and set out exactly how the trustee will benefit the beneficiaries. However, the documents (and common law) don’t intrinsically prevent the trustee from taking harmful or fraudulent actions. Rather, they merely allow the beneficiaries to seek relief against the trustee if they discover it did the wrong thing. I call instruments like a trust deed and our laws reactive, as they’re only enforceable if the wronged party takes action after the fact. A trust which utilises a smart contract in conjunction with a traditional written agreement circumvents much of this ambiguity. Most importantly, rules can be coded (not just written down) at the establishment of the trust. If there are five beneficiaries to be paid in equal, 20% portions every six months from the trust account, that non-discretionary distribution can be built directly into the smart contract, as the smart contract is attached to the trust account and deals directly with any currency which comes in. Any trustee looking to discretely favour one trustee over another would find that the contract prohibits it, because the code doesn’t allow an action inconsistent with its terms. I call these proactive agreements because (try as they might) a trustee can’t do something which isn’t permitted by the smart contract. Currently, almost all of our legal framework and technology can be characterised as reactionary. We draft contracts, make agreements and conduct transactional relationships without any true form of active contract enforcement. Instead, these instruments rely on the threat of consequences, implied trust and good faith in establishing legal relations. Blockchain technology provides an avenue for lawyers to increasingly develop proactive solutions for clients. It promotes trust, allows condition-based transactional execution and prevents many of the simpler, but expensive, litigation issues that are prevalent in our legal framework. Forward-thinking firms may begin offering ‘blended’ solutions which use smart contracts and develop tools which blur the lines between a law firm and a software development company. While the technology is still on the fringe, the advantages it provides will only increase as the technology matures and more users participate on the networks. This will be particularly true once clients become more comfortable with digital currency as a genuine unit of exchange. It will be necessary for firms to educate their staff about blockchain technology and equip them to build proactive legal solutions in concert with software developers and engineers. Firms which commit to becoming increasingly ‘blockchain native’ will, provided the networks continue to grow, separate themselves from their competition. Machine learning and AI It’s become popular for ‘experts’ to rattle off all the professions that will be ‘replaced’ by machines, and lawyers are often included in these lists. This usually shows that the experts don’t really understand the role of the lawyer. Machine-learning software and ‘AI’ (artificial intelligence) programs excel in repetitive task management, binary or gated decision- making and the interpretation of data. They are constructs designed to do some very specific tasks and do them well, but they are only as powerful as the human engineers who build them. Developed properly, the algorithms can do many tasks to a higher standard than that of humans. Take the recent machine-learning algorithm developed by IBM for identification and diagnosis of skin cancer. In a scan of 3000 images, the technology was able to correctly identify a melanoma with an accuracy of 95%, as opposed to the 75-85% of most general practitioners. Similar results are being seen in areas from automated vehicle piloting to predictive speech. It’s important to understand, however, that AI and machine-learning technology still depends on human input. The melanoma algorithm first needed to be engineered and then ‘trained’ by feeding it data – photos which represented positive and negative melanomas. Only after being coached on the meaning of the data could the program begin to analyse new images. Regular Proctor readers will already be aware of several of the major innovations that have been identified as major ‘disruptors’ for the legal profession. In this article Matthew Shearing provides an updated summary of the key technologies that are changing the face of practice.