Category: AI

legal technology trends

Artificial Intelligence and the Law: Update

On By crowdfundattnyIn AI2 Comments

Three and a half years ago, when ChatGPT v1 was released, many predicted that lawyers would be the first on the chopping block. The time is coming now, just not in the way most people expected.

Most people expected that capable lawyers would be replaced by capable AI. That’s not what’s happening.

As I’ve written previously, the AI tools created by large legal publishers like Westlaw and Lexis-Nexis are disappointing. The LLMs themselves, Claude and ChatGPT, are much better, but even they are less capable, in most instances, than a first-year lawyer. LLMs still hallucinate and will always hallucinate – they invent cases or statutes that don’t exist and pretend a statute says one thing when it says the opposite. High-profile law firms have been sanctioned recently for depending on AI.

And yet, with OpenAI, Anthropic, and SpaceX moving toward IPOs, the hype from the AI industry is a locomotive that can’t be stopped. 

Many non-lawyers believe that AI has already reshaped the legal industry. Online, non-lawyers wonder cynically why lawyers are still expensive, given that AI is doing all the work.  The General Counsel of a large company demanded that firms cut their rates to reflect AI efficiencies. That AI can draft legal documents as well as it writes code is taken as a given – if it hasn’t happened today, it will happen tomorrow. Caught in the frenzy, Kirkland and Ellis just announced plans to spend $500 million on AI, even though it will be obsolete long before it’s finished. 

The apotheosis is the “AI-native law firm”, and the apotheosis of that is a firm created recently by a lawyer who used to work for OpenAI. He raised millions of dollars from big-name VCs. The firm uses AI, presumably trained on typical forms, to create drafts of contracts. Then the drafts are sent – I’m not making this up – to 50+ outside flesh-and-blood lawyers to review. 

Is that an “AI-native law firm” or a normal 50-lawyer law firm of uncertain quality?

We could call it a “computer-native law firm” instead, with as much meaning. And back in the day, law firms were “typewriter-and-books-native law firms”.

Yet the locomotive moves on. Practicing lawyers know the shortcomings of AI, but many of their clients don’t. Consequently, lawyers are losing work to AI, as predicted three years ago, but the work produced by the AI is vastly inferior. It’s no exaggeration to say that lawyers are losing work not to the technology but to the hype.

In the short term, many businesses will use legal documents and make legal decisions that are flawed. But flaws in legal documents and legal decisions often remain hidden for a long time. Maybe, with the passage of time, the AI-for-law tools will live up to the hype. Maybe, after the IPOs, the hype will subside and the market will adjust. Meanwhile, it’s going to be difficult for a lot of law firms and a lot of law school graduates, squeezed between the hype and the reality of AI. 

To take my mind off it, I’m traveling to an AI-native pond to catch AI-native fish.

Questions? Let me know.

Markley S. Roderick
Lex Nova Law
10 East Stow Road, Suite 250, Marlton, NJ 08053
P: 856.382.8402 | E: mroderick@lexnovalaw.com

AI and Crowdfunding

Artificial Intelligence and the Law: An Update

On By crowdfundattnyIn AI, CrowdfundingLeave a comment

Soon after ChatGPT was released, I predicted with customary confidence that existing legal publishers like Thompson Reuters would dominate the AI-for-lawyers marketplace because of the content they’ve accumulated over a zillion years. 

As if to spite me, the legal publishers sat on their hands and watched brute-strength tools like ChatGPT and Claude pass them by.

They aren’t sitting on their hands any longer. Yesterday I watched a demonstration of the latest version of Westlaw’s AI tool, called Co-Counsel. It’s far better than it was the last time I looked, more features, more polished, more useful. Thompson Reuters isn’t a weather man but knows which way the wind is blowing.

And yet. . . .

During the demonstration, I asked Co-Counsel this question:

My client will form a fund (a limited liability company) and raise $3M of capital from accredited investors to trade in the prediction markets. Which laws apply? What registrations are required, if any?

Co-Counsel gave two answers, one from Westlaw and the other from Practical Law.

The answers aren’t terrible, but they aren’t great. The point of the question is about regulation of the futures markets under the Commodity Exchange Act. Both answers mention the Commodity Exchange Act but focus mostly on securities laws.

They also say the fund will be subject to the Investment Company Act. Because trades in the predictions markets are “futures” rather than “securities,” the Investment Company Act doesn’t apply.

Still, the answers at least pointed me in the right direction. That’s a big improvement over previous versions.

When the demonstration ended, I asked Claude the same question. Here’s the answer.

You’ll see that Claude’s answer is much better. More on point, more detailed, better organized. Claude’s answer isn’t perfect. Among other things, Claude makes the same mistake about the Investment Company Act that Co-Counsel makes. Still, if you’re a partner in a law firm and ask two associates for a memo, you will like the memo from the Claude associate a lot more.

I don’t pretend to understand how AI tools do what they do. I don’t understand why Thompson Reuters and others legal publishers haven’t been able to leverage their content more effectively. I do know that LLMs hallucinate and will always hallucinate, meaning that a lawyer will always have to check their answers. Maybe this built-in flaw will eventually work in favor of the legal publishers. As of now, they’re still far behind.

Questions? Let me know.

Markley S. Roderick
Lex Nova Law
10 East Stow Road, Suite 250, Marlton, NJ 08053
P: 856.382.8402 | E: mroderick@lexnovalaw.com

Lawyers and AI

Lawyers And Artificial Intelligence: An Update

On By crowdfundattnyIn AI, Crowdfunding, PredictionsLeave a comment

I posted about lawyers and artificial intelligence in late 2023, predicting that AI tools would drive down the cost of legal services while making high-quality legal service available to more people. The great thing about predictions like that is that nobody can prove you were wrong until it’s too late. So far, however, it hasn’t happened.

I thought AI would enter the legal world through “intermediated” channels like Westlaw. With their enormous, curated databases of court cases, administrative rulings, and other source materials, as well as libraries of excellent legal forms drafted by top-notch lawyers, I expected companies like Westlaw to race quickly to the top, leaving “brute strength” tools like ChatGPT behind.

Since then, I’ve tried just about every AI tool on the market, including the most recent version of Westlaw’s AI tool, CoCounsel. Beginning each demonstration with high hopes, I am always left with great disappointment. 

Here are some things I’d expect from an AI tool for business lawyers:

  • Review Documents:  The tool should analyze an Asset Purchase Agreement or Operating Agreement and tell me (i) how it differs from “market” terms, and (ii) how it should be changed for the benefit of my client.
  • Summarize Documents:  The tool should summarize a legal document. One type of summary would tell me what’s in the document, at any level of detail I want. Another would prepare a summary I can use in an Offering Circular (e.g., “Summary of Management Agreement”).
  • Search Documents:  I’ve drafted approximately seven million Operating Agreements. If I’m looking for a clause I used two years ago, the tool should be able to find it.
  • Improve Documents:  The tool should review my document and point out ambiguities, inconsistencies, mistaken references, and logical gaps. 
  • Draft Sections of Documents:  If I’m drafting an IP License Agreement and need a section saying the Licensee is responsible for prosecuting infringement claims, the tool should produce one with a simple prompt.
  • Draft Whole Documents:  If I need a Rule 144 opinion, the tool should take me through the steps of preparing one, including the Certification from my client.
  • Legal Research:  The tool should vastly improve the process of legal research.
  • Reserve Flights:  Not necessary. 

In the earliest stages, I don’t expect an AI tool to produce great results. During a recent demonstration, the sales rep said, “You should view this as the work of a second-year lawyer.” Unfortunately, it was more like the work of a high school junior.

The good news is that brute strength tools like ChatGPT have improved dramatically. You still can’t rely on them – recently ChatGPT produced a quote from a court case speaking directly to my issue, but when I checked (always check), the quote was hallucinated – they are better than the intermediated tools, so far. 

When ChatGPT was released, many experts predicted that lawyers were the most vulnerable. Two and a half years later, that hasn’t happened, either. If you’re a lawyer, I guess that’s good news in a different way.

Questions? Let me know.

Artificial Intelligencer and crowdfunding

Artificial Intelligence And Crowdfunding Law

On By crowdfundattnyIn AI1 Comment

Like everyone else, I was shocked by the launch of ChatGPT. And like everyone else, I believed lawyers would be first on the chopping block. But I now have a far more optimistic view. I think AI will have a far more nuanced and ultimately beneficial effect for lawyers and their clients, including but not limited to Crowdfunding clients.

At first, I thought lawyers (or non-lawyers, gasp!) could type a question into ChatGPT and get a fully-formed legal product, whether a brief, a memo, a contract, or an obnoxious letter. But it turned out that neither ChatGPT nor its imitators is close to that, and I doubt they ever will be. 

Rather than crashing down the walls, AI is entering the legal profession through the front door. Lawyers are not interfacing with AI directly, by typing prompts into ChatGPT. Instead, the AI is being intermediated by existing legal resources. Through subscription, lawyers have access to extremely powerful online resources like the research tools at Westlaw and the high-quality legal forms at Practical Law. These services are themselves incorporating AI into their products, the same way Microsoft is incorporating AI into Office.

Today, for example, I can upload an Asset Purchase Agreement and get back all sorts of comments – what provisions are missing, as compared to a complete Asset Purchase Agreement, what provisions I should consider adding or deleting depending on whether I represent the buyer or seller, what’s “normal” for a given issue, correcting cross-references, letting me know which capitalized terms haven’t been defined, lots of other things. And I know that these comments and suggestions are coming, ultimately, from some of the best M&A lawyers in the country.

The AI is being intermediated by experts, who are using their experience and brains. In this way AI is not so much revolutionary as another step, if a large step, in the continuing evolution of legal resources.

Lawyers are using AI without even knowing it’s AI. And that’s perfectly normal. How many of us, flipping a light switch, think about electrons?

The result should be to make it easier for lawyers to produce a better product. Or to put it differently, to make high-quality legal work cheaper per hour.

I remember when lawyers thought email and fax machines would give them more leisure time and were shocked when they had the opposite effect. Email and fax machines allowed – actually, forced – lawyers to do more work. Rather than send a document overnight (itself an innovation) and wait for a response, the response was immediate.

The same will be true for AI, in my opinion. AI isn’t going to make lawyers redundant. Instead, with AI driving down the cost of a high-quality contract, existing clients will have more of their work done by lawyers, rather than trying to piece something together themselves, and people who have never used a lawyer will be able to afford one. The overall quality of legal work will rise, benefiting everyone.

Ever seen Apple’s original license agreement with Microsoft? The agreement was so awful, it basically allowed Microsoft to steal the GUI and launch Windows. And I am 100% sure the contract was so awful because a business guy at Apple wasn’t allowed to spend money on a lawyer.

You can see how this will translate to Crowdfunding. Upload a Form C and the AI will tell you what’s missing and suggest corrections and replacements. Upload the Y Combinator SAFE and the AI will tell you “Please read Mark Roderick’s blog post explaining why the Y Combinator form has to be changed for Reg CF.” Unfortunately, the Form Cs and other legal documents used for most Reg CF campaigns today are awful, like the Apple license agreement. I think AI will improve the quality of those documents and at the same time make Reg CF more accessible to more people. 

That’s a huge win.

Questions? Let me know.