10 Trends in the Legal Tech Sector for 2022

Author: Macarena Plaza, Head of International Corporate Development and Legal Innovation at IE Law School

On December 17th, I had the honor of serving as moderator for a conversation on legal tech trends at the Legal Management Forum. This is the most important event in the Spanish legal tech industry, and serving as a benchmark on the international stage. It is organized by the Wolters Kluwer Foundation, Inkietos and Santander Bank, and it analyzes the trends of the legal sector each year. IE Law School has historically participated as an academic member of the forum, and this year we had the pleasure of hosting the event, which took place at our new vertical campus in the IE Tower.

I was part of the roundtable discussion on the ecosystem of legal tech startups. Other participants included Francisco Guillén, CEO of Blocktac; Miguel Ángel García, Head of Marketing at Biometric Box; and Pau Enseñat from Dataguardian.

I also represented IE Law School on November 18th and 19th in the fourth annual conference on the management of law firms, “Building the Law Firm of the Future: 4th London Law Firm Management Conference” organized by the International Bar Association (IBA). Year after year, this conference focuses on analyzing how to build the law firm of the future in the coming five to ten years.

Both events have taken an in-depth look at latest trends in the legal sector, as well as the lessons we’ve learned from the Covid-19 pandemic. These events coincide with a historic moment we’re experiencing in the industry: the possibility of streamlining business through technology, with all of the growing ethical and security risks that automation implies. Another overlapping question that was analyzed at both events was how in-house departments, guided by their businesses, are accelerating the delivery of legal services. New demands and an increased rate of change are forcing firms to adapt to compete in a market in which there are more and more suppliers, more difficulty in retaining talent, and greater demands from clients.

Reena SenGupta, who opened the IBA conference and who we had the opportunity to meet at IE Law School thanks to her participation in LawAhead, underscored this point. She highlighted that in a recent report from RSG about changes in the legal profession, only 19% of partners at large law firms stated that they were confident working in the digital economy.  This study concluded that firms must change, namely in five aspects: they need to be more usable, digital, rapid, versatile and prepared for the future.

Many of these changes are related to legal tech tools. Every day, we see a new tool that can allow us to improve as lawyers. For this reason, 60% of firms plan to boost their investment in new technologies between 2021 and 2023, according to the results of the 2021 Wolters Kluwer Future Ready Lawyer Survey. The objective is to be able to take full advantage of the innovative tools that can help us reduce margins of error and improve the precision and speed of lawyers.

This opportunity is clear, and investors are taking notice. In 2021, the legal tech market has been able to peak investors’ interest, and we’ve witnessed capital injections of millions of euros.  Back in 2018, Forbes indicated that the investment in the legal tech sector had grown 700% in respect to the previous year. Gartner points out in its 2021 Legal Technology Trends and Predictions report that by 2025, investment in legal tech will have tripled in comparison to this year’s figures.  And this year, the Spanish Association of Capital, Growth and Investment (ASCRI) reached an investment figure of 5 million euros in the third trimester, of which almost 900,000 euros were directed towards legal tech initiatives.  We are in a time of great funding for the sector.

But what exactly are we referring to when we talk about legal tech?

Stanford Law School has been a pioneer in the classification of the distinct categories of legal tech tools that exist in the market today. The school compiles an annual list of companies dedicated to legal technology and divides them into nine categories according to their functions:

• Analytics: data analysis, offering optimized search results
• Compliance: detecting risks and implementing automated control and management systems
• Document automation: generating documents and automatically managing their full lifecycle
• Legal education: providing legal education in innovative ways through the use of technology
• Legal research: identifying and collecting the information necessary to make a legal decision
• Platforms: allowing users to offer and obtain legal services online
• Online dispute resolution: resolving claims online
• Management: Legal operations
• E-discovery: searching for, locating and securing digital evidence to be used in court proceedings

At IE Law School, we’re extremely fortunate to have an international committee of expert legal tech advisors. This committee is made up of industry professionals from different parts of the world, such as Roland Vogl, Executive Director of CodeX—The Stanford Center for Legal Informatics (responsible for the creation of this list).

And in recent years, in collaboration with the Law School Global League, we’ve organized various legal tech startup competitions around the world, called Legaltech Venture Days.

In past editions, we’ve gotten to know the legal tech ecosystems of Mexico, Singapore, South Africa, the United Kingdom, Brazil, Italy, the United States, India and Australia.

So, based on our sector knowledge and the analysis of diverse reports and studies such as the IBA Future of Legal Services Commission’s report, we conclude that these are the 10 most relevant trends to look out for in the legal tech sector in 2022.

1.  Significant increase in legal tech spending

2021 was a big year for the expansion of legal tech solutions.

Thanks to these solutions, we’ve seen a significant change in the way we work. More concretely, legal operations departments have undergone an exponential amount of sophistication, which has introduced new efficiencies into the production model. We’ve also seen the development of new tools that increase customer satisfaction and create new areas of business.

Experts concur that the most significant trend in 2022 will be the increased budget that firms and legal departments will dedicate to investing in legal tech tools.  Covid-19 has sparked an acceleration in the transformation of strategies that the sector was already employing, and it’s likely that legal tech spending will continue to increase in 2022 in order to improve production and efficiency.

As Gartner indicates, legal departments will have automated 50% of their work by 2024 thanks to these tools.

2. Investment in tools that automate the management of legal documents

A huge part of a lawyer’s time is dedicated to the creation, analysis and management of legal documents. According to a McKinsey & Company study, 25% of this time could be automated with the right legal tech solutions. Therefore, this is one of our key jobs to do when it comes to looking for greater efficiency in the sector.

Lawyers are very conscious of this need, as demonstrated in a Wolters Kluwer survey in which 72% of respondents said that they were worried about the increasing complexity and volume of documents they have to analyze.

That’s why this year, the incorporation of software that allows users to automate documents, the management of contracts and legal searches has become mainstream. In general, we have seen an increase in the automation of repetitive tasks, which increases lawyers’ efficiency.

We predict a rise in these solutions by next year.

3. Cybersecurity

The pandemic has brought about a worrying increase in cyberattacks. According to the Future Trends for Legal Services report from Deloitte, “more and more clients search for firms that offer legal advice about digital matters, data protection and cybersecurity.” Therefore, having knowledge about cybersecurity is key in 2022.

On the other hand, lawyers themselves possess and handle very pertinent information about their clients. As was discussed at the roundtable dedicated to cybersecurity at the Legal Management Forum and the Building the Law Firm of the Future conference in London, legal professionals should be especially conscious of the increased risk of cyberattacks on their systems, and therefore should increase their investments in tools designed to mitigate these risks.

In its report on the profile of the legal profession in 2021, the American Bar Association (ABA) indicates that 29% of lawyers suffered from cybersecurity attacks at their firms that year. This can happen via loss or theft of a computer or smart phone, pirating, intrusion, or a compromised website. This number shows an increase compared to the previous year. Consequently, cybersecurity is becoming one of the most important legal tech trends, given that it has an influence on the reputation of a business, its relationship with its clients and its earnings.  Though the majority of these cyberattacks did not affect the overall performance of the firm, 37% of respondents admitted to having lost revenue as a result of these security breaches.

4. Data storage in the cloud

This trend is nothing new—we’ve been seeing this tool for years. That being said, we must highlight its widespread implementation as a trend for 2022. This is due, in part, to the growing risk of cyberattacks on law firms that we referenced in the previous point.

A migration to the cloud offers various benefits. For example, lawyers will be able to supervise and manage all of their legal proceedings on the internet, using any mobile device or computer, no matter where they are in the world.  In fact, the ABA projects in its report that in the next three years, 71% of legal departments and 75% of firms will have migrated their data to the cloud, and they will use the software’s integrated document management services in their in-house procedures.

5. Virtual legal assistants

This refers to intelligent bots that support lawyers in the undertaking of daily tasks through the automation of certain processes.  Though this technology has been present in the legal tech market since it was launched, 2022 is the year that we’ll see a more widespread use of it in the legal sector. Gartner estimates that virtual legal assistants (VLAs) will address 25% of internal claims made to the legal departments of large corporations by the year 2023, increasing the operational capacity of internal corporate teams.

This technology allows teams to increase their operative capacity, reducing lawyers’ average response time and producing distinct service delivery efficiencies.

This technology will be used primarily to respond to uncomplicated and repetitive operations.

6. Digital identity management tools digital signature

Digital signatures have become increasingly popular in the last year. The main cause of this has been the pandemic, given that digital signatures allow for higher security in remote work, increasing the productivity of businesses while reducing costs.

This already widely used technological tool can appear as a handwritten or biometric (digital fingerprint) signature. It stands out as a growing trend and solution in the industry.  Likewise, we’ve also seen growth in investments in blockchain for digital identity.

In the State of the Industry Survey, presented by CLOC (Corporate Legal Operations Consortium) and the ACC (Association of Corporate Counsel), we can observe a very relevant data point regarding this trend.  87% of respondents had already implemented digital signature tools, with DocuSign being the principal provider.

It is foreseeable that this trend, which is already established in in-house legal departments, will spread to law firms as well.

7 Artificial intelligence

Artificial intelligence tools enable law firms and legal departments to achieve greater efficiency through the use of algorithms that establish patterns in the management of their data.  We believe that in 2022, investment in this field will increase.

Its current use is mainly as a support tool that allows lawyers to facilitate their most repetitive tasks. In some cases, the software uses machine-learning algorithms that can revise documents and obtain certain data. This allows lawyers to make accurate decisions based on said data.   Although we’re still far from AI becoming a key tool in the sector, we’ll see more widespread use for some specific tasks, like contract lifecycle management.

8. Increase in investments in privacy technology 

Gartner predicts that by 2023, we’ll see a 150% increase in the amount that in-house legal counsels invest in solutions dedicated to handling requests for data subject rights in the name of clients. The processes for filing a claim on this subject, established in the European Data Protection Regulation and the California Consumer Privacy Act, lead us to believe that law firms and businesses will invest in the automation of these processes through technology. This will allow firms and businesses to be able to follow regulations and assimilate these new procedures in an efficient manner.

9. Smart contracts and blockchain

In 2022, we will see the integration of different blockchain networks. This technology is especially relevant for our sector, thanks to its capacity to provide secure digital confirmation. We don’t think its use will become widespread, but as a sector we should look out for the growing number of businesses using this technology. We can take a look, for example, at the case of the successful Spanish business Bit2Me, or the digital identity model developed by Alastria. These examples represent a new need for legal advising that many firms are already aware of.

10. Hiring candidates with hybrid profiles

Another relevant legal tech trend that we can observe—and that Gartner predicts—is an increase in the diversity of profiles that will be hired by legal departments.  They predict that in 2023, a third of corporate legal departments will have a legal tech expert in charge of managing the digital transformation and automation of internal processes.

According to Gartner, a gap currently exists in legal departments between professionals who have knowledge about legal matters and internal operations, and those who understand the technology necessary to make these workflows more efficient.   For the consultant, it’s necessary to close this gap, which can be done by building and hiring hybrid profiles.

In essence, quoting Gartner’s Consulting Director Zack Hutto, “businesses should be more aggressive in their investments in legal technology, but more importantly, they should invest in a more effective way to do it.”     This was echoed by Gloria Sánchez, member of our legal tech advisory committee at the roundtable conversation that was held the day before the Legal Management Forum.

We can observe a growing number of investments, but we must understand that the key to the success of these investments is to first determine what the problem is that needs to be solved. We must look beyond legal tech trends and learn about the solutions that have truly worked in the sector to be able to make informed decisions.

Thanks to the pandemic, we can no longer say that the legal sector is immune to change, nor that it has suffered greater difficulties than other industries.  The sector finds itself in an extraordinary moment in which it can take the quantitative and qualitative leap that our clients have already been forced to take on the road to digital transformation. We trust that the consolidation of the legal tech sector, accompanied by smart investments made by stakeholders, will help us improve the legal sector as well as respond to the growing challenges that face us—together.

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MACARENA PLAZA VELA is Head of International Corporate Development and Legal Innovation at IE University Law School. She has worked with international Law Firms and corporations to create joint opportunities and establish strategic partnerships to grow.

She is highly focused on promoting the IE University innovation strategy, especially in the intersection between Law and Technology.

She is also director of the Legaltech Innovation Farm, an open innovation initiative powered by IE Law School.