Law Firms Capitalize on Internal Data to Stand Out in AI Age

Large law firms are meeting the AI moment with a new strategy: use that advanced tech to mobilize their rich, internal data trove as a competitive advantage.

Firms in this camp are betting that their enduring value won’t be measured in hours billed, but in the unique knowledge an individual firm’s attorneys have. AI can allow them to capitalize on their expertise navigating complicated legal processes—from private equity fundraising to M&A—innovation leaders, tech consultants, and AI builders said.

“The only thing that is going to be a competitive differentiator into the future—the only thing that is going to matter—is how you extract and leverage the knowledge of the people who work within the firm,” said Nicole Bradick, global head of innovation at the legal services company Factor.

The strategy, if successful, could help mitigate the threat posed by top legal technology providers like Harvey and Legora.

Exhibit A is Kirkland & Ellis, which has committed $500 million to building its own AI capabilities to market to clients. But it’s not alone.

Clifford Chance and Crowell & Moring have both built on top of OpenAI’s GPT. Freshfields is collaborating with Anthropic to develop “novel AI legal workflows.” Fried Frank is using a long history of well-structured data to build tools that will generate more efficient work for its private funds clients.

The commitment of law firms to power AI tools with their unique expertise is a reaction to the broader conundrum firms are facing. They can buy artificial intelligence tools, build their own, or a combination of both. The firms that have chosen to customize AI have determined their data will make them stand out against peers in a world where every law firm can buy the same tech.

To be sure, not every firm is choosing to build. Polsinelli, for example, has rolled out Thomson Reuters’ CoCounsel and an enterprise subscription to ChatGPT. It’s developing custom capabilities around those tools, but not trying to compete against big tech, chief operating officer Regan Lemke said.

“We’re a law firm. We’re not a tech shop,” Lemke said.

‘Bets on the Future’

Kirkland’s half-billion dollar investment will stretch out over three or four years. The firm’s chairman suggested the AI investment will allow for the expansion of billing models other than the billable hour and that the firm used input from hundreds of its attorneys to build the tool.

Kirkland is looking to hire dozens of employees in jobs related to AI and legal technology innovation, according to its online career board. On Thursday, the firm launched a platform for private equity fundraising it said is “built around Kirkland’s institutional knowledge, workflows and legal judgment.”

How far Kirkland will push into the technical side of building AI is unclear. The firm is not likely to build its own large language model, although it could build other types of AI or, like many firms, build on top of LLMs made by big tech.

“The level that Kirkland is investing at is unique, but they are not the only law firm investing millions in these bets on the future of the market,” said Dom Conte, the co-founder of Purple, a company that builds AI tools for law firms.

Despite the obstacles, customized tools will help firms stand out in the long run as more firms use products from the same legal tech companies, Alma Asay, chief innovation officer at Crowell, said.

“What sets us apart if everything we use AI for is on a third-party tool that’s available to everyone?” Asay said.

Buyer Perspective

Tools like Harvey and Legora are increasingly pitching themselves directly to corporate legal departments, posing a potential problem for law firms’ businesses. Firms have essentially shown the AI startups what legal workflows look like by buying those tools and collaborating with them, Conte said. At some point that will become a competitive threat, he said.

“Basically you are building the competitor of the future by buying technology off the shelf,” he said.

Harvey and Legora declined to comment.

In-house leaders have long railed against the billable hour, and because law firms are investing in AI, clients hope they will move to other pricing models.

“It’s a few steps closer to killing the billable hour, which is where we all know we need to go,” Wayfair general counsel Enrique Colbert said in an email reacting to the Kirkland announcement. “It’s exciting.”

In order for law firms to keep making money while using AI tools, they’re going to need to show clients those tools are actually enhancing the quality of legal work, said David Morris, chief legal officer of the cybersecurity company Darktrace.

“The firms that get this right can build platforms their clients recognize as genuinely unique and valuable, to give the firms a more credible path to value-based billing,” Morris said in an email. “They will need that path, because AI tools are increasingly allowing firms to deliver more of the same work in fewer billable six-minute increments than they log today.”

Still, it’s not yet clear what this AI future will look like or to what extent AI will actually change the business of law.

“I look at this as an industry trend that we’re in the early stages of, and we’re all going to have to work our way through this,” said Timothy Fraser, chief legal officer of Toshiba America Group.

Bloomberg Law is a legal technology provider.