The DocuSign/Clause Deal – A New Era For Smart Contracts

Last night Artificial Lawyer shared the news that DocuSign is to acquire smart contract pioneer, Clause, beginning a new era for the technology’s real world use. This site now considers what this all means and hears more from co-founder, Peter Hunn.

First, some history. Clause was launched back in 2016, a time when there was a surge of interest in legal tech, especially for automation and NLP tools – and also one other, even more niche area: smart contracts.

Often this term got confused with the very simple ‘smart contracts’ used in blockchain-based transactions, but in Clause’s case their approach was never 100% stuck in that world. Their vision involved complex contracts, just like any lawyer would recognise. The difference was that elements of this document would be both coded and also linked to external databases. Terms in the document could, if designed that way, self-execute, or trigger a lawyer’s input to allow that aspect of the deal to be executed, long after the initial contract had been created and signed.

Some of the initial use cases were around things like logistics, where a (smart) contract could be connected to a data stream e.g. a temperature monitor in a truck carrying perishable goods, and if the temperature rose to a point where the goods would be damaged, then a coded clause in the document would immediately self-execute and the price of the goods would change.

They also looked at working with truck companies that drove in convoys across Europe’s motorways, with smart contracts adjusting payments in the document based on which vehicles took the brunt of driving at the front – and hence expended more fuel than the others behind it.

There was also a lot of enthusiasm for ‘parametric’ smart contracts for the insurance industry, where again external conditions, e.g. weather at a solar power farm, could trigger threshold terms in a document.

As you can see, the goal was to make the contract ‘alive’ and connected to the real world. It was not really at all about cryptocurrencies, or necessarily linked to blockchain. In fact, Clause can, and does, work without the need for that approach to data management.

Through its allied Accord Project it gained a lot of support across the legal market, but this was not translating into a surge of paying clients. Other tech that had gained the market’s attention as part of the ‘New Wave of legal tech’ during that 2015-2017 period, such as NLP-based tools, had gone on to become broadly adopted by multiple law firms and other tech companies. Smart contracts continued to appear as experimental.

However, in 2019 Clause got a shot in the arm, with a $5.5m Series A investment round that included Galaxy Digital and Seedcamp – and importantly, DocuSign, as investors. (Also, Dentons’ allied investment fund, Nextlaw Ventures, has invested in Clause.)

DocuSign had moved beyond just being an esignature company some time ago. It now had a much bigger vision around how people and businesses handled contracts. They were interested in how people reviewed documents – leading to an investment in Seal Software, and then its purchase, but they have also been interested in the broader lifecycle of the contract.

This is where Clause comes in. And also it’s time for some comments from Hunn. We’ll come back to what it all means in a moment.

Had Clause run out of funds? After all, there was not a major uptake of paying customers and even $5.5m can run out quite quickly when you’re building complex tech products? To which Hunn said:

No, Clause was not out of funds.

– Why do the deal with DocuSign?

DocuSign is the biggest tech company in the contracting/agreements space. Their distribution is unparalleled and we have a shared vision for where the industry is going. We pioneered smart agreements and together we can build a world-changing product category.

How does it feel to have reached this new chapter in your company’s history?

I’m very proud of what we have achieved. Legal tech often concerns iterative changes, not blue sky innovation.

We built a foundational new technology that fundamentally redefined what contracts are capable of. It’s really a new category that we have developed. The next stage is to develop this further within DocuSign – the pioneer of eSignature and the Agreement Cloud. 

Now, back to the deal and what it means for DocuSign. At this point it’s useful to look at what the company’s CTO Kamal Hathi, said yesterday about Clause and where they are heading now.

He said: ‘We have paid particular attention to how agreements are evolving from static digital documents – simple ‘pictures of paper’ – into living documents.’

Well, that’s 100% in tune with how Clause sees things.

Then: ‘[This tech could be used for] checking that the bank account details in a contract are correct, or that an internet service provider (ISP) is meeting its uptime regulations. It could also be about solving problems – i.e. preventing the contract from being signed if those account details are wrong, or initiating a claim if the ISP misses its targets.’

I.e. DocuSign has already started to scope out a series of use cases that it believes its clients may be interested in. And when it comes to clients, you can name a large swathe of the world’s biggest companies – as well as thousands of SMEs and individuals who make use of its esignatures and other capabilities.

Their use cases are perhaps more day to day than the experimental ideas set out by Clause back in 2016, plus when those ideas are paired with DocuSign, and electronic payment systems, it all comes together and seems very doable.

As with many new technologies, the trick is to connect with needs that are visceral and strongly felt. Sometimes you need a big company like DocuSign, grounded in the day-to-day realities of business transactions, to tune into those needs.

Hathi adds: ‘It’s an important enabler of making our Agreement Cloud smart.’ And also then says: ‘The company has built a smart agreement platform that enables and automates the actions mentioned above–such as sending notifications, running compliance checks, and sending contract status updates.’

But, the other really key bit is this: ‘.…and we’re exploring deeper connections to contract lifecycle management (CLM) too. In addition, Clause’s experience developing specific solutions for financial services, insurance, and healthcare companies complements the way the Agreement Cloud helps many of our customers.’

And CLM makes a lot of sense. They do signatures, they can – with Seal – help with doc review, and now also through the Agreement Cloud they help with the broader workflow around contracting.

Take for example, this use case with the bank Santander:

‘Prior to this digital transformation [with DocuSign], a new customer would be required to fill out one of 39 editable PDF onboarding forms before printing, signing and returning it to a local branch. This unnecessarily manual process took customers an average of 12 (and sometimes up to 25) days to complete.

With DocuSign, Santander was able to digitise these steps, replacing the unwieldy 39 PDFs with one dynamic, online form. Once a customer submits that initial form, it triggers a succession of back-office processes required to approve and open the new account, like checks for financial crime and anti-fraud. In many cases, parallel processing helps to complete all onboarding steps so that once the customer signs, their account is open.’

The key word there is ‘dynamic’, and the other is ‘triggers’. This language could have been taken directly from Clause.

And this is where things are likely to grow. The ability to make contracts come alive, to link to external data sources, or databases inside a business where the contract is stored, plays right into how DocuSign and Clause see things. It also makes a very compelling contribution to the CLM world.

I.e. this is not just about reviewing and signing and storing a contract, or even just extracting key data for a dashboard – it turns that contract into an active business asset – which is what it is, it’s just that in most companies to make it ‘alive’, someone needs to read it, understand the terms, dates, and renewals information and then do something about it. Here it can all be connected, and in some cases: automated.

Final word

The core idea of smart contracts has always been a solid one – it has however not seen rapid uptake in terms of real world use – yet. With DocuSign and its broad reach, thousands of clients, and significant resources, the technology is now entering a second chapter in its history.

In another five to ten years we may all look back and say: ‘The DocuSign deal, that was the moment when smart contract technology really started to take off.’

It’s been a pleasure covering Clause’s development since it started and Artificial Lawyer wishes Peter Hunn and the rest of the team the best of luck in what is the beginning of a new era for smart contracts.