The Legal Sector R&D Gap: 1% vs 5% Average

A recent report by Tech Nation’s LawtechUK group has underlined the research and development (R&D) gap in the legal sector when compared to the wider business world. Law firms that it surveyed spent at most 1% of revenue on R&D projects, compared to 5% on average across most parts of the economy.

The R&D gap underlines a point of tension in the legal world, where implementation of technology has steadily risen up the priority board for many law firms and inhouse legal teams, yet clearly this essential work to help find and then onboard new solutions, as well as to design and co-design applications, doesn’t get the backing in law that other sectors provide.

One could argue that the legal sector is relatively new to this game and so this is fair enough. Moreover, until fairly recently a lot of legal tech solutions were large-scale buy-ins that firms could do little to dabble with, e.g. designing your own practice management system or DMS is unlikely, so lawyers just bought off the shelf what vendors were offering, often with little testing involved.

Now, things are different. SaaS applications and a no-code approach have made legal tech solutions lighter and nimbler – and more adaptable to user customisation. There has also been an explosion in applications covering a multitude of use cases. The ability to build your own software solutions has also accelerated, again in part because of no-code/low-code approaches.

In which case, there are less technical barriers now to increasing R&D than before. But what do market experts say? The report quoted several key figures. Here’s a sample of their views.

April Brousseau, Director, Research & Development, Clifford Chance, said: ‘Our new R&D function is the culmination of years of experience with digital solution development and is consistent with our conclusion that if you’re going to really do it, you need to invest in doing it well.

‘In this function we have brought together our product development expertise together with technical, research and project management professionals to create a team that is wholly dedicated to both research and digital development. But it is a journey and, while we are making positive steps and see our peers and clients doing the same, there is still a long way to go when compared with other industries.

While Nick West, Partner and Chief Strategy Officer, Mishcon de Reya, added: ‘We think about tech investment across three dimensions: (a) core technology, which is about basic modernisation; (b) near term, which is about reengineering legal, which is where our MDR Lab sits here; and (c) horizon, which is about genuine R&D – smart contracts sits here, for example.

‘We benchmark to make sure we are investing sufficiently across all three, looking at metrics such as percentage of revenue and how our tech strategy maps into our fee structure.

We are seeing significant returns on investment, including on data analytics and monetising and divesting our tech projects with clients and partners in both the public and private sector. Being bold on our client T&Cs has been a key success factor, enabling us to maximise our R&D and giving us the scope to adopt innovative technology in our own operations.’

And on the client side, Rosemary Martin, Group General Counsel and Company Secretary, Vodafone Group, and LawtechUK Panel member, said: ‘We currently take a thousand flowers blooming approach to [legal tech] R&D, investing in lots of small different projects. This doesn’t always go down well with our IT colleagues, who want a single consistent system, but it works for the team as we can experiment, learn quickly, and produce solutions to very specific challenges, for example we have successful R&D projects running for IP rights, commercial contracts, sales and litigation.’

So, where does that leave us? First, some firms and inhouse legal teams have a highly focused approach to legal tech R&D, and that’s good to see. But, clearly this sector remains as a whole way behind the industry average. Moreover, being pragmatic it’s worth considering that outside of the top 100 law firms in the UK, and perhaps top 200 in the US, there is likely very little R&D spending at all among law firms in those two major markets.

We also need to draw a line between just buying tech off the shelf and investing in research and development. Buying the latest version of Word is not R&D. Nor is renewing a licence for the same legal research platform you’ve been using for decades. Even though this may constitute substantial tech spending for a large firm.

R&D means stopping and looking at how things could be different. It means analysing how teams work and how they serve clients, and then how things could be improved. That may mean running pilots to then buy products, or to help co-design solutions with vendors, or to build a solution from scratch. It may also involve working hand-in-hand with other delivery partners, e.g. ALSPs, and also directly with the clients, to achieve all of the above.

It could mean funding startups that are useful to the firm and its clients. It could be developing an incubator programme. Or it may mean a specialised and perhaps spun-off unit to build tech tools.

But on a basic level, it always means looking at how things are today and constantly asking: how can we improve things? It’s what most businesses do, but challenging the status quo still feels a bit like having a pair of new shoes for the legal market – we are still wearing in the idea.

One last word comes later in the report from LawtechUK, which notes that: ‘To achieve fundamental change requires a strategic approach, spanning the following elements:

Disputes – A fully digitally enabled court service that triages user issues, maximises user choice and integrates alternative ways of resolving or dissolving disputes.

Legal practice – Modern legal practice, delivered digitally, in effective and affordable ways, proactively evolving.

Laws – Substantive law and regulation that is fit for purpose, by being able to accommodate emerging technology in a timely way and recognise its legal and commercial functionality and value. The law needs to adapt not only to technological advances, but also to be prepared for future developments.

Education – Overhauled legal education where legal professionals and other specialists are equipped to deliver 21st century legal services; re-evaluating what they are trained to do and be, and how training is delivered.

Culture – An environment and culture in which innovation, user-centricity and challenging the status quo are the norm from diverse contributors, aligned around shared purpose and good governance.

Trust – High levels of public confidence in the legal system, the legal sector and the technology they use, realising fair, accessible and transparent outcomes.’

So, there you go: ‘[a] culture in which … challenging the status quo [is] the norm.’ No doubt that is the real key to an increase in R&D spending. I.e. without the right mindset we cannot expect investment in new ways of doing things to increase that rapidly. Conversely, if the mindset changes, then so much more is possible. And, on the evidence above, we are getting there, we just need this passion for innovation to deepen and widen across the sector on both the buy and sell side of the legal world.

You can find the full report here. Thanks to Jenifer Swallow, Director of LawTechUK, who led the study.