Analysis

COVID-19 Could Be Make Or Break For Legal Tech Cos.

By Aebra Coe
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Law360 (April 2, 2020, 4:24 PM EDT) -- The economic upheaval caused by the COVID-19 pandemic is likely to make or break legal technology companies, snuffing out some and creating opportunity for others, particularly those that operate on the cloud.

In the days and weeks since law firms have shifted their attorneys and staff to remote working, legal technology providers have jumped into action, offering for free or at a discount tools they say will help firms with the transition.

But even as law firms and corporate legal departments increasingly rely on technology to function during this period of remote working, the economy has taken a major hit and legal employers have begun to make painful cuts to staff and their attorney ranks, which will likely put financial investments for things like technology on the back burner.

"The solutions that are going to be able to adapt the best to this environment are those in the cloud, that are accessible anywhere securely and that can allow lawyers and legal departments to function business-as-usual from home," said Kimball Parker, CEO of Wilson Sonsini Goodrich & Rosati PC's technology subsidiary SixFifty. "Anything that is not in the cloud will suffer tremendously."

Parker said he believes the legal technology industry will shrink as the world grapples with the novel coronavirus, but that a handful of companies will come out the other side stronger as firms continue to use remote technologies adopted during the crisis.

"I think it's a situation where the healthiest will survive," he said. "In the end when we look back 10 years from now, we'll think of it as a big moment for law firms to adopt technology generally, but in the next six months we will see it hurt a lot of legal technology companies."

Ben Levi, co-founder of InCloudCounsel, said there is a "forced reckoning" happening where law firms have to use the cloud-based technologies they have long been skittish to adopt in order to operate remotely.

"The way you used to do things is simply not allowed now. You are going to be forced to find out it's not that bad, or there are ways to make it effective. You can use tools, use the cloud to interface in ways you weren't able to interface before and still can get work done," Levi said.

He said he predicts there will be opportunities for legal technology companies to step up as law firms look to work in a new way and be more efficient even when they can go back to the office.

"It's a grand experiment here and I'm fairly confident people will find out this nontraditional way of working, once they settle into a groove, is pretty effective," he said.

According to a recent survey released by The Red Bee Group, 96% of lawyer respondents said their firms had moved to remote working by March 24 in response to calls for social distancing to slow the spread of the coronavirus.

Respondents were also generally happy with the technology and other tools available to them while working remotely. They rated their ability to access work files and create documents an average score of 4.6 on a scale of 1 to 5, with 5 being the most satisfied, and they rated remote conference capabilities an average of 4.4.

David Hepburn, global president of ActionStep, a cloud-based legal practice management provider, said his company has seen an increase in interest in its products and is among the companies offering some cloud-based services for free to the industry during the pandemic.

In order to meet the needs of those interested in using its products, Hepburn said the company is implementing products virtually and offering support from afar.

"I think this might be the end of the road for old technology firms that cannot make the transition to the cloud and, post COVID-19, we will see a major migration to the cloud for the 40% to 50% of the market globally who are not leveraging these technologies," he said.

When everyone goes back to the office, adoption of cloud-based tools will likely continue, even when the need is no longer as pressing, according to Chris Ricciuti of Veritone.

"I think there will be more tolerance for using these tools post-coronavirus days than there was in the past," Ricciuti said.

Despite the optimism among some for the future of cloud services to law firms, at least one cloud-based legal technology company has already laid off employees due to economic uncertainty.

Legal tech startup CS Disco Inc., which makes the cloud-based e-discovery tool DISCO, confirmed Monday that it has let go of a chunk of its staff to offset an anticipated downturn in business resulting from the coronavirus crisis.

For a long time, legal technology adoption has been slow and measured, said Craig Carpenter, CEO of legal technology company X1. But now the industry is adjusting rapidly to a new way of operating. And while some may suffer, there will also be opportunity, he said.

"We need to look at it as an opportunity, even though it's hard when it seems like the sky is falling. Business will come back. We need to look at it not from how clients used to want to do business, but how they will do business going forward," Carpenter said.

--Additional reporting by Xiumei Dong. Editing by Kelly Duncan.

For a reprint of this article, please contact reprints@law360.com.

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