CodeX FutureLaw 2021: Computational contracts create a Big Bang in legal

Originally published on the Legal Executive Institute.

By Joseph Raczynski

The bleeding edge of the legal industry is now building interfaces at the intersection of code and law through computational contracts.

These computational contracts (sometime called smart contracts), according to Stanford University, are a universal Contract Definition Language that will allow terms and conditions to be represented in machine-understandable way. As a result, computers will be able to process and reason over the contracts automatically with a guaranteed degree of accuracy. The Stanford project sees this as not only a significant reduction of legal transaction costs, but it also opens a variety of new options to create better contracts.

With these building blocks taking shape, we can finally peer into how technology will guide legal into a fundamental paradigm shift around legal contracts. This idea, among others, were discussed and debated at the recent CodeX FutureLaw 2021 conference, held virtually.

Before the legal pyrotechnics on self-executing contracts, the conference began in more of a reflective state. Thomas Kim, Chief Legal Officer and Company Secretary at Thomson Reuters, spoke about the industry transformations ahead, emphasizing the intelligent, thoughtful adoption of new technologies. In crafting his message, Kim focused his attention on the compelling need to establish industry standards around technology, where companies must create global values. Pivoting to regulation, which he believes will ramp up, Kim explained that is vitally necessary for companies and their technology to weave a fair fabric of social consciousness and awareness.

Finally, Kim described the key principles around artificial intelligence which Thomson Reuters has offered to the industry, prioritizing safety, security, privacy, and humanity.

codex

In another session, Allen Kay, a preeminent American computer scientists and Turing Award Laureate, led an eccentric yet nuanced keynote on intellectual curiosity and bias. He purposefully quizzed the audience, asking: “With so many bright people on the Supreme Court, why do we have such different opinions?” Utilizing theatrical metaphor throughout, he unpacked a theory of human perspective, with the theater in our minds. “Humans are easily fooled, want to be fooled, pay to be fooled, fool ourselves, and we pay to fool others,” Kay said, adding that most of our mind is still operating on instinct from 200,000 years ago.

Kay’s incisive vision on the human condition laid out the inherent concerns surrounding the next era of computational power and the biases built into them. Our malleable minds can be shaped by those in power with their narrative, he surmised, and without the legal industry applying critical thought, the producer of the play will create a scene in their own vision, i.e. bias within the code for the legal industry.

Forming the law into computational contracts

The conference then shifted to the concept of computational contracts covered by two different panels, which both were in near uniform agreement that we are going to see serious disruption to the contractual components of legal agreements in the near future.

Harry Surden, Associate Professor of Law at the University of Colorado, moderated the panel and described the complexity of helping computers understand the English language, which is no easy feat. Michael Genesereth, professor in the Computer Science Department at Stanford University, then began with a premise that we need to rethink how contracts are written, stating that there’s a need to “form the law into computable contracts.”

To do so, however, first we have to create a domain ontology, which is the first vocabularies and vernacular that can be used to describe a universe of the legal discourse. In this instance, we are referring to dependencies between types of knowledge in legal reasoning. It sounds easy, right?

codex

One surprising theme the panel offered was the interstitial nature of using AI to convert contract language to a form of computational contracts. “We are currently trying to rebuild the horse out of metal and machines rather than progressing to the car,” said Oliver Goodenough, Law Research Professor, University of Vermont. Instead, he said, we will get to a point where we need to rethink the contract itself and then code around it.

What panelists proposed was a system that used the ontology of a legal system, coupled with interdependencies and outside data to build a dynamic contract. Eventually, this would be a no-code solution that would be akin to the WYSIWYG (What you see is what you get) web pages that people build today, rather than using HTML.

The second panel focused on computational contracts by using the insurance industry as a backdrop. Michael Pieciak, Commissioner of the Vermont Department of Financial Regulation, described what computational contracts look like, noting these contracts are so rich in technology that it took a 122-page report to describe the algorithm they use for insurance underwriting.

Roland Scharrer, Group Chief Data & Emerging Technology Officer at AXA, described the complexity of what his company has built and how it works, adding that contract creators can get insights from data within the industry and then write the contracts. “This technology is real and being used now,” Scharrer said.

Panelists also observed that in the not too distant future, the contracts will be more complex, and users will be able to leverage external data with the contract itself. Eventually, the contract will be able to execute itself. We also will see an increase in the use of decentralization components, which is being embraced by the FinTech, eCommerce and insurance industries.

While sessions touched on automation and disruption, the binding element which connected all of the day’s debate was a focus on creating a more equitable, open, and fair legal landscape imbued with thoughtful, unbiased technology. Reflecting on the keynote, it’s fair to surmise that the opportunity is immense — yet, we must commit to critical thinking, challenging traditional norms, and re-conceptualizing how technology can enable access to justice and better legal services for all.

Stanford, Sights Set on Legal: Part 3 – School Projects Create Significant Companies

By Joseph Raczynski

The Legal Lessons Learned from Stanford Series

Stanford University is fully embracing the legal industry, a historically cautious mover, as a focal point of its innovative solutions.  The industry is primed to evolve through more transformative processes by pairing inventive thought and applied technological advancement to solve niche legal process issues.  Recently at the Emerging Legal Technology Forum, hosted by Thomson Reuters and Stanford University, we learned how and what the school has developed to further advance the legal space.

Lex Machina Blazes a path:

As I mentioned in the previous post, not too long ago Stanford decided to coalesce departments across its graduate campuses.  This meant combining groups that had always been housed in separate buildings.  Once they started this project, the nascent ideas emerged.

Lex Machina – one of the first and most successful of the emerging projects, started with a mashup of the university’s law school and computer science department’s collaborating.  It is an IP litigation research company which creates legal analytics data and software.  It began as a project on campus under the broad and supportive limbs of Stanford’s incubator environment before being spun off into what it is today, a full-fledged company based in Menlo Park, CA.  This exemplifies the university’s core, to intertwine siloed departments, leverage strengths, and thus seek out whitespace.  In this instance they were able to leverage computer algorithms from the CS department with the publically available legal data to produce visualization of IP litigation data and predictive outcomes.  Never before had these two disparate groups collaborated.

Securities Litigation Analytics is a similar type of project still sitting inside of Stanford.  In a similar way SLA is an analytics based legal platform focused on federal shareholder lawsuits.  It allows a user to query a database of over 2,000 federal shareholder lawsuits across hundreds of variables and see the statistics for outcome, settlement size and resolution.  Like Lex Machina there is an ability to display the results of your search through interactive graphics.1

What is remarkable about these projects is that it took comingling of two different cultures and philosophies into one venture to produce them.  One surprise during their discussions was the realization that both Michael Klausner CEO of SLA and Josh Becker CEO of Lex Machina did not know the other existed and yet they were a few floors apart working on their respective projects in a similar field.  Given the advanced and innovative approach that Stanford is taking, I was rather surprised to hear them say they did not know about each other.

Ultimately Stanford is pushing into the legal space with the hopes of engaging the industry, its respected schools and technology.  They are actively establishing an ecosystem of innovation by driving experimentation and promoting new ways of working within the legal space.  Based on the projects evolving into established companies, we know their imaginative processes are creating a furtile ground for pushing legal forward.

 

Stanford, Sights Set on Legal: Part 2 – “Designing” a Legal Industry

By Joseph Raczynski

The Legal Lessons Learned from Stanford Series

Stanford University is fully embracing the legal industry, a historically cautious mover, as a focal point of its innovative solutions.  The industry is primed to evolve through more transformative processes by pairing inventive thought and applied technological advancement to solve niche legal process issues.  Recently at the Emerging Legal Technology Forum, hosted by Thomson Reuters and Stanford University, we learned how and what the school has developed to initiate increased efficiencies in this arena.

In my last post I wrote about how Stanford’s Design School created a better process for Fidelity Investments when it came to driving more customers to create estate plans.  What was most fascinating about the talk was Margaret Hagan from the Stanford Institute of Design perspective and approach.

In her opinion, in any one of these scenarios it is all about collaboration and rapid prototyping.  She set the stage by recommending the legal industry create more “Popups” i.e. brief rapid-fire meetings that have the following:

  • Different backgrounds – people from various perspectives and specialties
  • Innovative spaces – bright, colorful, open rooms
  • Music, force people to stand, uncomfortable chairs, intimate space, white boards, pens in hands
  • Keep the conversation going by saying “Yes and…” don’t worry if this will work or not
  • Concept of “flaring” which is putting all ideas up on the board

Margaret started a Legal Design Initiative to explore new areas and draw out ideas.  Over an eight week period she set up popups with partners like Orrick.  They worked in collaboration targeting teams of JD/MBAs and d.School to come up with fresh concepts.  The goal was to be exploratory.  The benefits to this was that Stanford came away with a host of clever ideas and new projects that could eventually be elevated to the realm of a Lex Machina or SLA, which I will delve into more in the next post.

Stanford, Sights Set on Legal: Part 1 – Fidelity Investments Estate Planning

By Joseph Raczynski

The Legal Lessons Learned from Stanford Series

Stanford University is fully embracing the legal industry, a historically cautious mover, as a focal point of its innovative solutions.  The industry is primed to evolve through more transformative processes by pairing inventive thought and applied technological advancement to solve niche legal process issues.  Recently at the Emerging Legal Technology Forum, hosted by Thomson Reuters and Stanford University, we learned how and what the school has developed to initiate increased efficiencies in this arena.

Designing a Better Legal Process:

Fidelity Investments had a problem.  They have 20 million customers and 70% of them did not have an estate plan.  Being a customer centric organization they wanted to significantly lower that gap.  Fidelity reached out to Stanford and the school brought the Design School (d.School) and Law School together to collaborate.  Margaret Hagan of the Stanford Institute of Design and Philippe Mauldin of Fidelity used some of the basics of the design program to figure out how to help find a solution.  Interestingly enough, core to this process was determining what the problem was, and not focusing on the solution.  They began by visiting people’s homes to see firsthand what their customers chatted about when it came to finances.  Fidelity had a focus on how they could help people protect their assets.  What they uncovered is that the problem was education which bled into a lack of execution for their customers.  Simply stated, people did not know what they did not know and so they did nothing.

Fidelity went back to Stanford and they all collaborated on what this process of establishing a state plan would look like on fideleity.com.  Their focus was on how to help the customer prepare.  Thus they created a wizard interface with step by step templates from Stanford Law School and linking out for complex legal terms.  In addition the wizard helped guide users through a list of pertinent information assisting them in preparation about decisions that they would have to make.  Once that piece was completed the next step was to assist people in partnering with trusted attorneys.  Stanford ultimately recommended a vetted attorney for each state to keep in compliance for local jurisdictions and to review finalized documents.

 

In an effort to create a simple legal process, driving understanding and efficiency, Stanford combined their Design School with the Law School through a real world problem to create a better customer experience.  In the next post I will delve into how the d.School tactically innovates through process which I believe all industries could benefit.