The No-B.S. AI Law Blog

A recent article in Bloomberg Law by Roy Strom suggests that artificial intelligence (AI) could spell doom for the traditional law firm business model based on billable hours [6]. The argument goes that as AI makes lawyers more efficient, it will reduce the number of hours they can bill, leading to a decline in revenue and profit margins.

This view, while understandable, is misguided and short-sighted. It’s rooted in an outdated system that prioritizes quantity over quality and is fundamentally at odds with lawyer well-being. Instead of seeing AI as a threat to billable hours, we should recognize it as a powerful tool to enhance lawyers’ capabilities, improve their mental health, and ultimately deliver better results for clients.

The billable hour model has long been broken, incentivizing lawyers to work longer rather than smarter and tying their worth to time spent rather than outcomes achieved [2]. This has contributed to widespread issues of overwork, stress, burnout, and mental health problems in the legal profession [4].

AI offers a way out of this dysfunctional system. By automating routine tasks and enabling lawyers to work more efficiently, AI can help reduce the crushing workloads that have become all too common in many firms. This increased productivity doesn’t necessarily mean fewer billable hours and lower profits. Instead, it can empower lawyers to serve more clients, tackle complex issues more effectively, and deliver greater value.

Innovative firms like Wilson Sonsini are already showing the way forward. They’ve developed an AI-powered product that automatically marks up sales contracts for startups, combining the firm’s legal playbook with machine efficiency [6]. By leveraging AI to do this work faster and cheaper, while still having it reviewed by the firm’s lawyers, Wilson Sonsini aims to win business from competitors. In the words of chief innovation officer David Wang, “I’m planning to cannibalize our competitors’ work, because there is plenty there to eat.” [6]

This points to the transformative potential of AI in law: not just increasing efficiency, but opening up whole new markets and service models. With AI-enhanced capabilities, firms can serve a much broader range of clients, especially startups and smaller businesses that have often found extensive legal work too costly and time-consuming [5]. AI can help make high-quality legal services more accessible and affordable.

Moreover, AI can help foster more sustainable and fulfilling legal careers. By taking over mundane tasks and freeing lawyers to focus on higher-value work, AI can boost engagement and job satisfaction. Automating labor-intensive processes like document review for discovery or analyzing contracts for key provisions could help ease the punishing demands and long hours that fuel mental health issues among lawyers [1][3].

Admittedly, law firms will need to adapt their business models and pricing to align with AI-driven efficiency gains. While billable hours won’t vanish overnight, alternative fee arrangements like flat rates for specific services (e.g. Wilson Sonsini’s startup contract review) or value-based pricing tied to outcomes will likely become more prevalent. Firms that embrace these models along with AI tools will be well-positioned for success [2].

In conclusion, AI is not the enemy of law firm profitability, but rather an ally for lawyers and their clients. Far from destroying the legal profession, it could spark a renaissance of more efficient, effective, and psychologically sustainable legal services and careers. The firms that recognize and harness this potential will lead the way in tomorrow’s legal market. Those that cling to the flawed billable hour system, viewing AI as a threat rather than an opportunity, risk falling behind as their competitors use AI to deliver better results to more clients. It’s time to challenge the narrative pushed by Bloomberg Law and others, and embrace the possibilities of an AI-empowered legal profession.

References:
[1] Alyson Carrel, Legal Intelligence Through Artificial Intelligence Requires Emotional Intelligence: A New Competency Model for the 21st Century Legal Professional, 35 Georgia State University Law Review 1153–1183 (2019).
[2] Amanda Pilon, The Billable Hour: Critiques of the System and Two Potential Solutions, 15 The University of St. Thomas Journal of Law & Public Policy 852–873 (2022).
[3] J. Mark Phillips, The Infinite Legal Acumen of An Artificial Mind: How Machine Learning Can Permanently Capture Legal Expertise and Optimize the Law Firm Pyramid, 11 Business, Entrepreneurship & the Law 301–320 (2018).
[4] Jarrod Reich, Capitalizing on healthy lawyers: The business case for law firms to promote and prioritize lawyer well-being, 65 Villanova Law Review 361–418 (2020).
[5] John O. McGinnis & Russell G. Pearce, The Great Disruption: How Machine Intelligence will transform the role of lawyers in the delivery of Legal Services, 82 Fordham Law Review 3041–3066 (2014).
[6] Roy Strom, Law firms’ AI nightmare is fewer billed hours and lower profits, Bloomberg Law (2024), https://news.bloomberglaw.com/business-and-practice/law-firms-ai-nightmare-is-fewer-billed-hours-and-lower-profits.