Last week, several reports indicated that McDermott Will & Schulte is considering restructuring its firm to accept a potential private equity investment. A move like this by a top global law firm would be unprecedented and test ethics rules governing ownership of law firms by nonlawyers. A move to separate legal advice from other legal services that don’t require advice is a big shift that would ripple through established firms and also test regulatory boundaries.
A Trillion-Dollar Market Evolving
The LegalTech Fund (TLTF) sees a $1 trillion opportunity to reinvent legal services through the convergence of technology, regulatory changes, and innovation. TLTF calls this movement Law Firm 2.0, and the fund believes a reinvention will pave the way for entirely new, tech-enabled models of legal service delivery.
In addition to the chatter around McDermott, others are taking steps toward the rethinking of legal services.
Momentum is no longer theoretical. Arizona’s Alternative Business Structure (ABS) regime now supports over 150 entities that legally permit nonlawyer ownership. Additionally, AI law firms like Crosby are making headlines as they announce a meaningful $20 million Series A investment. Eudia is making headlines after acquiring a second Alternative Legal Service Provider (ALSP) last month.
Law Firm 2.0 is gaining momentum.
TLTF Summit — Law Firm 2.0 Panels
Last week, TLTF offered a track on Law Firm 2.0 at their annual summit. I had the opportunity to facilitate one of the panels, interviewing several startups about their vision for the Law Firm 2.0 movement.
Here are four key learnings from that panel.
Deconstruct and Reconstruct the Law Firm Model
Covenant is a new technology-enabled law firm that integrates AI with legal expertise for private market transactions. Jen Berrent, co-founder of Covenant, views Law Firm 2.0 as “The deconstruction of the services a law firm provides and the reconstruction of those to create a law firm that uses new approaches and leans on technology.” Covenant is pursuing better outcomes for its clients, including lower fees, faster transaction processing, and deeper insights using the principles of Law Firm 2.0.
Agentic AI
Kiran Bellubbi at Glade.AI shared about the power of agents to provide greater leverage for attorneys to perform tasks. He stated, “AI agents can think and act for hours on end, collecting information and performing tasks with transparency and efficiency under the supervision of attorneys.”
Data Driven
Large law firms often struggle to find information and to leverage their scale and know-how about their client and expertise. Among other things, DeepJudge helps firms better find and relate documents and information together to make use of institutional knowledge. DeepJudge’s founder and CTO, Yannic Kilcher, stated, “Law firms in the future will have a command of their data and will be data-driven.”
New Business Models
Innovation is not limited to software. The panel also discussed how redefining service delivery can align fees with client value. For example, Glade offers a SaaS practice management solution but does not follow a standard per-seat subscription model. Glade charges by progress and milestones that are more closely tied to client value.
The Expanding Map Of Legal Service Delivery
With a $1 trillion market opportunity, there will be competing options to rethink how legal services are delivered.
Large firms will continue to evolve and leverage their strengths, including relationships and broad experience, as they improve their ability to use data and new technologies. Incumbent firms may restructure along the lines being discussed by McDermott.
Upstart technology-enabled law firms will leverage AI and a “blank sheet of paper” to create disruption, particularly in specialized practice areas.
Managed services and ALSPs will seek greater market share by leveraging the ever-expanding universe of technology to provide attorney-reviewed services that do not require legal advice.
Outside investors will also leverage ABS structures in Arizona, Utah, and Puerto Rico to accelerate disruption and blur the lines.
An Uber Moment
When Uber launched its service, it did not wait for permission from taxi regulators. Customers started to order rides, and before anyone knew it, Uber had taken over. Regulators followed.
Consumers (and some attorneys) are using OpenAI’s ChatGPT as a legal expert. This phenomenon is playing out similarly to Uber’s approach to taxi medallions.
Additionally, most Generative AI features in legal tech rely on OpenAI or another large language model provider. The practical boundary between legal information and legal advice is growing harder to define, and the demand for clarity is intensifying. There will be pressure to rethink the unauthorized practice of law (UPL) depending on whether lawyers, nonlawyers, or technology applications are involved.
The ABA Model Rules governing UPL (ABA 5.5) and nonlawyer ownership in law firms (ABA 5.4) did not contemplate the AI revolution. The pressure to revisit those rules at the national level, while most of the regulatory authority is administered at the state level, adds complexity.
With consumers embracing AI, capital flowing, and large firms like McDermott exploring structural change, the test cases for Law Firm 2.0 are arriving faster than many expected. The legal ecosystem is about to be reshaped. Regulators will need to move quickly or risk reacting after the fact, as a convergence of forces will redefine legal services and how those services are delivered.
Ken Crutchfield has over forty years of experience in legal, tax, and other industries. Throughout his career, he has focused on growth, innovation, and business transformation. His consulting practice advises investors, legal tech startups and others. As a strategic thinker who understands markets and creating products to meet customer needs, he has worked in start-ups and large enterprises. He has served in General Management capacities in six businesses. Ken has a pulse on the trends affecting the market. Whether it was the Internet in the 1980s or Generative AI, he understands technology and how it can impact business. Crutchfield started his career as an intern with LexisNexis and has worked at Thomson Reuters, Bloomberg, Dun & Bradstreet, and Wolters Kluwer. Ken has an MBA and holds a B.S. in Electrical Engineering from The Ohio State University.