The past year has been one defined by unpredictability and economic uncertainty as well as the lasting impact of the pandemic on technology adoption and the emergence of generative artificial intelligence. In the wake of these developments, lawyers, traditionally tech-resistant, began to embrace advanced tools even as there was a sudden and marked downshift in legal technology investments and mergers.
Additionally, while law firm leaders faced resistance to back-to-office demands, there were ongoing regulatory debates focused on nonlawyer participation in the practice of law. In other words, it was a year of seismic change, with no sign of stability in sight.
Enter generative AI
In March, OpenAI released GPT-4, and generative AI tools rapidly gained prominence in the legal industry, for better or for worse. As experts predicted its significant impact early on, some lawyers jumped onto the generative AI bandwagon without fully understanding its benefits and drawbacks, making headlines in the process. Others took a more cautious approach, waiting for the technology to mature before integrating it into their workflows.
Maturity came surprisingly quickly, with leading legal tech firms like LexisNexis and Thomson Reuters integrating generative AI into their offerings during the second half of the year. Additionally, many other legal technology companies released beta generative AI tools, further popularizing this technology. In fact, according to the MyCase and LawPay 2024 Legal Industry Report, which will be released in January, nearly 27% of legal professionals reported using generative AI for work-related purposes, indicating a rapid adoption rate within the profession.
The changing mindset of lawyers toward technology
In 2023, there was a noticeable shift in the mindset of legal professionals. While its direct health impacts remain uncertain, the pandemic’s influence in accelerating technology adoption has been undeniable. Lawyers and judges, traditionally viewed as tech-averse, are now embracing tools like Zoom, iPads and smartwatches with surprising enthusiasm.
Post-pandemic, as lawyers returned to offices—often in a hybrid model—they displayed a newfound curiosity about technology. This change in attitude came at an opportune moment, coinciding with the introduction of new generative AI technologies in the legal field even as legal technology funding declined.
Legal Tech M&A and investments decline in 2023
In last year’s roundup, I covered the high levels of technology investment and acquisitions occurring in the legal industry. After summarizing all of the M&A activity that occurred in 2022, I wondered whether this type of activity represented a new normal or whether we’d see a notable decrease in activity in the coming year.
Sitting squarely at the end of 2023, it’s clear that the previous boom in legal technology investments and acquisitions has tapered off. This year, there was a clear decrease in M&A activity due to the effects of the unstable economy, leading to reduced risk-taking and fewer legal technology investments.
But despite these broader market trends, there were still key strategic investments that stood out. The most notable was Thomson Reuters’ acquisition of Casetext and its generative AI product, CoCounsel, for a whopping $650 million, highlighting the high level of interest in generative AI technology. While overall investment levels were down, moves like this indicate a strategic quality-over-quantity approach, with companies betting on cutting-edge technologies that promise to have a long-term impact on the practice of law.
Hybrid work and navigating employee pushback
Another trend was the struggle of law firm leaders to enforce back-to-work mandates. Post-pandemic, remote work has become more prevalent, leading to more flexible and innovative ways of working. Many lawyers and law firm employees prefer the remote work arrangement at least some of the time. As a result, despite the best efforts of employers locked into costly long-term commercial leases to lure employees back to physical offices, for many, the traditional five-day workweek has given way to hybrid schedules.
This shift in work culture has significant implications for the legal industry, particularly in terms of talent retention and recruitment. As prospective employees increasingly prioritize work-life balance and flexibility, law firms are forced to reconsider traditional work models to remain competitive. This trend could result in a permanent reconfiguration of law offices, which could dramatically impact the footprint of law firms.
The ongoing battle over relaxing regulatory rules in the legal profession
In 2023, the legal industry continued to grapple with key regulatory changes relating to the role of nonlawyers in legal services. In 2020, Utah established a regulatory sandbox, and Arizona decided to eliminate Ethics Rule 5.4, which had the effect of allowing nonlawyer ownership in law firms. These reforms aimed to bridge the justice gap by ensuring legal assistance is available to those who need it most.
Despite the potential of these efforts, they sparked intense debates within the profession. Proponents argued that this type of reform would democratize legal services, increasing accessibility and affordability. Critics, however, raised concerns about a potential decline in the quality and integrity of legal services that could arise as a result of these efforts. As 2023 unfolded, these regulatory experiments became focal points for a broader discussion about the future of legal service delivery and the pressing need to address access to justice issues.
Looking back at 2023, it was notable that despite the economic uncertainty, the profession underwent significant change. Legal technology adoption increased, as did curiosity about emerging generative AI tools. A profession steeped in tradition pivoted and adapted to new norms, experimenting with hybrid work amid changing attitudes about technology adoption. As legal technology investment trends fluctuated throughout the year, the continuous regulatory discussions highlighted an evolution of mindset, setting the stage for continued technology adoption in the AI era.
Nicole Black is a Rochester, New York-based attorney, author and journalist, and she is senior director of subject matter expertise and external education at MyCase, a company that offers legal practice management software for small firms. She is the nationally recognized author of Cloud Computing for Lawyers and is co-author of Social Media for Lawyers: The Next Frontier, both published by the American Bar Association. She writes regular columns for ABAJournal.com and Above the Law, has authored hundreds of articles for other publications, and regularly speaks at conferences regarding the intersection of law and emerging technologies. Follow her on X (formerly Twitter) @nikiblack, or she can be reached at [email protected].
This column reflects the opinions of the author and not necessarily the views of the ABA Journal—or the American Bar Association.