LegalTech Insights: Clio’s CEO Jack Newton talks gen AI differentiators, cloud parallels, and regulatory guidance

Caroline Hill sat down with Jack Newton, founder and CEO of SaaS legal practice management vendor Clio, to chat through his vision of how generative AI will be a differentiator; how law societies and bar associations should be guiding the legal sector (and not guiding it); and what lessons we have learned from adoption of cloud technology.

Jack, how do you envisage AI will be a differentiator for vendors?

It is really interesting to see how AI is shifting the landscape. It’s one of the capabilities that is going to see lawyers switch software providers and dramatically reshape the way they work. The challenge that many software companies have had over the past 10-15 years is how do we differentiate ourselves when our competitors are only a quarter away from copying our release? AI changes that in the sense that its features and capabilities require a much deeper investment, there’s a lot going on under the hood that you can’t reverse engineer, and it is often best delivered by companies that have unique data advantages or scale advantages. Microsoft is a good example: there aren’t many companies that have billions of dollars and the compute resources to invest in AI and Satya Nadella deserves a ton of credit because he invested early and is now reaping the rewards. Microsoft has surpassed Apple and that is a reflection of how valuable AI leadership is going to be.

This is a once in a generation innovation that will see people willing to completely change the way they work and adopt new software. Any software company that thought they don’t need an immediate AI strategy will have a harsh awakening when they see firms leaving for Microsoft Copilot and the ones that do.

The good news for software companies that aren’t Microsoft is that you can get the same capability through the likes of OpenAI, which is what Copilot is built on, or Claude from Anthropic. They are all available to build on and companies will have to invest in that AI capability, or they will get left behind.

What parallels do you see with the legal sector’s move to the cloud?

With cloud we’re moving out of the fear, uncertainty and doubt phase and it’s becoming table stakes. If you say cloud is a fad, you are going to sound irrelevant. Now IT directors are all gnashing their teeth about AI where they were worried about the cloud. The difference is that AI is starting to blend with the practice of law, not just the business of law. It can write a brief, but as Steven Schwarz in Manhattan found out, the stakes are even higher. You’re not just worried about the security and cybersecurity and change in computing, you’re taking on a more direct ethical liability in leveraging those AI systems, especially in light of some of those early cautionary tales.

Where many bar associations and law societies go wrong is in being too prescriptive in terms of how law firms or barristers’ chambers should take advantage of these new technologies. With cloud, the bar gave a long list of due diligence questions and what you need to understand to select a provider and what safety precautions you need to take, but not ‘what is the risk of the status quo?’ You have a server in a broom cupboard that is open to staff and prone to crashing and ransomware, but you have a long list of risks and you’re not thinking about the upside.

Lawyers have a duty of confidentiality and need to see themselves as good stewards making good decisions. You can’t outsource being a lawyer to AI and you can’t outsource human judgment or acting in your clients’ best interests, but you can use it augment your own judgment and your own research to base your recommendations on. That is what the law societies should be conveying.

Lawyers should feel a moral imperative to embrace AI. We’re doing such a poor job of meeting demand. 77% of legal issues do not get resolved by a lawyer and there is a yawning access to justice gap. There is a massive latent legal market that lawyers can unlock and it’s essential in solving the access to justice gap that they make the most of AI.

Boston Consulting Group published a large-scale study and did a split test of a control group that did not use AI, and a group that did to support a fictional client work project. The consultants using AI were able to complete 12% more tasks 25% quicker and the quality of the work done by the consultants was 40% better quality. That’s how we’re going to be talking about the impact on lawyers and that is off the shelf today. It’s about work being done better and at a higher quality and amplifying the impact of a lawyer in a dramatic way. It will help lawyers to move up the value chain and act with more empathy. They are here to help us solve problems. You go to a lawyer not just to help write a will, but to help you if you die unexpectedly.

Tell us where you are at with your own generative AI offering, Clio Duo

We were really early in starting work on generative AI. In January 2023 I had a conversation with our CTO Jonathan Watson and talked about the breakthrough with GPT 3.5 and what was coming with GPT4 and said ‘this is game changer.’ Every software vendor should feel today the way that on premises software vendors should have felt in 2008 with regard to cloud. That may have taken 15 years to play out but AI will play out in five years and if you’re not thinking about it today, your company will be dead in five years.

We looked at it with that existential view but were really excited. We feel that we have a right to win and if anyone is in a position to innovate, it’s Clio. We have over 20 engineers and 150,000 legal professionals on the platform and the ability to invest.

Duo can act as an agent, so you can interact with it and ask it to, for example, send you a client bill for all the work that is outstanding and with one command, have it orchestrate that and get the bill to the client’s inbox. The next step is that it will help you draft documents and that is where AI gets really exciting. You could say, based on our existing database of NDAs, ‘generate a new NDA for this client,’ and with knowledge of the dataset, Duo will be able to help you draft documents in the same tone.

Clio Draft’s document automation is only available in the US and we’re looking to bring it to Europe. It helps you create a template such as a client questionnaire that you use to fill a document, but with generative AI and Duo, we may be able to generate that template for you from scratch using precedents from a local database.

We’re very conscious of the huge responsibility because we have a hard-earned reputation for being a technology leader and AI opens up very new frontiers on what that looks like. You always need to be aware that if you’re using, for example, ChatGPT on the web, any information will become part of the training datatset, so you don’t want to accidentally filtrate client data. Similarly, when you look at generative AI within Clio, it’s important that data for one law firm is not crossing into other law firm’s data and it’s important for any company to know that they have access to a bespoke model that is trained on their specific data set.

How should people mitigate against the risk of eg hallucination?

People say that AI is like a junior associate, but hallucinating is more pernicious – a junior law clerk that actively deceives you. The lawyers in Manhattan didn’t submit cases that were slightly incorrect, they were entirely made up.

We’re at version one of generative AI, though, and if you look at the advancements already, it’s remarkable. All these problems are temporary, and people should not get hung up on and create knee jerk rules based on the limitations. It’s dangerous to extrapolate rules from a misuse of tech, it’s focusing on the downside rather than on how we can use AI to amplify our impact, produce higher quality work, and make progress in improving access to justice.

We need a balance. Yes, I can send an email to the wrong person, but I can also email someone on the other side of the world instantly, and that will win over faxes. With AI there will be a gravity that is almost impossible to fight.

See also:

Clio achieves unicorn status with $1.6bn valuation

Clio takes SaaS practice management fight into Australia and hires new APAC general manager