Legal AI will shatter your perspective on legal advice

The legal system is complex, hard to understand, expensive to navigate, and ripe for disruption.

In the future, we will still need lawyers to help us understand the law, but it look like we are going to need far fewer of them than we have today.

Nozo Tsunoda is an attorney who walked away from a promising legal career to start LegalOn, an AI startup focused on making the practice of law more efficient, transparent, and easy to navigate.

We talk about why corporate legal departments are the early adopters, but why AI technology is forcing its way even into the most traditional law firms, and how it might someday be used by consumers as well.

It's a great conversation, and I think you'll enjoy it.

Show Notes

Why it's hard to sell AI technology to law firms How AI is starting to change the way law firms compete Why Nozo left the law to start a legal startup The contract review workflow and why it's perfect for AI disruption How many lawyers will AI replace in the next five years? Differences in how US and Japanese staff view working from home A $100M investment in US market entry Differences between Japanese and American legal systems Can today's AI understand contracts better than a junior associate? The big changes AI will force on the legal industry The need for more immigration in Japan

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Transcript Welcome to Disrupting Japan. Straight Talk from Japan's most successful entrepreneurs. I'm Tim Romero and thanks for joining me. Of all the industries that are going to be impacted by artificial intelligence, the legal profession is going to be one of the most profoundly transformed. And today we sit down and talk with Nozo Tsunoda, a licensed attorney and the founder of LegalOn a rapidly growing startup using AI to review and manage contracts. And while their initial clients have been mostly corporate legal departments, Nozo explains how AI is beginning to force changes to the behavior of even traditional legal firms. Now if you're in the US you might not have heard of LegalOn yet, but you'll be hearing a lot about them soon. Nozo and the team recently raised over a hundred million in large part to fuel their recent US market entry. Nozo and I talk about the challenges of selling increased efficiency to lawyers who bill by the hour LegalOn’s US expansion plans, and how AI is going to change the entire legal industry. But, you know, Nozo tells that story much better than I can. So, let's get right to the interview. Interview Tim: So, I'm sitting here with Nozo Tsunoda of LegalOn, who's using artificial intelligence to simplify and improve contract review and management. So, thanks for sitting down with us. Nozo: Thank you. Tim: Well, listen, I gave a really brief description of what LegalOn does, but I'm sure you can explain it much better than I did. So, what does LegalOn do? Nozo: LegalOn technology is legal tech companies. I found it seven years ago, and now we have three solutions. And globally we have four solutions and globally we have 3,700 customers. Tim: Well, but to get to the basics for some listeners who might not understand anything about the legal process, so what is the service that LegalOn provides? Nozo: For contract area we have three product for pre-ex execution process of contract drafting or review. And second product is for contract management. Tim: So, contracts is a very, very broad subject. So, LegalOn focus is mostly on things like NDAs and purchase agreements and things like that. Nozo: Yes, of course we can support NDA, purchase agreement or service agreement, but we can review 50 types of contracts for the market. Tim: Tell me a bit about your customers. So, you said 3,700 customers, which is fantastic. Who are they? What kind of customers are they? Who are you selling to? Nozo: Enterprise corporations or midsize corporations. Tim: Okay. But it's mostly selling to corporations, not to law firms. Nozo: Both. So, we have 500 law firm customers. Tim: Now that is interesting because in one of the many startup projects I've started over the years, one of them was actually a contract lifecycle management company. And what we found was that it was incredibly hard to sell to law firms because they bill by the hour. They don't want to improve efficiency, they don't want to do things any faster. So, how are you selling to law firms? Nozo: So, law firm can use our product as their tools or their weapon. They can improve their productivity or quality of their product… Tim: So, most of your customers are enterprise or corporate customers. And there it makes sense because in-house lawyers, they want them to be as productive as possible. If you can get the work done with three in-house attorneys, that's much, much better than 10 in-house attorneys. But if you're a law firm, you want to have 10 attorneys billing the project. Nozo: So, I think they're competition, law firm need to win new clients by their service levels or service qualities. If they use our product, they can support more customers. Tim: That's interesting. Actually later on I really want to talk about how the legal industry is changing, but from your perspective, the law firms are responding to this kind of pressure and competition. Nozo: Yeah. In Japan or maybe globally law firm tried to get new customers. Because then they compete by their services. So 10 years ago or 20 years ago, lawyers didn't have such kinds of ideas, but now law firm need to think about their service. Tim: That's a really positive development. That's good for everybody. Well, actually, before we talk about the product, let's talk a bit about you. So, you're actually a licensed attorney in Japan, right? Nozo: Yes. Tim: Now I cannot imagine two career paths more different than being an attorney and being a startup founder. So, what made you want to make that change? Nozo: So, then I became attorney I didn't think I will be product founder. But 10 years ago people think about deep running or math running and I found it legal with co-founders and we discuss about if we can leverage machine learning or deep planning to legal areas, we can change legal practice or improve. Tim: So, he was your colleague at Mori, Hamada and Matsumoto law firm. Talk to me a little about that decision. Because it just seems like such a big -- so I talk to a lot of university students who become startup founders, but going from an attorney to a founder just seems like such a big jump. So, what made the two of you decide to do this? Nozo: We thought this change of technology is a kind of must, must come in the future. So, if we didn't try legal practice, we be changed by another person. Tim: Yeah. Someone else is going to do it. Nozo: If so let's try. It'll be exciting. Tim: No, that makes perfect sense. But at the same time, or close to the same time, you also founded the ZeLo Law firm. What was the connection? Nozo: So, now I focus on management of LegalOn and co-founder, Ogasawara, we founded both LegalOn and law firm ZeLo. And at first phase I worked for ZeLo as an attorney to earn money. Tim: So, was this your backup plan? Nozo: At first phase we had a plan. So, legal developed technologies, then ZeLo leverage technology to legal services. So, we tried to create kinds of new legal services with technologies. Tim: So, ZeLo still exists. What's relationship today? So, I mean, clearly your LegalOn is more than a full-time job. Nozo: So, Masa manage ZeLo and ZeLo is expanding too. Now it has 100 people. Tim: Do the companies just share a history or is there a closer relationship? So for example, a lot of your advantage is that the suggested language is reviewed by attorneys. So, is that done by LegalOn attorneys or is that done by ZeLo attorneys or? Nozo: Both. Legal attorneys make directions about contents, but we order ZeLo attorney to create new content source and they'll use our product. This kind of collaboration is now… Tim: That's interesting. So, it's still very close relationship. Let's talk a bit more about the product. So, what happens during contract review, walk me through the workflow of how an attorney using LegalOn will review a contract and why it's better that way. Nozo: To review contract attorney need to find this point but it's really difficult to realize if there are nothing. So, if there are some this point it's written, we can find it. But if there are no clause, we should add some clauses. Tim: So, the AI will go through and highlight the risk points, whether it's wording that might not be quite correct, or clauses that might be missing and should be added. What does it show the attorney who's using it? Does it say you should consider putting in this text or this word is dangerous or what kind of suggestions does it make? Nozo: So, our product can show missing clauses or less clauses in few seconds, 10 or 20 points. Then attorneys they consider about that point and then change document. Tim: So, when an attorney has to review a 40 page contract, LegalOn will highlight, these are the 10 points you should double check and the rest is okay. Nozo: Yeah. It's difficult to say rest is okay but our product can find 10 point… Tim: For special attention. Nozo: Yes. The attorney need to check, then the attorney can reduce time. Tim: So, it's more of almost like best practices type of advice. These are the kinds of clauses and kinds of wording you should think about using in this case. Nozo: Yeah. Tim: So, the reference text that it displays, the reference text is not generated by AI, it's generated by real attorneys. So, within LegalOn what's the breakdown between what percent of the company is legal,