The Dawn of Fully Automated Contract Drafting: Machine Learning Breathes New Life Into a Decades-Old Promise

Technological advances within contract drafting software have seemingly plateaued. Despite the decades-long hopes and promises of many commentators, critics doubt this technology will ever fully automate the drafting process. But, while there has been a lack of innovation in contract drafting software, technological advances have continued to improve contract review and analysis programs. “Machine learning,” the leading innovative force in these areas, has proven incredibly efficient, performing in mere minutes tasks that would otherwise take a team of lawyers tens of hours. Some contract drafting programs have already experimented with machine learning capabilities, and this technology may pave the way for the full automation of contract drafting. Although intellectual property, data access, and ethical obstacles may delay complete integration of machine learning into contract drafting, full automation is likely still viable

Ethics of Using Artificial Intelligence to Augment Drafting Legal Documents

This article focuses on the second step in the due diligence process. While it addresses the question of competency, it focuses more on the further steps a lawyer must take to ensure that the use of the service as part of the representation of a client is consistent with the lawyer’s other ethical obligations. While it is important to emphasize that competency requires that the lawyer must be able to assess whether the work product is comparable to what a human would produce, competency is of course a fact-depending inquiry: whether a will is competently drafted turns on the standard of care of a practitioner who drafts wills. This article focuses more on how a lawyer can determine whether it is ethical to use a competent service that augments document drafting. While addressing how ethical concerns arise across typical practice areas, it highlights a practice area where the risks for violations may be particularly acute because the need for confidentiality is high, and the potential for undetected conflicts of interest is great: patent practice. This article identifies the issues, describes the potential risks, and explains what protections a lawyer should look for in the terms of service of an automated legal document drafting site to ensure ethical representation

Legal Education in Transition: Trends and Their Implications

This is a pivotal moment in legal education. Revisions in American Bar Association accreditation standards, approved in August 2014, impose new requirements, including practice-based requirements, on law schools. Other external regulators and critics are pushing for significant changes too. For example, the California bar licensing body is proposing to add a practice-based, experiential requirement to its licensing requirements, and the New York Court of Appeals, New York’s highest court, is giving third-year, second semester students the opportunity to practice full-time in indigent legal services programs and projects. Unbeknown to many, there have been significant recent changes in legal education that have added practice-based courses, or practice-based components to courses, in all three years of legal education. Increasingly, law schools are reaching beyond the JD to establish projects in which graduates learn while practicing law. The innovations include first-year courses in which students engage in actual legal work to help provide legal services to clients; technology clinics in which students use or build state-of-the-art technology to help pro se litigants more effectively represent themselves; diversified experiential courses, including “practicums;” and post-JD “incubator,” “fellowship,” “residency,” “apprenticeship,” and “job corps” programs in which law graduates, and sometimes law students, practice and learn from practice. It is a dynamic period in which law schools, including through comprehensive strategic planning, should regain the leadership in facing the present and future challenges. The factors contributing to change—for example, the tough job market, reduced law school applications, interventions of regulators, U.S. News & World Report rankings and increased competition among law schools—are not likely to substantially change in the near future. Law schools are in, should be in, and will be in a period that calls for sustained innovation

Understanding smart contracts as a new option in transaction cost economics

Among different concepts associated with the term blockchain, smart contracts have been a prominent one, especially popularized by the Ethereum platform. In this study, we unpack this concept within the framework of Transaction Cost Economics (TCE). This institutional economics theory emphasizes the role of distinctive (private and public) contract law regimes in shaping firm boundaries. We propose that widespread adoption of the smart contract concept creates a new option in public contracting, which may give rise to a smart-contract-augmented contract law regime. We discuss tradeoffs involved in the attractiveness of the smart contract concept for firms and the resulting potential for change in firm boundaries. Based on our new conceptualization, we discuss potential roles the three branches of government – judicial, executive, and legislative – in enabling and using this new contract law regime. We conclude the paper by pointing out limitations of the TCE perspective and suggesting future research directions

Too Complex to Perceive? Drafting Cash Distribution Waterfalls Directly as Code to Reduce Complexity and Legal Risk in Structured Finance, Master Limited Partnership, and Private Equity Transactions

This Article proposes that complex structured finance transactions involving sophisticated investors should adopt an analogous solution to the home construction agreements’ strategy of contracting by reference to blueprints. First, dealmakers should, preferably by choice, place as much of their waterfall distribution specification and related inputs as possible into automated, programmatic representations that will be used to make the actual distribution. In many cases, these agreements already have programmatic representations, so this change should pose relatively few practical challenges logistically. Second, they should, like their counterparts in construction contracts, define the terms of those waterfalls by reference to their functional representations. The contract should be depicted by the same code that will decide the actual distribution, and that coded depiction should be the legally binding contract. By unifying the functional and legal realities of the structured finance products, dealmakers will avoid wasting resources on creating unnecessary and inaccurate legal depictions, and will also reduce the legal and financial risk created by the imprecision and inaccuracy of perception those poor depictions create. This Article will proceed as follows: In Part II, this Article sets out to restate and expand Professor Henry Hu’s explanation of the intermediary depiction problem with what this Article terms the challenge of perception. Professor Hu observes that the difficulty with the current regulatory disclosure regime is one of imperfect depictions and could be fixed with pure information disclosure. By contrast, this Article contends that so long as there are multiple potentially legally determinative depictions, there will be financial, legal, and systemic risk. Because of that, no regime of additional disclosures can, by itself, reduce those risks; if anything, adding to the number of potentially legally binding disclosures increases risk. Therefore, in Part III, this Article proposes that in complex structured finance agreements’ waterfalls and other similar agreements between sophisticated parties, the functional code that creates the functional reality should, as described above, become the contract by reference in the legal deal document and thus should become the legally determinative reality. This would reduce the confusion that impedes perception of the future reality of the financial product’s cash flow distributions

Regulating Data as Property: A New Construct for Moving Forward

The global community urgently needs precise, clear rules that define ownership of data and express the attendant rights to license, transfer, use, modify, and destroy digital information assets. In response, this article proposes a new approach for regulating data as an entirely new class of property. Recently, European and Asian public officials and industries have called for data ownership principles to be developed, above and beyond current privacy and data protection laws. In addition, official policy guidances and legal proposals have been published that offer to accelerate realization of a property rights structure for digital information. But how can ownership of digital information be achieved? How can those rights be transferred and enforced? Those calls for data ownership emphasize the impact of ownership on the automotive industry and the vast quantities of operational data which smart automobiles and self-driving vehicles will produce. We looked at how, if at all, the issue was being considered in consumer-facing statements addressing the data being collected by their vehicles. To formulate our proposal, we also considered continued advances in scientific research, quantum mechanics, and quantum computing which confirm that information in any digital or electronic medium is, and always has been, physical, tangible matter. Yet, to date, data regulation has sought to adapt legal constructs for “intangible” intellectual property or to express a series of permissions and constraints tied to specific classifications of data (such as personally identifiable information). We examined legal reforms that were recently approved by the United Nations Commission on International Trade Law to enable transactions involving electronic transferable records, as well as prior reforms adopted in the United States Uniform Commercial Code and Federal law to enable similar transactions involving digital records that were, historically, physical assets (such as promissory notes or chattel paper). Finally, we surveyed prior academic scholarship in the U.S. and Europe to determine if the physical attributes of digital data had been previously considered in the vigorous debates on how to regulate personal information or the extent, if at all, that the solutions developed for transferable records had been considered for larger classes of digital assets. Based on the preceding, we propose that regulation of digital information assets, and clear concepts of ownership, can be built on existing legal constructs that have enabled electronic commercial practices. We propose a property rules construct that clearly defines a right to own digital information arises upon creation (whether by keystroke or machine), and suggest when and how that right attaches to specific data though the exercise of technological controls. This construct will enable faster, better adaptations of new rules for the ever-evolving portfolio of data assets being created around the world. This approach will also create more predictable, scalable, and extensible mechanisms for regulating data and is consistent with, and may improve the exercise and enforcement of, rights regarding personal information. We conclude by highlighting existing technologies and their potential to support this construct and begin an inventory of the steps necessary to further proceed with this process