Emerging technologies challenge lawyers too
Douglas Adams has a lesson for lawyers. His rules about new technologies say that anything in the world when you’re born is a natural part of the world; anything invented between the time you’re fifteen and thirty-five is new and exciting; but anything invented after you’re thirty-five is unnatural.
The point of the joke is this. Just because things are new and we don’t understand them doesn’t mean that they aren’t important or won’t become pervasive. For a lawyer there are risks in this. Emerging technologies: AI, blockchain, digital assets, quantum computing, connectivity technology, materials sciences, low carbon technologies etc are new to everyone. But lawyers need to have open minds. Our clients are “technology companies” even if they aren’t in the technology sector. Technology is inherent in the development and execution of their business models.
As lawyers, we can look at the pattern and say that the first period was when we didn’t think technology was particularly important. The second was when we thought it was important but that our colleagues in the intellectual property (IP) department would deal with it so it wasn’t difficult. The third is when it’s difficult and important and it’s not just about IP. Everyone needs to know what’s going on.
Let’s take an example. Corporate finance had a long period of equity and debt transactions raising capital for businesses that owned mainly tangible fixed assets. These were easy to value because other businesses owned comparable assets and the businesses had all been around for a long time. Non-fixed or intangible assets (except goodwill) were esoteric and ignored other than in exceptional cases. Technology wasn’t important.
When software started eating the world there were signposts for lawyers. The Intellectual Property Office did a piece of work 10 years ago revealing that annual investment in intangible assets in the UK was more or less the same as annual investment in tangible assets. That has been the case each year since then. Technology was important and corporate finance transactions had work for IP lawyers identifying, diligencing, etc IP rights.
Then companies in industry after industry rebranded themselves as technology companies. Banks, publishers, travel agents, energy businesses are technology companies. When US merchant bank Ocean Tomo analysed the financial statements of the US S&P 500 five years ago it calculated that intangible assets represented 84% of the market value of the index.
So, lawyers are getting the hang of the digital economy. But emerging technologies change the rules again. Some examples will illustrate the current challenge.
Intangible assets and IP rights are not the same thing. Intangible assets are a much wider category. As defined by think tank the Big Innovation Centre they include: computerised algorithms, information, software, big data, patents, copyrights, business models, organisational capabilities, social capital, knowledge, skills and strategic networks. More to work with but not all in the traditional categories that lawyers are organised in.
Information is the key asset but it is not recognised by English law as property. The law doesn’t expect that an asset can be given away and retained at the same time. So the most important asset in the digital economy falls outside traditional legal categories.
Emerging technologies don’t always rely on IP rights. The theory of IP rights is that the law affords a developer a temporary monopoly to exploit their development to recover their costs and make a profit. But many developers of emerging technologies aren’t looking for that benefit. Troy Norcross’ recent article in this paper challenged some of the assumptions of patenting blockchain technologies. GitHub has 40 million developers with many working on open source projects. Lawyers assume that our clients own the things they use but that’s not always right.
Access and control may be more important than ownership. Ownership of code is moot during a ransomware attack. A registered security interest taken by a lender through a debenture to support repayment of a loan doesn’t have value if the bank doesn’t have the code, the links or passwords.
People are still key. Historically, information was kept in databases that financiers could copy to protect their investment. When the importance of source code became clear the practice developed of putting the code into escrow. Now, most technology businesses change their source code so often that this is impractical. And even if a financier does have access to the latest copy of source code it won’t be able to use it without the team that developed it, unless it is exceptionally sophisticated.
Regulatory advice is getting more complex. Lawyers are good at telling you what regulation applies to your business. But the regulation relating to emerging technologies hasn’t yet been written. The sources of regulation are also different now. Some regulation is internal: technology companies now have ethics boards. Some is nascent: national policy groups are working on regulatory proposals for emerging technologies. Some is directed at businesses rather than technologies: the proposed US executive order relates just to social media platforms.
Social media has amplified the risk of a brand becoming toxic. Reputation management lawyers work in this area but the rest of us can also lose clients to its effects.
Change happens faster than it did. Innosight’s 2018 Corporate Longevity Forecast reported that “creative destruction is accelerating”. It noted that the average tenure of companies on the S&P 500 was 33 years in 1964 and 24 years in 2016. It forecast this to fall to 12 years by 2027. A lawyer’s professional training teaches us to value precedent. But the promise of some emerging technologies is to upend precedent.
Technology doesn’t need to be over-hyped. The word has the same root as technique. It simply means a skill, a way of doing things. Businesses now get things done using computing and software. But emerging technologies and Mr Adams pose an important challenge for lawyers. Finding the new technologies unnatural may have more serious consequences than us simply being late adopters. It may mean that we don’t adapt our own techniques to do the best job we can for clients.
Lawyers don’t need to code. But we do need to be familiar with how emerging technologies work, legal relationships associated with them, value creation and transfer. We need to give bespoke not generic advice to clients, and have opinions on innovation in clients’ industries. When you ask your lawyers how they’re doing they shouldn’t tell you it’s business as usual.
Charles Kerrigan is a partner at international law firm CMS in London and a member of the advisory boards of the UK All Party Parliamentary Groups on AI and Blockchain. The views in this article are personal.