Legal bills from outside law firms are some of the largest checks companies write each year. Artificial intelligence suddenly gave in-house lawyers a way to reduce these costs.
Doug Mandell, general counsel at chatbot maker Inflection AI, was working on a new data security policy when he turned to tools from legal AI startup GC AI. It chewed up his notes and background material and spit out draft policy. Mandel then workshopped it in Google Docs before sending it to an outside law firm for review.
Mandel said that before he had the tool, he would email outside lawyers and say, “I’m thinking about X, Y, and Z,” and then wait, racking up billable hours while the law firm tinkered with them. Now he says to them, “Start now.”
“To be clear, we are not replacing outside counsel,” Mandel said. “We are improving processes in a way that benefits the company.”
Although AI has been legislated, the transformation has not been evenly distributed. Tools that speed up lawyers’ work are a tough sell for companies that charge by the hour. Efficiency is being adopted more aggressively by in-house legal teams where efficiency is a mandate, not a threat.
In-house lawyers don’t get paid more for more time. Businesses are often judged on how little delay there is, as delays can mean delayed transactions or job applicants turning down jobs.
“In-house lawyers know they’re being blamed, and no one wants to be in that situation,” said venture capitalist Bogomir Balkansky. His Silicon Valley firm, Sequoia Capital, has backed legal startups including Ironclad, Harvey, Crosby and Sandstone.
This dynamic, he said, helps explain why corporate legal teams are eagerly adopting new technologies that help cut work from days to minutes or keep work in-house. This allows us to move more quickly and shed the reputation of being a department that says no.
Like Mandel, many in-house lawyers now have access to tools to draft legal documents, check compliance, and compare terms between contracts. The software can read contracts line by line and adjust the terms to suit a company’s internal rules and preferential bargaining position.
This demand is changing the way legal tech companies build and sell products.
Harvey, a start-up that started serving major law firms, is moving into larger companies, signing deals with legal teams from Walmart, General Mills and Bayer last year.
John Haddock, Harvey’s chief business officer, said the general counsel’s top priority is to expedite the deal and fend off questions from business colleagues. He said the goal is not to replace outside lawyers, but to increase the productivity of the work that internal teams are already doing. You will be freed from “massive and arduous” tasks that waste your limited time.
But Cecilia Giniti, a former Amazon and Replit lawyer who now runs GC AI, the service Mandel uses, said some billable hours are disappearing. In a recent survey of 100 in-house attorney users, 14% reported a reduction in outside legal spending after implementing this tool. Ginity said GC AI’s annual revenue increased from $1 million to $13 million last year.
At companies like Gusto, AI is already integrated into daily legal operations.
Dina Segal, the company’s chief legal officer, oversees a team of 70 attorneys who use AI to oversee thousands of regulations across employment law, benefits, and corporate compliance. Their system is trained on Gusto’s business to deliver summaries of rule changes via Slack and email, and route them to the appropriate attorney. Segal said this has been a “game changer”, allowing the firm’s legal experts to spend less time chasing rules and more time advising businesses.
Mr. Segal said that when Gust engages outside counsel, it is usually for issues that are at stake for the company: complex and nuanced strategic decisions. Still, the conversation doesn’t start from scratch. Gust’s lawyers, for example, are looking to regulatory changes for policy discussions.
“You can come in with an early perspective rather than a blank sheet of paper, and we can build together from there,” Segal said.
As in-house legal teams move more quickly, they are quietly resetting their expectations of the law firms they hire. Mr. Haddock said he is increasingly hearing from general counsel about whether they research outside companies and factor those responses into hiring decisions.
This change is occurring against a backdrop of budget stagnation. In a third-quarter Thomson Reuters survey of general counsel at global companies with revenues of $1 billion or more, 35% said they planned to increase legal spending over the next year, down from 40% in early 2025.
The report said that “the key insight is not that future legal proceedings may be reduced,” but that customers are being forced to make “increasingly brutal choices about which companies get access to limited funding.”
Mandel, the attorney at Inflection AI, is clear about where the lines are. He said he doesn’t want to pay a law firm $900 an hour to sift through documents for instant answers from high-tech tools.
He is paying the price for the trial. “When you have to make a decision with your back against the wall, you want to talk to a human being about it,” he said.
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