Be Reasonable, People! AI’s Impact on Legal Fees

What is affordable and truthful to each the shopper and the lawyer? On this version of Ask the Specialists at 2Civility.org, Mark C. Palmer tackles ethics questions surrounding AI and authorized billing practices.

QUESTION: I’m a small-firm lawyer who lately began utilizing generative AI to summarize courtroom opinions, suggest contract provisions, and brainstorm on trial technique. Whereas this expertise has considerably decreased the time wanted for some duties, I’m nonetheless studying the place different efficiencies may exist. Nevertheless, I’m involved concerning the moral implications of billing purchasers underneath our conventional hourly mannequin when AI performs a considerable portion of the work. How ought to I navigate these moral challenges to make sure compliance with skilled conduct guidelines?

ANSWER: Your query touches on one of the vital urgent points in authorized ethics as we speak: the intersection of AI and authorized billing practices. The fast emergence of generative AI applied sciences is probably probably the most important risk to the billable hour’s reign we’ve got seen in a long time. As these instruments turn into built-in into authorized follow, they’ve the potential to dramatically enhance effectivity and productiveness in ways in which conflict with conventional time-based billing.

Let’s break down the important thing concerns and moral implications of your scenario.

The AI Effectivity Paradox

The “AI effectivity paradox” lies on the coronary heart of this challenge. As AI turns into higher at automating authorized duties, it turns into much less justifiable to invoice purchasers based mostly on time spent.

Generative AI can now draft contracts, conduct authorized analysis, analyze paperwork and even generate total memos or briefs considerably quicker than a human lawyer. If an AI device can produce a primary draft of a 20-page contract in minutes, how can a agency justify billing dozens of affiliate hours for that very same job?

This creates a conundrum for regulation corporations. Adopting AI can enhance effectivity and permit corporations to tackle extra issues. Nevertheless, this shift might probably influence billable hours and income for corporations that primarily use time-based charging fashions.

As well as, corporations that cling too tightly to the billable hour could also be disincentivized from totally leveraging AI, placing them at a aggressive drawback. For instance, purchasers could quickly demand work product and outcomes at a value that’s set by corporations utilizing AI (extra on this later).

Reasonableness No matter Charge or Expense Kind

Integrating AI into authorized work additionally raises moral questions on billing practices. ABA Mannequin Rule of Skilled Conduct (MRPC) 1.5(a) gives {that a} “lawyer shall not make an settlement for, cost, or gather an unreasonable payment or an unreasonable quantity for bills.” The Rule outlines eight components attorneys ought to use to investigate the reasonableness of charges based mostly on the details and circumstances underneath which they incurred.

Regardless that the authorized career has used expertise to extend effectivity for years, this MRPC Rule 1.5 evaluation has primarily examined the reasonableness of human time spent on a job. For instance, “Is 5.5 hours of associate-level work affordable for this contract evaluation and edits?”

However how do you identify the reasonableness of a payment when it’s a hybrid of human experience and AI machine-generated content material? The crux of the matter lies in putting a stability that’s truthful to the shopper and the lawyer.

On one hand, charging purchasers for lawyer time when a good portion of the work was AI-assisted is probably going overcharging. Then again, compensating attorneys solely for the price of utilizing AI instruments would undervalue their experience in guiding, refining and validating the AI’s output.

In one of many few moral opinions that present AI steerage to attorneys to this point, the Florida Bar Ethics Opinion 24-1 (January 2024) discusses prices and costs:

Concerning prices, a lawyer could solely ethically cost a shopper for the precise prices incurred on the person shopper’s behalf and should not duplicate costs which might be already accounted for within the lawyer’s overhead. [cites omitted]

Concerning charges, a lawyer could not ethically interact in any billing practices that duplicate costs or that falsely inflate the lawyer’s billable hours. Although generative AI packages could make a lawyer’s work extra environment friendly, this enhance in effectivity should not lead to falsely inflated claims of time. Within the various, attorneys could need to think about adopting contingent payment preparations or flat billing charges for particular companies in order that the advantages of elevated effectivity accrue to the lawyer and shopper alike. …

Within the context of generative AI, these requirements require a lawyer to tell a shopper, ideally in writing, of the lawyer’s intent to cost a shopper the precise price of utilizing generative AI. In all situations, the lawyer should be certain that the costs are affordable and usually are not duplicative. If a lawyer is unable to find out the precise price related to a specific shopper’s matter, the lawyer could not ethically prorate the periodic costs of the generative AI and as a substitute ought to account for these costs as overhead.

Lastly, whereas a lawyer could cost a shopper for the affordable time spent for case-specific analysis and drafting when utilizing generative AI, the lawyer needs to be cautious to not cost for the time spent creating minimal competence in using generative AI.

The DC Bar supplied further steerage in its Ethics Opinion 388 (April 2024), “Lawyer’s Use of Generative Synthetic Intelligence in Consumer Issues,” by making a comparability to the use and billing of reused work product:

A well-known variation of this challenge happens when a lawyer expends appreciable effort and time to organize an in depth authorized analysis memo for one shopper and, to that first shopper, appreciable expense based mostly on the lawyer’s hourly price. Shortly thereafter, a second shopper occurs to ask the identical authorized query. It can take far much less time to adapt the primary memorandum for the second shopper’s use than it took to create the memorandum within the first place. Whereas the lawyer could imagine it’s not truthful or affordable to cost the second shopper solely a fraction of what the primary shopper paid for such a helpful piece of authorized analysis, that’s what is required if the lawyer’s billing association with the second shopper is predicated completely on an hourly price.

The identical is true when using GAI reduces billable time and the lawyer’s payment settlement with the shopper is predicated completely on the time the lawyer spends engaged on the matter. Irrespective of how good or helpful the GAI’s output is, absent a unique payment association, the lawyer can solely invoice for the time the lawyer spent. As mentioned above, the affordable expense of the GAI itself could also be billed as an expense merchandise if the lawyer’s settlement with the shopper permits the lawyer to invoice for such bills.

Moreover, the final part of ABA’s Formal Opinion 512 (July 2024) is devoted to discussing authorized charges when attorneys are utilizing generative AI instruments. It factors out that the MRPC 1.5(a) components apply equally when evaluating the reasonableness of costs for generative AI instruments when the lawyer and shopper agree on a flat or contingent payment. But, that doesn’t make it de facto affordable:

“A payment charged for which little or no work was carried out [whether hourly-based or flat or contingent] is an unreasonable payment.” [citation omitted]

The Opinion goes on to look at the follow of charging the shopper for an expense on account of utilizing generative AI instruments. The Opinion states attorneys could agree prematurely with the shopper concerning the particular charges to be charged, simply as it will agree prematurely on its authorized charges. Whether or not the expense needs to be thought of a part of overhead or a specialised price relies on the circumstances:

[L]awyers ought to analyze the traits and makes use of of every GAI device, as a result of the categories, makes use of, and price of GAI instruments and companies range considerably. To the extent a specific device or service capabilities equally to equipping and sustaining a authorized follow, a lawyer ought to think about its price to be overhead and never cost the shopper for its price absent a opposite disclosure to the shopper prematurely. For instance, when a lawyer makes use of a GAI device embedded in or added to the lawyer’s phrase processing software program to verify grammar in paperwork the lawyer drafts, the price of the device needs to be thought of to be overhead. In distinction, when a lawyer makes use of a third-party supplier’s GAI service to evaluation 1000’s of voluminous contracts for a specific shopper and the supplier costs the lawyer for utilizing the device on a per-use foundation, it will ordinarily be affordable for the lawyer to invoice the shopper as an expense for the precise out-of-pocket expense incurred for utilizing that device.

Balancing Consumer Expectations with Authorized Experience

When it comes to AI and authorized billing practices, purchasers, notably refined company purchasers, are more and more conscious of AI’s potential to streamline authorized work. Many are already pushing again towards conventional billing practices, demanding that regulation corporations move on the efficiencies gained by way of expertise. Some forward-thinking regulation corporations are even creating their very own AI instruments, tailor-made to their companies.

As we navigate this new terrain, regulation corporations and solo practitioners should develop clear authorized billing practices that replicate the worth of their companies and use of AI. This may occasionally contain creating new billing classes, adjusting hourly charges for AI-assisted work, or creating hybrid billing fashions that account for human and machine contributions.

Moral concerns demand that attorneys use AI instruments cautiously and at all times along side their skilled judgment. The “work product” generated by AI ought to by no means be accepted with out cautious evaluation and validation towards main authorized sources comparable to case regulation, statutes, and legislative supplies. Importantly, regulation corporations and solo practitioners should talk these practices with purchasers, ideally on the onset of illustration.

AI and Authorized Billing Practices: Transparency Is Key

Generative AI instruments are quickly changing into a part of a lawyer’s toolkit. Nevertheless, their use have to be accompanied by a radical understanding of their capabilities, limitations and moral implications, notably regarding confidentiality and billing practices. Whereas these instruments could improve productiveness, attorneys should be certain that any effectivity features are transparently mirrored of their billing to purchasers.

Billing practices needs to be adjusted to pretty replicate the decreased effort and time that will outcome from AI help, making certain that purchasers profit from the fee financial savings these instruments can present. Finally, the purpose needs to be to leverage AI to extend effectivity and cut back shopper prices, whereas pretty compensating attorneys for his or her irreplaceable human judgment, expertise, and accountability.

Concerning the Illinois Supreme Courtroom Fee on Professionalism

The Illinois Supreme Courtroom established the Fee on Professionalism underneath Supreme Courtroom Rule 799 to advertise integrity, professionalism, and civility among the many attorneys and judges of Illinois, to foster a dedication to the elimination of bias and divisiveness throughout the authorized and judicial methods, and to make sure these methods present equitable, efficient, and environment friendly decision of issues for the folks of Illinois. The Fee achieves this mission by way of skilled duty CLE, lawyer-to-lawyer mentoring, authorized professionalism programming, academic sources, and extra. To be taught extra, go to 2Civility.org and observe us on social media.