A seismic shift is underway in legal services, driven by the advent of Generative AI platforms like ChatGPT. This groundbreaking technology is not merely an addition to the trial lawyer's toolkit; it represents a fundamental reimagining of how litigation services are delivered and, crucially, how they will be billed. The traditional bastion of the billable hour, long a subject of debate and dissatisfaction, is facing an unprecedented challenge.
The Enduring Legacy of the Billable Hour and the Impetus for Change
For decades, the billable hour has been the cornerstone of legal billing, a reliable if not universally beloved standard for quantifying the value of legal services. An entire ecosystem of enterprise products has grown up to serve the needs of corporations, insurance companies and the law firms that serve them to record, track, bill, review, question, reject, and appeal time billed by the hour.
Yet, beneath its veneer of simplicity, the billable hour has been frequently criticized for misaligning the interests of law firms and their clients. The introduction of Generative AI into this complex landscape has sparked a conversation ripe with possibilities, challenging the status quo and offering a glimpse into a future where efficiency, transparency, and client value take precedence.
Generative AI: The Road of Efficiency
At the heart of this transformation is the capability of Generative AI to automate and enhance tasks that have traditionally consumed significant amounts of time and resources. From legal research to document drafting, Generative AI-powered tools promise not only to expedite these processes but to elevate their quality, reducing the margin for error and freeing attorneys to focus on the strategic and nuanced aspects of legal practice that demand human insight and expertise.
The Ripple Effects on Billing Models
The implications of this increased efficiency for legal billing are both profound and varied:
The Expansion of Alternative Fee Arrangements (AFAs): As Generative AI streamlines routine tasks, the door opens wider for AFAs such as flat fees, contingency agreements, and success fees. These models, which prioritize the value delivered over the hours expended, align more closely with client interests and the capabilities of AI-enhanced legal services.
The Reevaluation of the Billable Hour: The traditional billable hour model is under scrutiny as never before. With Generative AI reducing the time required for many tasks, law firms are prompted to reconsider what constitutes billable work. This could lead to a recalibration of rates, with potential increases for high-value, AI-enhanced services, and decreases for tasks rendered more commoditized by the technology.
Innovation and Client Expectations: Clients, too, are driving the shift toward more efficient and transparent billing practices. Internal innovation teams are exploring the use of AI in legal service delivery, exemplifying the proactive stance many clients are taking. These efforts not only optimize internal processes but also set new benchmarks for the legal services they procure.
Ethical Considerations and Future Directions
As law firms navigate the integration of Generative AI, they must grapple with three important questions.
1. How can firms ensure the quality and accuracy of AI-generated content?
The potential for Generative AI systems to make stuff up that is alarmingly believable (“hallucinate”) is well known. Lawyers sanctioned $5,000 for filing fictional case citations in brief drafted by ChatGPT. Notably, some courts have imposed certification obligations to disclose the use of Generative AI in any filings. Several state bars have issued guidance on its use, including California, Florida, and New Jersey. The guidance – worth reading whether you are barred in those states or not – is largely cautionary in nature. To date, none has banned the use of Generative AI products.
Perhaps not surprisingly, some firms outright bar their attorneys from using Generative AI products in performing work. As legal ethicists point out, this can result in the surreptitious use of these products. By now, most practicing attorneys have realized that lawyers who use AI will have an advantage (and may replace) those who don’t. Clearly, banning is not the answer.
We highly recommend that law firms implement a Generative AI Acceptable Use Policy to make clear the limitations and parameters of using such products for client work, firm work, or other purposes. Among other things, the policy should mandate attorney review of any content created by Generative AI. To get started, see our Model Generative AI Acceptable Use Policy.
2. How should AI-assisted work be billed?
The time spent working on client matters is prominently enshrined in the ABA Model Rules of Professional Responsibility and state bar analogs as the first factor to consider in determining the reasonableness of legal fees:
Rule 1.5 The factors to be considered in determining the reasonableness of a fee include the following:
(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
The consequence of putting time and labor first tends to commoditize legal services, implying that all hours are equal (whether intended or not). Yet most attorneys would agree that the skill required, particularly as applied to novel and difficult questions, is of far greater “value” to the client than the time spent. Twenty-five years ago, most attorneys did not type, but instead dictated letters, briefs, and other legal documents, assigning the chore of typing to trained high-speed typists (who did not bill their time). Today, it is a rare attorney who does not type their own work. But few would argue that doing the typing themselves has reduced the time spent performing legal work. Drafting is one area where Generative AI excels.
For attorneys who work for a contingent (success) fee, efficiency is the name of the game, so the use of AI tools is not expected to impact their billing but absolutely improves productivity. Conversations with many plaintiff attorneys have confirmed their experience that the cost of using generative AI products is far outweighed by the benefits.
But for hourly billers, how can they capture value for taking less time to get work done? The answer lies in both value (fixed fee) billing and improved client satisfaction. By using Generative AI products to get more work done in less time, they could easily achieve the same revenues associated with all those hours they previously billed. In other words, working fewer hours and producing the same revenue stream, along with happier clients.
3. What disclosure of (and consent to) the use of Generative AI products is required?
State bars that have addressed this question have largely recommended that the use of Generative AI products be disclosed to clients. Whether to seek their consent is left to the discretion of the attorney with one exception: submitting confidential information. That is because some Generative AI products such as ChatGPT will store and use the user’s data as training data for improving its capability. On the other hand, many Generative AI products developed specifically for lawyers such as eSumry understand these important confidentiality requirements and can assure zero data retention (ZDR) of the user data processed by their products.
Recently, the New Jersey State Bar issued the following guidance on preserving confidentiality:
To uphold this core duty, a lawyer must not only avoid intentional disclosure of confidential information but must also "make reasonable efforts to prevent the inadvertent or unauthorized disclosure of, or unauthorized access to, information related to the representation of a client." RPC 1.6(f). Today, the market is replete with an array of AI tools, including some specifically designed for lawyers, as well as others in development for use by law firms. A lawyer is responsible to ensure the security of an AI system before entering any non-public client information.
If client work is an intended use, lawyers should verify with the Generative AI provider that it has zero data retention for any data submitted. As we recommended in an earlier post, the better practice is to disclose and obtain client consent to the use of Generative AI products within the scope of the law firm’s client services agreement.
Answers to these questions will shape the future of legal billing, demanding a careful balance between innovation and the foundational principles of legal practice.
Towards a New Horizon
The journey toward a new paradigm of legal billing created by the use of Generative AI products is complex and fraught with uncertainties. Yet, the potential benefits—greater efficiency, enhanced value, and deeper client alignment—are too significant to ignore. Law firms that embrace this change, exploring new billing models and leveraging the capabilities of Generative AI, stand to gain a competitive edge in a rapidly evolving legal landscape.
To learn more about eSumry and our generative AI solutions for litigation, click below.