Law firms catch the tech bug – finally

Virtual data rooms, electronic signatures changing the game

Bradley Newby, a business lawyer and partner at Farris, said technological advancements are reshaping the legal world | Rob Kruyt

A duo of technological advancements in the past decade have made major inroads in digitally transforming the day-to-day workings of the legal profession, in an industry defined by centuries of tradition and heavy on pen-and-paper procedures.

The first of those innovations is the rise of virtual data rooms, commonly referred to as VDRs, which are typically used during a merger or acquisition. VDR software from companies such as SecureDocs and Firmex allows users to upload and track documents on various levels, which can be useful in performing due diligence. The software allows users to watermark documents that were printed, set up secure logins and keep tabs on which parties have viewed specific documents, and when.

Bradley Newby, a business lawyer and partner at Vancouver-based law firm Farris, said VDRs have changed the industry in a number of ways. Newby, who specializes in advising corporations, private equity firms, professional managers and entrepreneurs on business transactions, said one interesting benefit of VDRs is in detecting and preventing the subtle document tampering that sometimes took place during mergers and acquisitions (M&As) before the technology came into play.

“Sometimes it would be made to look like multiple people had been reading the documents, or marked up with a pen to look like that as well,” Newby said of tactics used to raise interest in a deal. “Now you can know who looked at each document and when, and also restrict access to certain documents.”

Newby said before VDRs entered the legal profession about 10 years ago, physical data rooms would have to be set up for M&As. This meant tabulating documents physically and putting them in chronological order for viewing. Bidders would have to be physically present at the law firm, which sometimes meant a plane ride from another country. Documents had to be painstakingly copied on site, all under supervision to ensure due diligence was performed.

Emailing documents was tried as a way to replace the physical data rooms, but it wasn’t until the cloud-based approach came around that real change rippled through the industry, Newby said.

“I wouldn’t necessarily want to send you all of my confidential information by email, because I don’t know what you’re going to do with it,” he said. “You had Dropbox where you could store documents online, but again security was an issue.”

The next step after a VDR is usually a virtual closing room, where documents requiring signatures are placed. Newby noted that the rise of technology like VDRs and artificial intelligence software – which can search multiple documents for various keywords during litigation – could cut jobs for professions such as legal assistants and paralegals.

“It could change the number of jobs in certain places,” he said.

According to the Canadian Bar Association report The Future of Legal Services in Canada: Trends and Issues, the adoption of technology by lawyers across the country has been uneven. The report noted there are “no clear patterns of acceptance of use of online services by firms or individuals.”

“Because of partnership structures and tax laws, very few firms reinvest profits in basic research and development of new processes, services and technology,” the report said.

The other technological advancement that has rapidly changed the legal profession is the rise of digital signature software, one of the most popular being DocuSign. Users of the software upload their signature and have it verified by phone and email, and then can electronically sign documents. The software has also gained prominence in the real estate sector where signatures are required at multiple stages of the process.

Kevin Shaw, vice-president of M&A for Vancouver’s Renaissance Group, said having someone who is not physically present sign a binding legal document still doesn’t sit well with some in the business.

“Initially, and even today, there is apprehension around their validity,” Shaw said. “However, with the evolution of the industry, the pace of commerce and the increasing reliance on technology to remain relevant, digital signatures are essential.”

Shaw added that extra precautions are taken to ensure validity when digital signatures are used. He noted Renaissance Group will implement its own platform, similar to DocuSign, this summer.