Blockchain In The Legal Industry: 10 Possible Use Cases

  • 26 October 2018
  • Sam Mire

As of 2018, there are 1,338,678 active attorneys practicing in the United States. This is the most attorneys there have ever been practicing inside the nation’s borders, and is a marked leap from the 64,137 American lawyers practicing in 1878. Even lawyers will admit that the United States does not need all of these litigators, and that their existence has actually created legal issues and massive unnecessary costs that result in higher insurance rates for the average person. Torts, which is the term encompassing most frivolous lawsuits, cost small businesses $105.4 billion in 2008 alone. This figure only continues to increase annually, and it is these frivolous lawsuits that continue to besmirch well-meaning, useful attorneys everywhere. Having fewer less lawyers seeking out problems to sue over may not be the worst thing in the world.

Blockchain proponents hope that the technology will be able to create more sound, tamper-proof and legally unassailable agreements based on smart contract technology. While these won’t end the issue of torts, they should cut down significantly on the number of legal disputes clogging courts and raising lawyer fees for innocent parties. The technology could also reduce the cost of notary services, FOIA requests, and corporate filings, while streamlining and enhancing several other facets of the legal industry.

Blockchain in the legal industry - Practical use cases

Blockchain Law

Blockchain use cases in the legal industry - Blockchain Law

Cryptocurrencies are the best example of how necessary blockchain legal specialists have become. One UK couple was reportedly struggling with a decision of how to split the equivalent of $791,100 during their divorce proceedings. A platform for decentralized applications and smart contracts, Tezos, faced four class action lawsuits in the wake of what was a seemingly successful $232 million ICO. Kraken was also blamed by investors who lost the equivalent of $328,000 at the time when the trading hub failed to suspend trading during a DDoS attack, which ultimately led to a flash crash and severely diminished funds in May 2017. Silver Miller is the law firm now representing the interests of those who would like to join in on a class action lawsuit against Kraken. When $54 million was stolen from the DAO investment fund in June 2016, plenty of people were upset. And, though a formal lawsuit has yet to arise against DAO hosts Ethereum or, that possibility is not out of the question. These cases, along with general uncertainty surrounding regulation of blockchain technology and its scion, cryptocurrencies, demonstrate that there is a significant opportunity for those in the legal space to fill a rapidly emerging niche.

Lawyers who spend time studying the basics of blockchain technology and come to understand where it is likely to intersect legally with other industries could be pioneers as new legal spaces emerge. Already, consortiums have formed with the ostensible aim of projecting the future of the law as it pertains to all things blockchain, but individual lawyers should consider that blockchain law could be a lucrative industry that may have longevity in the legal space.

Companies Trying to Solve This Problem

Smart Contracts

Approximately 9% of contracts “experience a significant claim or dispute,” and 20.7% of contracts in the highest-risk industries — engineering and construction — experience claim “friction.” Even industries with lower instances of contract friction, such as banking, insurance, and healthcare, all have contract dispute rates over 7%. Lost employee hours, higher operating costs, and lost revenue all result from costly contract-related litigation.

40% of legal departments utilize automated contract management tools, yet an additional 29% claim to be interested in such tools but aren’t sure where to start. Considering that 90% of all businesses are engaged in litigation at any given time, establishing sound, unassailable contract processes is an essential first step to covering one’s rear. In addition to human legal oversight, smart contracts can reduce many of the risks that arise from human intervention in contracts, paying out along rigidly-specified terms and conditions, reducing the number of contracts paid or unpaid that often result in litigation. These contracts also maintain an immutable record on the blockchain, creating a single point of reference if friction does arise.

Companies Trying to Solve This Problem

  • Ethereum – Most smart contracts are currently built on the Ethereum blockchain.

Smart Contract Regulation

Blockchain use cases in the legal industry - Smart Contract Regulation

In 2017, Arizona became the first state to recognize signatures issued on smart contracts as a legally binding agreement. Tennessee followed suit early in 2018. While this is a step toward broader adoption of smart contracts, their legal recognition does not make them infallible — at least not yet. An issue with smart contract technology used within the Parity wallet may have affected as much as $146 million in funds, though other figures state that the figure could be as high as $300 million.

One study found that roughly 3.4% of smart contracts are likely to be faulty, and it’s noteworthy that the figure was found only through algorithmically scouring for certain bugs, so that percentage could actually be even greater. Still, that conservative figure would mean that approximately $289 million in funds raised by ICOs between the beginning of 2016 until March 2018 were likely put at risk of theft or freeze by flaws in smart contract tech. The persistence of these flaws mean that litigation is almost a certainty until bugs are worked out, which most technologies have demonstrated may be an infinite pursuit. And where there is the potential for trouble, you can be sure lawyers will swarm.

If adoption of self-executing smart contracts proves widespread, contract lawyers will need to adapt or see their skillset become obsolete. Even if smart contracts become no more popular than they are today — unlikely, but still — there is a gap in the marketplace for smart contract legal specialists.

Companies Trying to Solve This Problem

Public Documents/FOIA Requests

Blockchain use cases in the legal industry - Public Documents-FOIA Requests

Under the Obama administration, a record 129,825 FOIA requests were met with a response of, essentially, “Sorry, there’s nothing there.” Accordingly, a record 77% of requesters received either censored files or nothing at all. Investigative reporters largely blamed a lack of true effort for the dearth of results, though the administration maintained that it had completed 769,903 requests over the same period.

Wait times for FOIA requests are telling of a broken system, too. In August 2015, the average DHS Immigration and Customs Enforcement FOIA application remained pending for an average of 881 days — nearly 2.5 years. Today, that figure is down to just under 96 days, but the average time pending for EPA-related FOIA requests is 321 days. At last count, civil rights-related requests averaged 252 days.

To rectify these mind-boggling waits, which often yield no results in the end, the blockchain could allow a passkey-protected database of information that is accessible via FOIA requests. Allowing the searcher to do the looking themselves without altering information or accessing any classified information would remove skepticism about lack of effort and would provide an unprecedented window into the sausage factory that is bureaucracy.

Companies Trying to Solve This Problem

  • Empowered Law – Law firm advocating for public records on the blockchain.

Intellectual Property Rights

Blockchain use cases in the legal industry - Intellectual Property Rights

The intellectual property licensing industry is big business, with annual revenue totaling $45 billion. And with corporate profits stirring interest in IP licensing agreements, the sector shows few signs of slowing down. However, there are some flaws and threats to the current licensing framework that could stand to be improved. Because IP-intensive industries are critical to innovation and the domestic economy, patching the holes in the IP licensing processes is a critical aim.

The Priceline-Expedia affair that occurred in the late ’90s and early 2000s arose when Priceline believed Expedia ripped off its price-matching feature, and the litigation ultimately resulted in a settlement by which Expedia pays Priceline royalties for the continued use of the feature. Ultimately, even the big dogs of the industry will push the envelope if they believe they may get away with pseudo-IP plagiarism. The industry has to face these grey areas, and there has to be a better way than expensive legal processes. IP licensing also has a major issue with theft and frivolous lawsuits, with the theft of U.S. IP by China alone costing anywhere from $180 billion to $540 billion annually.

Intellectual property is great in theory. But in practice, patent-vultures, slow application processing, and redundant filings slow down the wheels of commerce. IP issuance is a massive bureaucratic industry that could benefit from the automation provided by blockchain technology. Issuing patents through an algorithm-based, rapidly processing database would help eliminate processing bias, reduce administrative costs, and ensure that patents are issued in the intended first-come, first-serve fashion. 

Notary Services

Blockchain use cases in the legal industry - Notary Services

The prevalence of notaries is typically tied to the state of the economy. Times are relatively good, and the number of notaries is back on the rise, with more than 4.4 million notaries commissioned in the United States today. The need for notaries varies by state — Florida has seen 97,838 new notaries commissioned since 2012, while Ohio has lost more than 60,000 in that span.

Regardless of geographic climate, notary services remain essential, especially for mortgage, business, and payment settlement purposes, and the blockchain may be capable of making notary services more easily accessible and affordable. Two of the primary services provided by notaries are document authentication and signature certification via witness. Timestamps and hashes issued when a document is uploaded to the blockchain serve the need for document authentication, while the option of public and private keys help establish who the true owner of a document’s contents is. While third parties may still be called for to verify information and notarize documents, the blockchain can serve as a capable, decentralized guarantor of critical proprietary proof and related details.

Corporate Filings

Blockchain use cases in the legal industry - Corporate Filings

There are approximately 27.9 million businesses incorporated in the United States. Delaware is known as the epicenter of incorporation because of its favorable tax incentives, with more than 66% of Fortune 500 companies having set up their home base in the state. Still, costs can always be lower, and Delaware has proven eager to be the host of projects seeking to incorporate the blockchain to make incorporation processes even more cost-effective and easy to access. The state has granted IBM a single-bid contract to establish a blockchain-based corporate filing system. The Delaware Blockchain Initiative takes this a step further, taking a broader approach to solving the issues that face many corporations using the blockchain. With its business-friendly courts and clear corporate legal environment, Delaware will serve as a litmus test for how much impact the blockchain can have to lower the cost of corporate filing. 

Dispute Resolution/Arbitration

Blockchain use cases in the legal industry - Dispute Resolution and Arbitration

In 2018, 2,578 new arbitration cases were filed. Still, 4,868 arbitration cases remain open, and thus far only 2,177 arbitration cases have been closed during the calendar year. And because arbitration cases average 14.3 months to be resolved, these cases prove extremely costly. While arbitration has benefits, it’s been found that these cases can cost over $100,000 per case, even more than the approximate $70,000 price tag that has come with litigated matters. Quality arbitrators can cost as much as $600 per hour, while additional filing fees, court costs, reporters’ fees, and venue rental add to the overall tab of dispute resolution.

Arbitration isn’t going anywhere — it’s too integral in the business landscape — but the blockchain can help lower these time and financial costs. Smart contracts can be established to minimize the chance of disputes, but even if they do arise, an jury of arbiters can be chosen at random from a preselected database, and these arbiters will rely on the details of the smart contract to make a decision. Ultimately, judgment can be levied and payment completed far more quickly and cheaply than legacy methods.

Companies Trying to Solve This Problem

  • Jury.onlineA more transparent and fair oversight process for ICOs.
  • Juris – A blend of smart contract solutions combined with human arbitration.

Chain of Custody

Blockchain use cases in the legal industry - Chain of Custody

A 2014 internal inquiry by the FBI found that “mishandled, mislabeled, and lost evidence” was a serious problem, even for the nation’s top investigative agency. 1,600 pieces of evidence were found to have been checked out of storage for more than four months, while one piece had been checked out since 2006, and another since 2003. Certain offices were found to have mishandled as many as 70% of guns checked into evidence.

Attacking the integrity of the chain of custody is one of the most common means for defendants to get off — just ask Johnny Cochran and Robert Shapiro how well the strategy works. The blockchain is a technology that could put an end to ceaseless paperwork, labeling, and other processes that are currently essential to establishing chain of custody but which are subject to human error. These solutions create unique cryptographic hashes for each piece of evidence, and each time evidence is passed to a new party or is manipulated — a CCTV video viewed, for example — signatures are added to the ledger. This way, by the time a piece of evidence reaches court, there is an immutable, unassailable record of when it was entered into evidence and who all handled it on its way to trial.

Companies Trying to Solve This Problem

Digital Intellectual Property

The FBI has stated that intellectual property theft is on the rise, but the sheer volume of the IP industry makes it difficult to police. In 2014, the industry accounted for $6.6 trillion in value added to the U.S. economy, up more than $1.05 trillion from 2010. This accounts directly and indirectly for 45.5 million jobs, but not all of those jobs may be necessary if the industry chooses to adopt blockchain technology — especially if automation proves more effective than human practices, which have not stopped the increase in IP theft.

IP theft can cost companies as much as $600 billion per year, so the implementation of blockchain-linked algorithms on par with increasingly sophisticated criminals seems a logical idea. Digital IP rights stored on a blockchain will establish immutable ownership timestamps, and those companies and individuals that wish to share their designs and patents securely will have a greater measure of decentralized security. Other potential IP-related uses of the blockchain include establishing and enforcing IP agreements, creating licenses or exclusive distribution networks through smart contracts, controlling and tracking the distribution of unregistered IP, transmitting payments in real -time to IP owners, and more.

About Sam Mire

Sam is a Market Research Analyst at Disruptor Daily. He's a trained journalist with experience in the field of disruptive technology. He’s versed in the impact that blockchain technology is having on industries of today, from healthcare to cannabis. He’s written extensively on the individuals and companies shaping the future of tech, working directly with many of them to advance their vision. Sam is known for writing work that brings value to industry professionals and the generally curious – as well as an occasional smile to the face.