In-house lawyers grappling with AI impact, says Lex Mundi

A report from international law firm network Lex Mundi says General Counsel are grappling with how AI technologies are reshaping their companies and the business environment, creating unchartered areas of corporate liability exposure and new regulatory challenges.

The report, Big Data and Big Brother: How General Counsel cope with Artificial Intelligence in an era of economic nationalism, brings together three practical areas where vigilance is needed from General Counsel, as even traditional industries become digital players and business models evolve:

Governance

The composition of boards may need to be adjusted to ensure the right mix of expertise, to avoid conflicts of interest, and to comply with the regulation of data. Companies will need to consider having an ethical and governance framework for AI that is cascaded across the business. Never has the “tone from the top” been so important.

Compliance

Companies may stray into new industries and become subject to unexpected regulation. AI may be used by authorities to surveil companies, industries and markets, creating unprecedented liability. Authorities may expect companies to leverage AI capabilities for compliance monitoring, including third parties, which would render compliance programmes built for the “analog-era” inadequate.

The legal function

Members of the in-house team will need to be trained on what to look for and get involved in product development, in order to anticipate new regulatory exposure. The legal department may require specialists in data science. The legal team will lead, or at least be involved in, the development of the company’s legal and ethical framework for AI, including training the business.

Legal tech investments well over US$1 billion in 2019

Legal technology deals and investments stayed on a fast track in 2019 as the sector became increasingly relevant to how Big Law firms and corporate legal divisions operate, Bloomberg Law has reported in an end-of-year review.

Reporter Sam Skolnik says legal tech investments “flew past” the US$1 billion mark by the end of the third quarter of 2019, after hitting that mark for the first time in 2018. He says by the end of Q3 2019, legal tech investments were US$1.23 billion.

“Several significant mergers and acquisitions also were announced in 2019, another sign of legal tech’s maturation as a market sector. Perhaps chief among them: EY’s purchase of legal managed services company Pangea3 for an undisclosed amount. It’s a deal believed by some to be one of the most expensive legal tech buys of all time,” says the report.

Draft algorithm charter under consideration

Submissions closed on 31 December 2019 on a draft algorithm charter which would commit government agencies to use algorithms in a fair, ethical and transparent way. Initiated by Statistics NZ, the one-page draft follows a 2018 review by the Government Chief Data Steward of how agencies use algorithms. This found there was room to promote good practice across the data system.

The draft charter draws on the Principles for the Safe and Effective Use of Data and Analytics co-designed with the Privacy Commissioner. It sets out specific actions for agencies to ensure they have the right tools and safeguards in place to increase transparency and ethical practice.

Heard of WeChat? It’s really big …

In December, China’s Supreme People’s Court released a policy paper which stated that it is committed to developing digitisation to streamline case handling in its court system. This includes a “mobile court” which was launched in March 2019 on social media platform WeChat and which has already handled over three million cases or other judicial procedures. Now, in 12 regions, the mobile court lets users complete case filings, hearings, and evidence exchange without needing to appear physically in court.

WeChat, owned by Chinese company Tencent, has over a billion monthly users. It started as a messaging service in 2011 but has now become an app which can manage most aspects of daily life, from payments to booking taxis or doctor’s appointments and applying for jobs. On 5 January 2020 the South China Morning Post revealed that the Government is rolling out WeChat-based electronic social security cards in 26 cities. As long as you have a Chinese bank account, you can link to WeChat. Every WeChat user has a unique barcode, or QR code. It is one of the main ways people communicate in China.

Alongside the mobile court details, judicial authorities demonstrated China’s first “cyber court”. This was established in Hangzhou to deal with legal disputes with a digital aspect. The demonstration featured an online interface in which litigants appear by video chat. An AI judge – shown by an avatar on screen – asks them to present their cases. The cases handled at the court include online trade disputes, intellectual property cases, and e-commerce product liability claims. Since establishing the Hangzhou court, China has set up cyber courts in Guangzhou and Beijing.

“Legal arms race” threatens cross-border internet

Major new research on internet jurisdiction trends has found that 79% of surveyed stakeholders consider there is insufficient international co-ordination and coherence to address cross-border legal challenges on the internet.

The Internet & Jurisdiction Global Status Report was released on 27 November at the United Nations Internet Governance Forum in Berlin. It combines detailed desk research with a global data collection from over 150 key stakeholders – states, internet companies, technical operators, civil society, academic and international organisations.

The report says there is a “dangerous spiral of uncoordinated policy making”.

“At a time when the world has never been so interconnected, reactive and quick-fix, unilateral regulatory initiatives proliferate to tackle new digital challenges. This legal arms race is threatening the future of the cross-border internet, unless actors actively coordinate.”

New Zealand’s Domain Name Commissioner Brent Carey and InternetNZ Chief Executive Jordan Carter were participants in the research.

The research also found that 95% of participants see cross-border legal challenges on the internet becoming increasingly acute over the next three years.

Only 15% believe New Zealand has the right institutions to address those challenges.

“Much of what has been done to date sought to solve global problems through a national lens,” the report says.

“However, the constant flux of digital innovation and the transnational nature of the internet makes it increasingly challenging to address online abuses with traditional national legal tools. Moreover, as transnational interactions become the new normal, people and entities are often unable to determine their ‘contextual legal environment’, ie, all the states’ laws and other norms that apply to their activity online at a given moment.

“Due to extraterritorial assertions of jurisdiction, in some regions, individuals, organisations and even states are concerned that they are subjected to online rules developed without them in a country far away.”

A high cost of inaction

Stakeholders of the Internet & Jurisdiction Policy Network stressed that not addressing jurisdictional challenges would come at a high cost: the question now is not whether to regulate but how, and by whom.

“As pointed out by one surveyed expert, the internet is neither the problem, nor the cause of the problem. Indeed, the internet risks becoming the victim of our lack of appropriate governance mechanisms.

“The task that lies before us all demands governance innovation: it involves developing the standards for legal interoperability and policy coordination, so that we are equipped with methods and tools that are as transnational, distributed, scalable and resilient as the internet itself. What is at stake is nothing less than the future of the digital society that we collectively want – for us and for future generations.”

Powers to order decryption may need more safeguards

A University of Waikato research report, A matter of security, privacy and trust: A study of the principles and values of encryption in New Zealand, says the power of government to order users and companies to decrypt encrypted data and devices needs stronger privacy protection and additional safeguards.

The report says the problem with current legislative powers is that there are no express standards and guidelines on how they are carried out. This is especially in relation to human rights, and there is a potential for misinterpretation, misapplication and possible misuse of the powers. Focus group interviews by the researchers indicated New Zealanders place the greatest importance on privacy, data protection and information security when using encryption.

The researchers recommend that the right or privilege against self-incrimination should be more strongly recognised in computer searches, and that anyone suspected or charged with a crime should not be forced to disclose their passwords.

The principal researchers were Dr Michael Dizon, Associate Professor Wayne Rumbles and Professor Ryan Ko. The study was funded by both the University of Waikato and the New Zealand Law Foundation.