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Why we're open-sourcing ContraxSuite, our open-source contract analytics platform

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LegalTech in the Modern Information Economy

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Why we're open-sourcing ContraxSuite, our open-source contract analytics platform

  1. 1.     July  3,  2017     Chicago,  IL  USA   For  Immediate  Release     WHY  WE’RE  OPEN-­‐SOURCING  CONTRAXSUITE™   LEGALTECH  IN  THE  MODERN  INFORMATION  ECONOMY       I.  OUR  ANNOUNCEMENT     Over   the   last   decade,   we’ve   spent   many   thousands   of   effort-­‐hours   developing   the   contract   analytics  and  document  analytics  tools  that  we  use  with  clients.  These  tools,  based  on  enterprise-­‐ quality  open  source  frameworks  for  natural  language  processing,  machine  learning,  and  optical   character  recognition,  have  allowed  us  to  quickly  and  easily  attack  many  problems,  from  securities   filings  and  court  opinions  to  articles  of  incorporation  and  lease  agreements.   Today,   we   are   proud   to   announce   that   we   plan   to   open   source   the   development   of   our   core   platform  for  contract  analytics  and  document  analytics  -­‐  ContraxSuite.    Starting  on  August  1st,  this   code   base   and   our   public   development   roadmap   will   be   hosted   on   Github   under   a   permissive   open-­‐source  licensing  model  that  will  allow  most  organizations  to  quickly  and  freely  implement   and  customize  their  own  contract  and  document  analytics.  Like  Redhat  does  for  Linux,  we  will   provide  support,  customization,  and  data  services  to  "cover  the  last  mile"  for  those  organizations   who  need  it.   We  believe  that  a  very  important  future  for  law  lies  in  its  central  role  in  facilitating  and  regulating   the  modern  information  economy.  But  unless  we  start  treating  law  itself  like  the  production  of   information,  we’ll  never  get  there.    Before  we  can  solve  big  problems  with  smart  contracts,  we   need   to   start   by   structuring   existing   legacy   contracts.    We   hope   our   actions   today   will   help   lawyers,   companies,   and   other   LegalTech   providers   accelerate   the   pace   of   improvement   and   innovation  through  more  open  collaboration.       II.  THE  RISE  OF  THE  OPEN  SOURCE  ECONOMY   Over  the  course  of  human  history,  many  models  of  economic  development  and  innovation  have   emerged.  Some  of  these  models,  like  the  public  stock  company,  are  quite  new  in  the  scheme  of   things.  Others,  like  the  community  of  "natural"  philosophers  (scientists)  or  mutual  insurance,  are   very  old.  But  in  all  cases  -­‐  whether  intangible  insurance  or  tangible  iPad  -­‐  there  is  a  flow  from  idea   to  execution  to  economic  value.   One   crude   way   of   comparing   these   economic   models   is   to   examine   how   information   is   held   -­‐   publicly  or  privately.  Information,  not  opposable  thumbs,  as  Cesar  Hidalgo  elegantly  explains,  is   the  secret  weapon  of  our  species  –  our  only  defense  against  the  intrinsic  chaos  and  decay  of  the  
  2. 2.     universe.  And  in  the  mode  of  economic  analysis  descended  from  Adam  Smith,  private  information   is  the  key.  Knowledge  and  know-­‐how  enable  enterprises  to  produce  and  profit.  This  principle  of   private   information   has   guided   most   enterprises   over   the   last   few   centuries,   from   the   coveted   trade  route  maps  of  the  18th  century  to  the  modern  Coca  Cola  recipe.   So   why,   especially   in   the   last   half-­‐century,   have   we   seen   the   "open   source"   or   "peer-­‐to-­‐peer"   model   of   information   grow?   Google,   Apple,   and   Facebook,   three   companies   worth   nearly   two   trillion  dollars  combined,  have  given  away  thousands  of  software  projects  worth  billions  of  dollars   in  effort-­‐hour  cost.  Have  we  all  gone  mad?  Or  is  there  something  else  going  on  –  an  emergent  value   to  holding  knowledge  more  publicly  in  the  modern  world?   There  are  many  attempts  to  answer  this  fascinating  question,  and  these  attempts  both  challenge   and  enlighten  our  understanding  of  human  behavior,  economics,  and  law.  However,  especially  as  it   relates  to  software,  we  lean  on  the  words  of  Prof.  David  Agarwal:   "For  many  [...],  software  is  only  a  semi-­‐finished  good  that  generates  little  value  until  the   code  has  undergone  revision  by  the  user.  Thus,  creating  the  ultimate  finished  product  will   require  a  sequence  of  motivating  incentives."       III.  LAW  AS  OPEN  SOURCE  AND  THE  LAST  MILE  PROBLEM   The   first   sentence   above   is   as   true   of   legal   documents   -­‐   articles   of   incorporation,   operating   agreements,   corporate   filings,   contracts   and   agreements   -­‐   as   it   is   of   software.   While   there   are   thousands  of  resources  for  corporate  governance  or  contracting  available  online,  none  of  these  are   "finished"  goods  for  another  party.  In  some  cases,  "finishing"  may  simply  required  updating  the   parties   and   dates,   like   a   restaurant   microwaving   a   pre-­‐cooked   cut   of   meat.   In   other   cases,   "finishing"  may  actually  involve  novel  structures  or  more  creative  redrafting,  like  a  chef  growing   his  own  produce  or  combining  flavors  in  unexpected  ways.   As   to   the   second   sentence   -­‐   "[...]   the   ultimate   finished   product   will   require   a   sequence   of   motivating  incentives"  -­‐  we  arrive  back  to  ContraxSuite.  Software  products  designed  to  assist  in   the  drafting  and  analysis  of  legal  documents  are  perfect  examples  of  semi-­‐finished  goods.  Alone,   no   software   product   can   incorporate   an   entity   or   enter   into   a   sales   agreement   or   manage   the   geopolitical  risk  of  supplier  networks  (let’s  ignore  Smart  Contracts  and  DAO-­‐like  organizations,  for   now).  Only  with  the  assistance  of  legal  professionals  can  this  semi-­‐finished  software  deliver  value   to  the  organization  and  its  clients.   In  our  experience,  few  legal  departments  and  law  firms  debate  that  their  legal  documents  contain   valuable  information.  Analytics  can  provide  insights  into  a  wide  array  of  opportunities  and  risks.   Standardization   can   remove   frictions   for   core   business   operations   and   increase   the   rate   and   quality  of  transactions.   But  when  you  ask  these  organizations  to  pay  a  per-­‐document  fee  for  software  that  almost  always   requires   additional   customization   or   produces   "unfinished"   results,   their   excitement   turns   into  
  3. 3.     hesitation.   Contract   analytic   software,   like   Google’s   TensorFlow   or   the   Linux   Kernel,   does   not   generate  value  by  itself;  human  capital  is  required  to  "cover  the  last  mile"  that  actually  solves  the   problem.    This  is  why  data  scientists  have  not  yet  been  put  out  of  business  by  TensorFlow  and  why   Redhat  and  Oracle  still  "sell  Linux"  for  billions  of  dollars  per  year.   We   have   a   "last   mile"   problem   in   the   legal   arena.   Much   like   Linux   and   data   science,   contract   analytics  is  largely  about  the  combination  of  well-­‐known  practices  with  large-­‐scale,  high-­‐quality   data.  Contracts  are  natural  language  encoded  in  either  analog  or  digital  format,  and  this  language   is  unlocked  and  encoded  with  technologies  like  optical  character  recognition  (OCR)  and  natural   language   processing   (NLP).   These   encodings   are   then   mapped   back   to   real-­‐world   business   problems  through  techniques  like  clustering  or  classification,  two  types  of  machine  learning  (ML)   algorithms.  None  of  these  technologies  or  techniques  above  are  proprietary  or  novel,  and  some   version  of  these  ideas  have  been  available  nearly  as  long  as  there  have  been  digital  computers.   The  real  challenge  in  contract  or  other  related  forms  of  document  analytics  is  to  develop  the  so-­‐ called  "training  data"  -­‐  the  set  of  documents  and  labels  used  to  "teach"  the  machine  what  separates   a  lease  agreement  from  a  purchase/sale  agreement  from  a  retirement  benefits  plan.  Herein  lies   the   true   value   of   the   current   software   and   service   providers.   But,   paradoxically,   almost   all   providers  get  their  information  from  one  of  two  sources  -­‐  either  public  sources  of  agreements,  like   the  SEC’s  EDGAR  database  or  evidence  from  public  courts,  or  private  sources  of  agreements  -­‐  their   clients.   Many   organizations   have   therefore   paid   for   the   privilege   to   give   away   their   own   information  so  that  someone  else  can  profit.   By  open-­‐sourcing  ContraxSuite,  we  hope  to  change  this  dynamic.  The  analysis  and  standardization   of  contracts  and  corporate  governance  material  is  key  to  the  transformation  of  our  economy.  But   blockchain  and  Smart  Contracts  aside,  there  are  significant  improvements  in  risk  management,   compliance,  and  profitability  that  can  be  gained  by  treating  contracts  as  valuable  data.  Until  legal   departments   and   law   firms   can   be   "sequentially   motivated,"   to   borrow   Professor   Agarwal’s   language,  we  will  not  see  this  maturation  of  the  industry.   In  the  near  future,  we’ll  be  revealing  more  details  about  this  open  source  strategy  -­‐  including  more   detail  on  academic  and  industry  partnerships,  support  and  customization  services,  and  our  open-­‐ source  license  model.    In  the  meantime,  we  hope  to  get  everyone  thinking  fundamentally  about   how  we  do  business  in  legal  tech.  What  does  the  client  really  want  -­‐  your  software  license  or  a   sustainable  solution?       IV.  A  CHALLENGE  TO  PROVIDERS,  DEVELOPERS  &  CUSTOMERS   While  some  in  the  legal  technology  community  will  certainly  taut  their  ability  to  outperform  our   open  source  framework  on  some  use  cases  today,  we  believe  that  they  will  find  themselves  on  the   wrong  side  of  history.    We  encourage  others  in  legal  technology  and  related  domains  to  follow  our   lead  and  think  hard  about  whether  closed  code  is  really  the  right  strategy.  By  committing  to  open   source  and  allowing  others  to  validate,  improve,  and  maintain  our  shared  infrastructure,  any  gaps   in  quality  or  functionality  will  soon  fade  away.  
  4. 4.     More   critically,   the   hype   and   "vaporware"   that   pervade   legal   technology   do   a   disservice   to   the   overall   efforts   towards   innovation.    We   would   like   to   move   the   field   forward   through   the   hard   work  of  iterative,  open  methodological  improvement.  This  hype  and  vaporware  has  been  enabled   by  a  lack  of  transparency  and,  to  be  honest,  a  lack  of  sophistication  on  behalf  of  customers,  but   going  forward,  both  the  consumer  and  developer  community  should  be  able  inspect  the  quality  of   any  existing  offering.  Our  co-­‐founders,  as  leading  educators  of  the  next  generation  of  attorneys,   have   committed   to   making   sure   that   the   General   Counsel   and   Managing   Partner   of   the   future   won’t  be  fooled.    Others  can  chase  the  temporary  rents  of  the  middle  game,  but  we’re  here  to  make   moves  that  support  the  long-­‐term  maturation  of  the  overall  legal  industry.    We  hope  you  will  join   us.             Michael  J.  Bommarito     Daniel  Martin  Katz   CEO  @  LexPredict       CSO  @  LexPredict          

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