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Digitalisation and innovation

The pace of change is welcome but poses challenges


Digital transformation and innovation have been supercharged by the COVID-19 crisis, but this has also raised a number of risks and potential liabilities, along with further questions around lagging regulation.

These developments have created a wealth of opportunity for business growth and new service lines. They have also enabled certain industries to move into other sectors, such as tech businesses developing healthcare products and services.

In the legal sector, we are seeing the full impact of major trends such as smart contracts, artificial intelligence (AI), the Internet of Things (IoT) and the wider industry 4.0 phenomenon.

The digital environment that we all depend on has undergone a metamorphosis. IT infrastructure largely moved from proprietary data centres to the cloud some years ago. The use of new business processes, intelligent technologies and robotics has altered internal business operations.

Yet we are also often limited by the technology that supports us. “Many media companies have actually accelerated the launch of their OTT streaming services in Asia to meet a growing demand,” says Sheena Jacob, an Intellectual Property partner at CMS Singapore. “But at the same time, we saw governments asking some of these media players to reduce their streaming quality, given the limitations of internet bandwidth available to the market for other uses during this demand for streaming during the pandemic.

Smart contracts and the supply chain

We have experienced rapid growth in contract automation, where financial institutions, in particular, appreciate the speed of execution when bespoke contracts are not necessary. This is developing into a transformational domain where onboarding of clients involves a combination of blockchain and smart contracts. It is especially effective in supply chains.

CMS’s South Africa team is currently working on an experimental meat production platform, which effectively tracks the animal from conception to the supermarket shelves. It details the animal’s feed, its location and who the owner is. “The smart contract element that is connected to the process ensures that all parties that are involved in the supply chain get their financing automatically. You could say that each trigger is included in the blockchain,” comments Pieter van Welzen, a senior consultant at CMS South Africa.

Beyond this specific example, there are many opportunities to use technology to monitor ESG policies and processes throughout the supply chain to ensure that potential liabilities are mitigated against and reputational damage is not suffered.

In a similar way, the use of AI for ‘know your customer’ (KYC) processes is becoming a popular strategy for financial institutions and other organisations.

Sector fusion

As part of the wider evolution of digital transformation and innovation, there has been a notable upswing in organisations moving into new industries. Several tech businesses, for example, have launched healthcare products and services. Amazon and Google are prime examples.

By exploiting available data, there are opportunities to create bespoke treatments and healthcare plans through digital health services. “Many new players are entering the healthcare market, which is interesting. Telemedicine is still a big topic – there are however a lot of legal questions around it and a lot of uncertainties,” comments Gabriela Staber, a Life Sciences and Healthcare partner at CMS Austria.

The value of data and intelligent technologies

Data analytics has been one of the most impactful trends in legal services. In many instances, it augments the decision-making process by outlining more predictable outcomes.

In the regulatory sphere, data analytics can pinpoint where fines are most likely to be issued or where authorities are more likely to take a rather lenient or pragmatic approach. In the data protection field, many clients are using newly-developed CMS tools to address the ongoing effects of GDPR.

These are just some examples of the transformative effects of technology in the legal sector. Standardised or commoditised work can now be processed by technologies and AI. Huge databases can be analysed by intelligent solutions more effectively and efficiently than a first- or second-year associate.

According to Markus Häuser, Head of TMC at CMS Germany: “This might sound like humans are being gradually replaced by robots and computers, but industry 4.0 means that the world is becoming more complex. There will be work for lawyers to tackle the challenges that derive from this complexity.” 

The key for the legal services sector is now to find ways of training more junior lawyers and staff who are no longer learning through tasks that are now handled by machines.

Assessing future risks

The progression of AI, blockchain, robotics and other transformational technologies raises questions for the legal profession and virtually every industry on the planet. Inevitably, we will see more interaction between robots, computers and humans. We will continue to experience a technological change that could never have been anticipated.

The problem for many businesses is the lack of certainty. The pace of innovation outstrips the ability of regulators to establish frameworks and rules on a timely basis. Technology will always be more advanced than the legal landscape. Blockchain is one area where regulation may take time to catch up with a rapidly evolving landscape. For example, where blockchain is used to transfer assets or transfer property rights, would this have a legal effect?

The advent of technologies now taking on human tasks means there are further questions around liability. In the case of automated vehicles, is the owner or ‘driver’ liable in the case of an accident, or would the vehicle manufacturer be legally responsible? Where the fault lies in a particular component or technology, liability may pass down the supply chain.

Or where AI is used to identify medical conditions, could the doctor still be held clinically liable in the event of misdiagnosis? Can an invention created by AI be protected by a patent or copyright?

From a legal standpoint there are still a huge number of uncertainties and complexities to overcome. The impact of digitalisation and innovation is clearly to be welcomed, but human intelligence will still be vital in tackling the complexities that technology can’t yet address.

Key contacts

Sheena Jacob
T +65 6422 2851
Pieter van Welzen
Senior Consultant
Banking & Finance
T +27 (0) 82 542 0172
Gabriela Staber
T +43 1 40443 4850
Dr. Markus Häuser
Rechtsanwalt | Head of TMC, CMS Germany
T +49 89 23807 305